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The little incentives

The idea of a universal basic income has been growing in popularity in the recent years, and I've taken both sides of the argument at different times. It is such an interesting topic with such wide implication for the way we organise societies that I'm constantly coming up with reasons to pursue this as well as not to pursue this.

The idea is a simple one. Give everyone born on this planet enough money to cover their basic essentials so that they don't have to work unless they do not want to. And this idea has been growing in popularity in correlation with another idea that has been growing in popularity - that all the menial jobs will be automated (like driving cars and trucks, cashiers at stores, etc) and done by computers and robots, flooding the market with a lot of people previously employed in these trades that can't easily upskill themselves to find work as software engineers, dentists or the like.

One of the popular arguments for this idea is that when people are guaranteed a basic lifestyle - food, internet, shelter, clothes, education, healthcare - they will have enough time on their hands to take risks without worrying about putting food on the table. This will result in a higher number of entrepreneurs and small business owners that will in turn boost the economy enough for the government to earn enough money through taxes to pay every citizen a basic income.

I've been thinking about when someone would quit their current lifestyle (whatever it is) and start a business. It is a perceived risk/reward ratio. The risk/reward ratio of the current lifestyle has to be lower than the risk/reward ratio of the lifestyle that involves starting a new business.

The risk and rewards needn't be purely monetary (they often aren't) and can include everything from ambition to social status. The effort one has to put in to learn something new or take on the responsibility of starting, growing and running a business adds to the risk. For example, if you are unemployed and sitting at home watching Netflix all day while getting a basic income of thousand dollars a month, you might be unwilling to take on a job that pays thousand five hundred dollars a month and needs you to work eight hours a day. The added effort for the added reward doesn't tip the risk/reward ration in favour of the job. But if the pay was ten thousand dollars a month instead, then you would take the job because that tips the ratio in the other direction.

As technology advances, things get cheaper. It is cheaper to not cook at home today, it is cheaper to take a taxi to go somewhere, cheaper to watch something on TV, cheaper to surf the internet, cheaper to make calls, and so on.

This means that the risk/reward ratio gets harder and harder to flip over to convince someone that they should quit their current lifestyle and start a business.

Providing everyone a basic income makes this even harder. The more effort that is needed to make a remarkable improvement in someone's lifestyle, the less likely they are to do it.

And this will quickly result in a peak at the top one percent and a peak at the bottom with very little in between.

What we had decades ago was more of an even distribution from one socio-economic class to the next. So, the risk/reward needed to convince someone to work a little harder to rise up to the next level (which was within reach) was low enough that enough people would do it and climb the ladder. If the next level is out of reach (needs a lot of effort to get there), then people don't make the attempt and do the minimum needed to get by.

This is why big corporations have a lot of levels in each role. So, that there is incentive for every employee to work that little bit harder and get promoted to the next level, even though they are ten or more levels removed from the CEO. Those pursuing a flat hierarchy make it a lot harder to motivate employees to do that little bit harder because a little bit harder isn't enough to get promoted to the next level. A lot harder is what is needed. And most employees default to not doing any bit harder and do the minimum expected to get by.

This is the difficulty that universal basic income has. 

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