MAY 2019 ISSUE 19
DUBAI KEYNES SOCIETY A DUBAI COLLEGE INITIATIVE
WHAT'S INSIDE? AWARD WINNING FINANCIAL TIMES ARTICLE CORONAVIRUS UPDATES EDITORIALS FROM OUR GUEST SPEAKERS
"It would be foolish, in forming our expectations, to attach great weight to matters which are very uncertain."Â
JOHN MAYNARD KEYNES
TABLE OF CONTENTS Will COVID-19 be good for the environment in the long run? - Aanya Gardi When the Fuel Dies : Oil Prices Plummet to Below $0 - Advika Sengupta The Impact of COVID-19 on Inequality - Anavi Madnani The Disney-Fox Merger - Arsh Jagada Is UBI is the best solution to handle the large scale displacement of labour due to automation in the coming years? - Arcadia CiprianiÂ
EDITORIAL With Dubai College being closed due to the COVID-19 pandemic for the forseeable future, we regret that we are unable to hold our weekly meetings with talks, debates, and guest speakers. Nonetheless, we have, in the past few weeks, reached out to certain members of the Dubai Keynes Society to write articles, some regarding the economic and social uncertainty created by this crisis, to publish in a newsletter, in a bid to maintain one of the other aspects of the Dubai Keynes Society. We are proud to bring to you our nineteenth issue, despite the challenges posed by social distancing. We hope these articles can provide some perspective on the issues that the global pandemic have brought to light. Finally, on behalf of the other DKS heads, we hope you and your families are all staying safe in these trying times. — Tiya Bhatia, Editor
Knowledge capsules An initiative by Viha Kedia
Before we get started on the articles, we wanted to share with you all an initiative started by a Keynes Society member, Viha Kedia. We at the Keynes Society applaud Viha's efforts to engage in current affairs and restore a sense of normalcy to student life in the midstof the ongoing situation. Viha describes this project as follows: "I started an initiative called  'knowledge capsules'. This is centered towards building the current affairs knowledge base of students and associated. It is a fun and light hearted approach towards making students empathetic about their environment in short capsules. This will be communicated in the best colloquial way possible, making them funny to stick to the masses, and less demanding to students and larger audiences alike." Some of the topics that may be covered in these 'knowledge capsules' in the future include stories about the coronavirus pandemic, helicopter money, and negative oil prices. Below is a QR code to one of the first inputs for this initiative.
Will COVID-19 be good for the environment in the long run? By Aanya Gardi
It is important to note that the huge number of deaths that have already been reported and the hundreds of thousands projected, clearly show that the virus is not good in any way. So whilst I am analysing some of the positive environmental gains that come as a result of the virus I absolutely am not insinuating that the virus is “good news” or that the gains are worth the pain and death.
INTRODUCTION The corona virus is clearly the biggest issue affecting humanity today, and with over a third of the world’s population in lockdown the environment is getting a so called “break” from pollution. Goats are running through the streets of Wales, Omani cownose rays have been spotted swimming in Dubai Marina and the Himalayas can be seen from 230km away for the first time in almost 30 years! But nature’s restoration is just one side of the story. Medical waste is being washed up on beaches, plastic packaging waste has risen by more than 20% and policy makers have put the climate crisis agenda on one side. So "is it just a cyclical blip and then we just carry on as before? Or are we actually going to… start to make the sort of structural changes that we need to get on a different track and actually start moving towards net- zero emissions?" Simon Evans asks. This essay aims to decipher the real truth behind the alleged improvements to the environment and whether COVID-19 is the elusive key to fighting the climate crisis, or whether this is all just a fleeting change?
HUBEI
As the lockdown began and stringent measures were put in place roads emptied and factories closed. NASA’s Goddard Space flight Centre observed a significant drop in the area’s level of air pollution as shown by the images below. When comparing satellite images from the same dates in the same locations a year later there is a clear drop in the density of nitrogen dioxide. Whilst of course this is due to COVID-19 closures it is important to note that Chinese New Year factory closures coincide with these dates also and contribute to the fall in nitrogen dioxide density.
