Summary: In a world where AI automation leads to widespread unemployment, Universal Basic Income (UBI) is often proposed as a solution. However, this approach could trigger the collapse of our consumer-driven economy, as fixed incomes would dramatically reduce discretionary spending and reshape society's economic structure.
Foreword
I need to precurse this opinion by saying that I am not a doomer. Not even close. I studied law and engineering and have always been fascinated by the intersection of the economy and what people are building + the constant loop interaction between the two. I've always been the most optimistic person I know. My interest in this topic is to understand the implications of the new wave of disruptions we're about to face.
I also want it known that I've put my money where my mouth is—I recently placed a financial bet against a few fellow founders and a VC from Charles River Ventures Fund. The bet was more direct: "Unemployment will be considered a widespread problem within three years by the general person." The side effect of this being that consumerism will collapse in the next ten years.
And yes, the irony of me betting money on the topic of the collapse of the economy is not lost on me.
Economics aside - I also just don't think that UBI is realistic for 'human nature' reasons that I'll get into below. Humans desire purpose and we are hardwired to contribute to our communities.
Finally, it is not lost on me that I am in a privileged position to participate in capitalism at a high level and even be able to have/form opinions around where we're headed. I am grateful for that.
The Core Argument
If everyone in society except for a small controlling class lived on Universal Basic Income (UBI), consumer culture would collapse. Since everyone would earn the same fixed amount each month, discretionary spending would dry up fast. People would prioritize essentials—housing, food, and utilities—while luxury goods, tech, and entertainment would take a massive hit. Prices for necessities would inflate, eating up most of the monthly UBI, leaving little room for anything beyond survival. Without the ability to spend freely, the economy wouldn't revolve around mass consumption anymore, and many industries would fail.
Meanwhile, the elite who control capital would remain unaffected and even consolidate their power. Over time, we'd see society split into two stark groups—those with assets and real wealth, and everyone else living on basic sustenance. With no consumer-driven economy left, people would be forced to find fulfillment in things like community and creativity, but the cultural shift away from consumption would come at the cost of innovation, competition, and social mobility.
The Death of Discretionary Spending
When everyone receives the same fixed income, the economic dynamics that drive our current consumer culture would fundamentally change. With a standardized UBI, most people's spending would quickly concentrate on essential needs:
- Housing and utilities
- Basic food and groceries
- Healthcare
- Education
This shift would leave little room for discretionary spending, which currently powers large segments of our economy. Industries built around luxury goods, entertainment, technology, and non-essential services would face severe contraction or collapse.
The Inflation Problem
Basic economic principles suggest that when everyone receives a fixed amount of money, prices for essential goods and services would likely inflate. Property owners and essential service providers would know exactly how much potential customers receive, leading to a natural upward pressure on prices. This inflation would gradually erode the purchasing power of UBI payments, forcing recipients to spend an ever-larger portion of their income on basic necessities.
The Two-Tier Society
The most concerning outcome would be the emergence of an increasingly stark two-tier society:
- The Asset-Holding Class: Those who own capital, real estate, and means of production would maintain their wealth and potentially increase it as they consolidate their position.
- The UBI Class: The majority of the population would subsist on basic income, with limited opportunities for social mobility or wealth accumulation.
This division would be more rigid than current economic inequalities, as the traditional pathways to wealth through work and entrepreneurship would be significantly diminished.
The Innovation Paradox
A significant reduction in consumer spending would likely lead to:
- Decreased investment in research and development
- Reduced competition among businesses
- Slower technological advancement
- Fewer new products and services
This slowdown in innovation could create a feedback loop, further cementing the divide between the asset-holding class and UBI recipients.
The Human Desire for Purpose
Beyond the economic implications, UBI fails to account for a fundamental human truth: people need purpose. Humans are not designed to sit idle, passively receiving a paycheck for existing. We are biologically and psychologically wired for work, problem-solving, and contribution.
For most of human history, our survival depended on our ability to hunt, gather, build, and trade within our communities. Even in modern times, the sense of accomplishment derived from work—whether through physical labor, intellectual pursuits, or creative endeavors—is deeply ingrained in our psyche.
UBI would strip many people of this sense of purpose. When work is no longer necessary for survival, motivation declines. The absence of meaningful work could lead to widespread stagnation, mental health declines, and societal disengagement.
Furthermore, we are pack animals. Our social structures have long been based on contributions to the tribe, whether through hunting, craftsmanship, leadership, or care-taking. Without a reason to participate meaningfully in society, many would experience feelings of aimlessness, depression, and detachment.
We can already see shades of this in modern welfare systems where long-term unemployment often correlates with deteriorating mental health, increased substance abuse, and rising crime rates. UBI would take this to an unprecedented scale.
Conclusion
UBI is not the elegant solution it seems to be. Human nature and the desire to have purpose prevents it from being realistic. Furthermore, its implementation could trigger the unraveling of our consumer-based economic system, and thusly, the world.
The resulting society might be more equal in some ways, but it would also be more rigidly stratified, with reduced opportunities for advancement and innovation.
The challenge ahead lies in finding ways to distribute the benefits of AI and automation without destroying the economic dynamics that have driven progress and mobility.