Universal Basic Income and the Artificial Intelligence Revolution: A jobless future with purpose
October 1, 2024
Topic of the week:
On 1 January 2017, the Finnish government embarked on a pioneering social experiment: 2,000 unemployed people aged 25-58 would receive €560 per month, completely tax-free and without conditions. The idea was simple: to test whether receiving a universal basic income (UBI) incentivised employment and welfare. Depending on who was asked, the results were either a resounding vindication of the UBI as a concept or confirmation that the whole thing was a waste of time and money.
On the employment side, the results were, well, nothing special: while the RBU did not discourage work, it did not dramatically boost employment rates either. But the welfare data were a different story. When asked about their sense of life satisfaction on a scale of 0 to 10, basic income recipients reported 7.3 versus 6.8 for the control group (non-recipients). Participants reported significantly better mental health, less stress and greater financial security. This is a significant difference.
Since the experiment in Finland, there have been multiple pseudo-RBI programmes, the most notable taking place in Spain with the Minimum Living Income that was launched in 2020. But so far no country or government has dared to implement a nationwide programme. That could be about to change soon. If the predictions about Artificial Intelligence (AI) made in Silicon Valley are true, RBU could become standard practice sooner than we think. The ‘godfather’ of Silicon Valley venture capital, Vinod Khosla, recently stated that he expects AI to take over 80% of the work in 80% of jobs, ‘whether it’s primary care doctors, psychiatrists, salespeople, oncologists, farm workers or assembly line workers, structural engineers, chip designers, you name it’.
Nor is Khosla alone in predicting this: it’s pretty much the consensus view in Silicon Valley. So how would it work? In the age of AI, RBU would likely involve a combination of progressive taxation, wealth taxes on corporations that benefit from automation and levies on the profits generated by AI. Governments could also introduce taxes on data usage or digital transactions, reallocating these revenues to fund GDPR programmes.
For those who would benefit from the RBU, the value proposition is intoxicatingly attractive: we would all work three days a week and have more time for family, friends and creative activities. Not bad. And that could be just the beginning. Some estimate that in the coming decades we could all work just a few hours a week. In this hypothetical, but highly plausible scenario, it is likely that the RBU will not be seen as a luxury, but as a fundamental human right. It is not difficult to imagine a world 30 years from now in which we think of UBN in the same terms in which we see universal health care today (at least in Europe).
However, as utopian as one day of work a week may seem, AI maximalists like Khosla often miss an important part of the calculus: as much as people tend to complain about work, for most of us it gives us a sense of purpose. Work gives us a reason to get up in the morning. And to extrapolate further: for many it is part of our identity. When it comes to purpose and identity, it is something that is hard to put a price on.
The beacon of the markets:
The weekly performance of the equity markets was quite positive, especially for the Chinese stock markets, which reflected in their prices the stimulus measures announced by the authorities, and which continued yesterday just before closing until 7 October for the local holiday. The CSI 300 has accumulated a rise in the last 4 sessions of 25%, rising from 3,200 points to over 4,000 points at the close of September.
The impact of the stock market reaction in China was clearly reflected in the European indices, with the Euro Stoxx 50 rising +4% and the Ibex 35 +1.82%, Europe being China’s main trading partner. On the other hand, the US indices, which were behaving similarly to the European indices, saw Friday afternoon’s sell-off wiping out a significant part of the weekly gains, leaving the S&P 500 up +0.52% and the Nasdaq 100 up 1.10%, far from its highs. Once again it is worth noting that the S&P 500 set a series of new all-time highs at the close of the session, leaving the ceiling at 5,772.8 points.
Debt markets reflected the two realities of economic growth on both sides of the Atlantic. US debt remained very stable at yields close to 3.75% for the 10-year Treasury, once the Fed’s decision was known and macroeconomic data supported the economy’s good performance in a context of a slight slowdown. On the other hand, European macroeconomic data, with PMIs clearly below estimates and the composite indicator below the expansion zone at 48.9 points against an estimate of 50.6, continued to show the fragility of the French and German economies, allowing the cost of debt to correct to 2.14% for the Bund and 2.93% for the Bono. There are two main reasons that have affected this fall in yields: on the one hand, France is warning of the risk of exceeding the 6% public deficit, which is why the coalition government is considering a series of tax hikes, and on the other hand, the Fed’s 50 bps cut has given the ECB additional room for manoeuvre to continue with its interest rate tightening policy.
As for commodity markets, we find gold near all-time highs, (like the S&P 500, it has set a new intraday all-time intraday high at 2,696.90 USD/Oz), supported by lower interest rates and particularly strong demand from some entities. As for the price of crude oil, the week closed with a notable drop in price to 72 USD/b, representing -3.37%. This fall does not accompany the movement of the stock markets, which is surprising to say the least, since if the markets are rising, it is because they are anticipating good levels of economic activity, a fact that is reflected in commodities with price rises. In addition, the situation in the Middle East is becoming even more complicated, which should have helped oil prices to rise. We will keep an eye on developments and see if this anomalous effect on Brent prices corrects itself.
For the current week the market will be closely watching the CPI data in Europe, which is expected to fall below the benchmark of 2% and up to 2.7% for the underlying data. In the US, the most important references will be the employment data with the Jolts, ADP and unemployment rate and the non-farm payrolls data. In addition, OPEC will meet and could announce new measures to raise crude oil prices.
The quote:
And we bid farewell with the following quote of Paulo Coelho de Souza, Brazilian novelist and playwright: ‘Small things are responsible for big changes’.
Summary of the performance of major financial assets (9/30/2024)
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