CHINA Across the country there has also been a significant drop in pollution levels can be observed. Emissions fell 25% at the start of the year as people were instructed to stay at home, factories shuttered and coal use fell by 40% at China’s six largest power plants since the last quarter of 2019. The proportion of days with “good quality air” was up 11.4% compared with the same time last year in 337 cities across China, according to its Ministry of Ecology and Environment. Marshall Burke, an air quality researcher at Stanford University said that it is the“first time I have seen such a dramatic drop-off over such a wide area for a singular specific event” and concluded that this drop in pollution could have saved the lives of 4,000 children under the age of five and 73,000 adults over 70. But “it seems clearly incorrect and foolhardy to conclude that pandemics are good for health” “but the calculation is perhaps a useful reminder of the often-hidden health consequences of the status quo”.
GREENHOUSE GAS EMISSIONS The quantity of Greenhouse Gases emissions released into the environment has also fallen for the same reason: when manufacturing and transport facilities are forced to close down the damage they cause also drops. This has been compounded by the major drop in air travel due to travel restrictions and Government mandates. The Airports Council International have reported that in the first 3 months of 2020 compared to the same period in 2019 there were 67 million fewer passengers. IATA could experience a 19% loss in worldwide passenger revenues, which financially equates to roughly a $113 billion loss. So this is clearly bad news for the economy...but good for the environment.
LONG TERM GAINS However the bad news these gains are likely temporary. The first thing to consider, says Kimberly Nicholas, a sustainability science researcher at Lund University in Sweden, is the different reasons that emissions have dropped. Transport makes up 23% of global carbon emissions. Transport-related emissions have fallen in the short term in countries where public health measures, such as keeping people in their homes, have cut unnecessary travel. Driving and aviation are key contributors to emissions from transport, contributing 72% and 11% of the transport sector’s greenhouse gas emissions respectively. However, as some airlines go out of business we can expect other airlines to replace them in the future. There is no no reason to drive the argument for long-term drop in flights. Any redemmention is likely to all go back to normal after this ends.
“This drop is not due to structural changes so as soon as confinement ends, I expect the emissions will go back close to where they were” says Glen Peters of East Anglia University. These short-term benefits aren’t likely to continue so silver linings are very limited as there has been no systematic structural change. Thus, we are likely to regress back to previous activity after lockdowns have been lifted. This was observed after the overall dip in emissions of 1.3% in 08-09 that had quickly rebounded to an all time high by 2010 as the economy recovered. Also there is the possibility that when Governments try to restart economies pollution will increase to unprecedented levels. For example, following the financial crash of 2008-9 the Governments spent billions on projects to kickstart the economy giving tax credits to manufacturers, investment into infrastructure. Whilst, this was great for getting the economy back up and running it took a serious toll on the environment. Countries after the corona crisis could pollute more than ever to get economies and businesses back on track and with record-high stockpiles production will quickly pick back up. Another less direct way the coronavirus could have a longer-term impact on the environment.The issue of saving lives and combating the virus takes precedence over methods to mitigate climate change. Moreover, is that it could push the climate crisis off people’s minds, as the more pressing concerns take over.
SHORT TERM GAINS Even in the short-term it is not all good news from an environmental perspective. As people continue to practice social distancing behaviour has changed. Many individuals have switched from using public transport to cars which could have serious longer term implications if this causes habits to change. Even when the confinement period ends individuals will be more apprehensive to use public transport for fear of transmission.
Consumer’s habits have also changed when it comes to purchasing groceries. More people have shifted to buying more pre-packaged food to limit chances of contamination. Moreover, the virus has produced large amounts of medical waste. As observed in Wuhan medical waste is x7 the usual levels. This waste cannot be recycled or disposed of in an environmentally friendly way. Instead, it has to be destroyed to prevent further transmission or contamination. This pollution is harmful to the environment in both the short and long term.
CONCLUSION Whilst the virus has reduced levels of pollution during these periods of confinement it has also led to some undesirable effects of “unintended consequences”. The bottom line is that the world still continues to produce huge quantities of waste, and with policy makers paying less and less attention to the environment there is even less hope. Christopher Karnas Cass of the Department of atmospheric and oceanic sciences at the university of colorado boulder said “I don’t see any way that this is good news except for proving that humans drive greenhouse gas emission”. Cass suggests that the only environmental benefits is that it proves the causation relationship between human activities and environmental damage. Any positive environmental impact in the wake of this abhorrent pandemic, must therefore be in changing our production and consumption habits towards cleaner and greener. Because only long-term systemic shifts will change the trajectory of CO2 levels in the atmosphere. So, in the aftermath of the crisis, when economic stimulus packages composed of infrastructure are designed, there is a real opportunity to meet that demand with green packages of renewable energy investments, smart buildings, green and public transport. COVID-19 will give us a fresh start to change our actions and help save our environment before irreversible chain reactions are set off and it is too late.
When the Fuel Dies : Oil Prices Plummet to Below $0
By Advika Sengupta
In the last week we witnessed history, Oil prices had gone negative! Not –1 or –2 but up to –40. So here is a very brief explanation as to what exactly is going on. The oil traded is mostly through futures contracts, there is also a spot price which comes into account while arriving at “theoretical futures price”. There are two main types Futures Contracts (there are others however these are the main ones) which is the WTI and the Brent. WTI is the West Texan branch, which is from North America, the Brent contract refers to the oil from the Middle East, Europe and Russia. The “oil price” that’s gone to negative is actually the settlement prices for Crude Oil futures which is the May delivery contract, and since there is no demand for oil as quarantine means no labor thus all the firms and factories are shut down and no one is using cars or public transport to get to work . There is very little to no demand for oil thus demand shifts inwards and the price of oil decreases.
ABOVE: DALLAS, TEXAS. THE MAJORITY OF THE UNITED STATES' OIL SUPPLY COMES FROM TEXAS.
Another problem is as these tons of oil get delivered, they would be required to be stored and that is expensive and a waste of space as they have no use for it. Thus, the prices dropped as the date of delivery got closer and closer even to the point of paying people to store the oil as it would be a waste of money and an opportunity cost. To add some more complexity, there are two forms of settlements for Crude Oil Futures Contracts e.g. Net Settlement and Physical Delivery. Net Settlement allows the buyers of the contracts to settle the financial difference between the buying price and the settlement price, however if a buyer of a Futures Contract does not opt for the net settlement on or before the “notice date”, which passed last week for the May 2020 delivery. Then they are assumed to be physical delivery of the quantity of crude oil they bought. Therefore, the prices went negative as people either did not have any place to store this oil thus were paying some refiner or buyer to take it off their hands by paying them. This created a unique situation that has never happened before! However, the June delivery WTI futures are currently trading in the positives e.g. right now it’s trading for $17.18 and the Brent futures are trading for $25. This means that US crude oil producers are now facing a dilemma and if they. ABOVE: GROUNDED AIRPLANES AT TERMINAL 3 OF DUBAI INTERNATIONAL AIRPORT. THE MAIN USERS OF OIL, INCLUDING PLANES, ARE NOT BIENG USED: CREATING A SURPLUS OF OIL SUPPLY.
and if they don’t stop drilling they will have to give the oil away for free and or pay people to store it as they will eventually run out of space or storage will just become far too expensive. This oil can’t be dumped or disposed of as that would cause massive environmental problems and lots of negative externalities and result in billions of dollars of penalty. Oil is such a commodity that it is necessary in these times to produce or manufacture almost anything, even though it is harmful to the environment the transition from oil to other sources of energy will still take some time. Right now, the demand for oil is low because of the abnormal situation we are in, the main users of oil (planes, ships, production) are not being used thus creating a surplus of supply of oil, however this situation is not permanent nor sustainable as countries' economies would completely crash. Governments would eventually force economies to open and life will eventually go back to normal. Thus, oil would eventually become a necessity again causing its prices to skyrocket as the demand surges and the supply is extremely limited as most companies would be producing very little to none. That is why it is recommended to invest in oil: it is incredibly cheap right now and has the potential to gain you some incredible profits! I bought some contracts of oil for $0.50 each and sold 100 of my barrels yesterday and made a profit of $1700. — Advika Sengupta
"I bought some contracts of oil for $0.50 each and sold 100 of my barrels yesterday and made a profit of $1700"
The Impact of Covid-19 on Inequality By Anavi Madnani
A recent survey highlighted the increased ease at which workers earning over $70,000 per year could remotely complete tasks, versus those making less than $40,000 per annum. Those with the higher incomes would thereby find it easier to retain their source of income throughout this self-isolation period compared with those of lower incomes. This would exacerbate preexisting income inequality, the extent to which depends on how long quarantine lasts. Additionally, unemployment or a reduction in incomes would be more prevalent in service industries that cannot operate remotely. This could widen the inequality gap which the government needs to help remedy. Another impact that negatively impacts inequality is the inability for many to self-isolate. In the United States of America alone, there are over 560,000 homeless people who would find it extremely difficult to participate in selfisolation. Though there are many charities and organisations in place in order to ease this transition to minimise the spread of disease, it is difficult to eliminate the spread. It therefore must be acknowledged that homeless people are more susceptible to the virus. However, this does not relay onto the treatment that patients would receive. Regardless of whether or not a patient has health insurance, they will still be treated for the virus “without being worried about facing thousands of dollars in hospital bills� as said by Karyn Shwartz, a fellow at the Kaiser Family Foundation. Even though this does not rectify how homeless people are more likely to catch the virus, it does eliminate a potential inequality in the treatment of coronavirus patients.
The American government is currently putting $4.5 trillion towards bailing out large corporations and helping stimulate aggregate demand through this. Whilst corporate debt is being managed, who is taking care of student debt? Though large corporations are receiving these bailouts, self-employed workers who have accrued high student debt will still be pressured to pay these back in a timely manner once uncertainty begins to decrease. With the times of uncertainty that we currently live in, the role of the public sector needs to be more prominent than ever to act as a shield for the firms and individuals suffering from this pandemic. Increased fiscal policy is necessary to allow for this and to reduce any widening of the inequality gap.
The Disney Fox Merger By Arsh Jagada
In December 2017, a deal between 2 major companies in the film market (Finance Monthly, 2018) was announced; Disney will be taking over assets of Fox. The Walt Disney Company’s acquisition of 21st Century Fox means that the already behemoth of a media company now controls a huge amount of our most beloved films and television series: their combined assets are projected to gain up to 39% of theatrical market share (2018). It ranks among one of the largest mergers in history, expecting to take up until 2021 and costing 66.1 billion dollars (2018). Some of the largest entertainment properties that we all know and love are now owned by Disney and their subdivisions such as: X-Men, Fantastic Four and The Avatar Franchise. So, what are the implications of Disney becoming a monopoly of the film market in the future? To answer this question, we must first ask whether Disney is/can become a monopoly and why the government has not yet intervened. So, let’s go over a few scenarios. A pure monopoly is a market controlled by one seller with a
ABOVE: DISNEYLAND. DISNEY WILL BE TAKING OVER ASSETS OF FOX.
good/service that has no close substitutes (Rob Jones, 2017). However, in most countries there are also legal monopolies which are sometimes considered as companies with more than 25% of the market. These are considered monopolist. This is why Disney could be considered to have monopolistic characteristics (Ben Thompson, 2017). Despite this, they are not the only company providing films, nor are they forcing consumers to purchase tickets for their films; there are other companies you can buy from (Warren Meyers, 2018), meaning there is consumer choice. A better example of a monopoly would be a situation such as in the USA where the only electricity, water, and gas provider is Con Edison. This is because consumers cannot buy from anywhere else.
"this is not to say that Disney may not one day become a sort of monopoly"
However, this is not to say that Disney may not one day become a sort of monopoly as they do own majority of the market share at 28%, and with what they will gain from Fox, an astounding 13% more than Warner Bros. in second place. This means they can produce a lot more films at lower costs due to economies of scale and other major film studios may not be able to keep up, forcing them to shut down. On the other hand, Disney may buy out the other smaller companies, continuing to gain market share. One of these two options could potentially result in Disney becoming a monopoly. What would be the positive impacts of this happening?
ABOVE: DISNEYLAND, FLORIDA. DISNEY OWNS THE MAJORITY OF MARKET SHARE AT 28% AND WILL OWN 41% AFTER THE MERGER.
There are a multitude of benefits for a variety of different stakeholders that could occur as a result of Disney being a monopoly of the film market. I am going to focus on the impact on consumers as this is the effect on the majority of us. One advantage of monopolies is that in some markets, it is simply more efficient to only have one firm supplying all companies, which is called a natural monopoly. A good example of this is a railway company (Rob Jones, 2017). It is more efficient for there to be one railway company than multiple supplying along the same tracks from the same destinations. This is wasteful as there would be a huge duplication of resources. This is because fixed costs for these types of markets are very high and they often cannot exploit economies of scale (which is the reduction in average cost as a result of a firm’s increase in size e.g. more output, more employees). However, though this can be applicable, the film market has a wide range of movies in terms of budgeting – from $30 million to $300 million. Another advantage monopolies can bring is an increase in innovation (2017). As they tend to have very large profits and high turnover, they possess the resources to invest into research and development. This leads to them looking into to new technologies and what consumers want. As a result, they can develop new products that will increase customer satisfaction. A great example of this is the innovative company (that is considered a monopoly), Google. In 2015, they invested over 12 billion US Dollars into research and development. One more advantageous thing monopolies can achieve is economies of scale (2017). As stated earlier, this is the reduction of average cost due to the increase in the overall size of the business. This means they may be able to supply their goods/services at a lower price. However, this is not applicable in the case of Disney, as it is cinemas that determine the price of movie tickets but economies of scale also means they can produce more movies at a lower price so consumers have access to more films. Although there are a few advantages to Disney being a monopoly, there are also many potential disadvantages this could bring to the film market.
"Although there are a few advantages to Disney being a monopoly, there are also many potential disadvantages this could bring to the film market."
One possible disadvantage a monopoly could bring is restricted choice (Rob Jones, 2017), which is very unfavourable for consumers–especially in a market based on creativity: films. What restricted choice means is that there may be a point in the future where consumers may go for a movie but find that most/all with tickets on sale have been produced by Disney. For example, in the UK, 2.9 million households in the north west of England have no choice regarding where they can get their tap water from. They must get it from United Utilities. If the prices charged, quality of water or customer service is unsatisfactory, they cannot change to another company. An additional disadvantage a monopoly could bring is a lack of innovation (2017). In my opinion, this is particularly disadvantageous for consumers in the case of Disney as innovation is an important part of film making. If Disney are to become a monopoly, they would dominate the market; restricting and preventing entry, culminating in a lack of necessity to innovate with their films. This is because no other companies can now try and compete with them so they have less of a reason to innovate. Furthermore, if a monopolist is making higher profits without innovating, they will cut their investment in research and development as this may now be considered wasteful. A final disadvantage of monopolies is inefficiency (2017). A monopoly has no other companies to compete with, so they have less incentive to work as hard as possible to keep costs low, or produce as many (high quality) movies as possible in Disney’s case. They may adopt a ‘care-free’ approach to business, incurring costs that are unnecessary or could have been avoided. As well as
this, if monopolies become too large, they may suffer from diseconomies of scale. This would cause an increase in average cost due to the size of the business increasing. An example is poor communication and control due to larger hierarchies between employees and larger distances between managers and their staff. We know that Disney becoming a monopoly has potential to be favourable as well as unfavourable, but which outweighs the other? Overall, whether a monopoly is advantageous or disadvantageous to consumers is dependent on the market. In the film market, innovation is a key factor. This means that Disney can choose to invest their large amounts of revenue into research and development to increase innovation in what they produce. Alternatively, they also have the choice to be inefficient as they have no competition, so do not have to innovate for the purpose of being better than another company. In my personal opinion, I believe that the film market cannot function at maximum efficiency if there is one company dominating the market because this means that innovation will not be as high as it can be. Now, the question must be asked, why did Disney even purchase these assets of Fox? Besides gaining more market share, it seems that Disney’s main objective is to give themselves more support for their (new) streaming service. They will now acquire approximately 60% of Hulu, a current streaming service. They have also launched Disney plus, slowly pulling their content from Netflix and building their own site. — Arsh Jagada
Is UBI is the best solution to handle displacement of labour due to automation? Financial TImes Award-Winning Essay by Arcadia Cipriani Whether the Universal Basic Income (UBI) scheme can assuage unemployment due to automation can be divided into two distinct questions: How has automation displacing labour been dealt with in the past? Is the UBI a feasible and suitable policy to implement?
Economics History: Job Automation
One could argue that job automation has existed since man learned how to build tools. Until the Luddite movement of 1811-1816 (Reid, 1986), there had been no significant opposition to the loss of jobs to machines. With the introduction of automation, workers see this as anew enigmatic threat to the livelihoods of millions. However, this is no economic emergency nor a new problem. Examples of “structural shifts” in the past would be: The first Industrial Revolution in the 18th century Europe (with a significant shift of jobs in agriculture to those in mechanical production) (Schwab, 2017). The Technological Revolution from 19th century to early 20th century (a shift to jobs in electronics, petroleum and steel). (Schwab, 2017). A cultural shift in the past 60 years (with a change of jobs in manufacturing to jobs in service sectors) (Manyika et al, 2017) Moreover, in a 2017 report by the Mckinsey Global Institute, states that the US agriculture sector declined from “58% of total employment in 1850 to 2.5% employment today” and in 40 years (1880-1920), “the share of agricultural employment declined by 25%”. Even in the first iterations of “structural shifts” there was a significant displacement. Additionally, within the report, when comparing these historical sector displacements to predicted future displacements (from the years 2016-2030), it yields similar results:
This insinuates that what is occurring with new possibilities of job displacement through automation is a pattern we have seen before. A specific example of such a change could be seen in the UAE, which had a heavy dependence on pearl diving to support its economy. However, this would be disrupted when Japan developed “cultured pearl” faming. This could be seen as a demonstration of automation as instead of labour (pearl divers searching for pearls) there would’ve been manufacturing in order to develop pearls for the market. (Carter, 2005) Yet through specialisation in the sectors of logistics, finance and tourism, the UAE managed to recover from the loss and is in a position of stable economic growth. Moreover, it should not be neglected that automation has also other consequences aside from displacement. In 2018, the Swiss think tank predicts that by 2022 along with 75 million jobs being displaced, 133 million new ones will be created, obtaining an overall net positive (World Economic Forum, 2018). In addition, if workers are to be displaced because of automation, goods would also become cheaper (Ford, 2015) so that “purchasing power [would] be aligned with the decrease in nominal incomes” (Wilson, 2017). However, even if this initial displacement will lead to success in the longrun, it doesn’t exclude the possibilities of loss in the short-run. So there would need to be some action in order to smoothen the transition and to minimize losses. Several economists have proposed the idea of the Universal Basic Income in order to do so. The reason for this is that with the loss of jobs means a loss of income which results in overall worse living
standards. Implementing a UBI would assuage the loss of employment as those who were displaced still have a reliable income they can depend upon and as a result, living standards will remain as before.
Universal Basic Income and its implementation First, it would be suitable to view the UBI within the context of assuaging job automation. Is it going to be provided so that people don’t have to work anymore? That may seem ideal, however, Nicolas Miailhe is unconvinced that this would benefit anyone as “work is not only about income, but it’s also a socialisation process by means of which you find a role in society” (Yan, 2016). Eliminating work (or doing work which fails to be productive and sustainable), would be detrimental to the economy as well as a person’s wellbeing. People want to work. Therefore, the purpose of implementing the UBI would be a way to allow people to pursue alternative employment whilst being unemployed. Through a “guaranteed income”, this allows time for the unemployed to be reskilled and invest in education without having to be concerned with bringing home income. This would eliminate the opportunity cost that would normally occur with this decision. Moreover, the money used from the UBI can be injected back into the economy through a multiplier effect that can result in everyone obtaining higher standards of living and welfare. However, there are flaws within this programme. Transfers from higher-income households to lower-income households shift money from people with high marginal propensity to save (the rich) to ones with low propensity to save and high propensity to consume (the lower income households). This leads to an increase in spending in the economy and through the multiplier effect is magnified into even more aggregate demand and therefore usually higher output. Policies that shift money from high income households to low income households are called progressive. Policies that do the opposite are called regressive.Yet, since this is a Universal basic income, it means the whole population will be receiving this additional income, not just the poor (the ones more likely to be displaced). Therefore, the transfers would be wasted on those who are wealthier (as they have a higher marginal propensity to save) and this could be considered regressive policy as it fails to redistribute wealth and will not impact relative poverty levels.
Furthermore, such a scheme would encourage more people to quit their jobs (as well as the jobs that are not being displaced). This would lead to a reduction in the labour supply and would lead to lower output going forward. As a result, this would discourage economic growth in the future. And supposedly if the benefits of the UBI were to outweigh its drawbacks, how feasible would it be to implement it in the first place? Even assuming a modest scenario where UBI is only distributed to households and not to individuals, and an emolument of $15,000 per year per head of household between the ages of 18 and 64, this would cost $1.425tn (as there are 94.8mio households in the United States based on a Census estimate). Based on a 2019 estimate of US GDP of $21.1tn this would add 6.75% of GDP. Given the current starting position of the US deficit this would take the US deficit well into double digits and on an unsustainable fiscal path. Moreover, the initial emolument of $15,000 per year would be needed with the addition of the already free, public services (such as childcare, healthcare etc). If one were to cut these services in order to fund the UBI, additional transfers would be needed to compensate for the loss of these services. What the UBI is effectively doing is instead of the government distributing a persons’ money, it is given directly back to the consumers so they can decide which services they want. Which in itself is unadvised as consumers are irrational economic agents and the government, most likely, would invest the money to better use. There have been very few examples of UBI or UBI similar policies being implemented, and a few of the most touted ones are often misrepresented. For example, the Otjivero-Omitara area in Namibia pilot UBI scheme January 2008 to December 2009 (Pasma, 2014) and the universal cash transfer scheme in Iran starting in 2010 (Salehi-Isfahani et al, 2015). The former may have had success due to the fact that it was extremely small in scale (and would seem affordable within the context of a much larger national government budget) whilst the latter was a compensation for the elimination of fuel and other subsidies so was not quite the poverty alleviating “basic income”. Additionally, the universal cash transfer scheme accounted for a full 3.6% of GDP (SalehiIsfahani et al, 2015), meaning that a limited form of income support to replace subsidies is hugely expensive.
Conclusion From section I, it can be concluded that this new form of automation is not an economic crisis. There may initially be displacements due to automation but there will also be more jobs available as a result of automation as well as cheaper prices so that purchasing power will align with decreasing nominal incomes. Moreover, from section II, an overall judgement can be made that the UBI: 1) Is not feasible in terms of its cost 2) Has not yielded successful results on a realistic scale 3) Fails to encourage people to remain employed 4) Is regressive as everyone is to receive the emolument regardless of their income 5) This fails to promote economic growth Therefore, it can be concluded that the UBI should not be a solution used to address the displacement of labour due to automation. Instead, as this is displacement of labour is merely another “structural shift”, we should encourage re-training programs and re-educating those to enter new and developing sectors of the economy.