Robert Reich just can’t stop making bad economic arguments (which is pretty bad for a professional economist). His latest mistake comes in the form of an argument that industrial automation is grounds for taxing the rich into poverty, so that the wealth can be redistributed in the form a basic universal income.

You Can’t Tax Your Way to Prosperity

Putting aside the obviously contrived example of the iEverything, Mr. Reich forgets one of the key basic economic facts about taxation: the government doesn’t put all of those resources it takes out of the economy towards productive use. In so doing, these resources are now no longer available for productive use, and the amount of wealth in society decreases, or at least cannot grow at a rate that would have been possible.

A common argument for taxation, especially in this instance, is that while the total amount of wealth in society may grow, that wealth will only go to small subset of the population, even to a degree that the wealth of other portions of the population will actually decrease. But how could that possibly occur?

In order for the wealthy to continue to build wealth legitimately, they must have a continuing supply of income from customers. In order for these customers to continue purchasing, they must perceive they are gaining something from the exchange. So in their eyes their wealth is actually increasing, not decreasing as others would have you believe.

Also, if the iEverything is such a fantastical machine that it can produce things so cheaply, won’t lots of people have the incentive to buy one and go into business for themselves? After all, the barriers to entry would only be the cost of a single machine. All these new business would tend to drive prices down as they competed for market share. Thus, the simple incentives of the free market would mean that, even if wages fell, the cost of living would tend to fall even farther. This results in higher standards of living (i.e. greater wealth) for everyone, no government intervention required.

Additionally, the argument that we’ll all be at a disadvantage because we won’t be able to afford to buy an iEverything assumes that we all should buy one. But this also misses a key economic principle, the division of labor. We don’t all need to have one to enjoy its benefits. We can simply trade with people who do have one. In the same way that people with different skill sets trade with one another in order to enjoy the benefits of those skills, so too can people with access to different resources trade with one another to enjoy the benefits of those resources.

In the same way that employing automation to make cars resulted in a greater standard of living for everyone because the quality of cars increased and their prices decreased, allowing ever poorer people the ability to purchase ever improving cars, so to will the automation of other production processes increase our standards of living.

Wealth Redistribution Isn’t Compatible With Freedom

Let’s also look at the situation of automation and the proposed universal basic income from the stand point of our Liberty Framework. Who’s rights are violated by companies employing automation instead of labor, and how does this justify the confiscation of profits it might produce?

The typical argument is stated as though by employing automation, companies are depriving workers of jobs. But are those workers entitled to those jobs? If a worker is fired for poor performance, do we consider his rights to have been violated? If a company stops its operations entirely, do we consider the rights of all its employees to have been violated? No.

An employee/employer relationship is a mutually beneficial arrangement in which an employee sells their services to the employer. If at any time either party no longer views the arrangement as beneficial, they are free end it. Just as we wouldn’t say the rights of the company have been violated if an employee decided to stop working there, we wouldn’t say the rights of a worker have been violated if a company decides they no longer wish to employ them.

So whose rights are violated in a system of taxation? The rightful owners of the property that was taxed. And who are the rightful owners of property? The entities which produced or voluntarily traded for said property. And who are the rightful owners of property that is produced? The owners of the resources and tools employed in producing it.

Since taxation is not voluntary, in order to fund a system of universal basic income, we must first violate the rights of the people producing the goods the people in favor of said universal income desire. And since stealing from someone is generally a poor way to convince them to continue trading with you or producing the things you want at all, maybe we shouldn’t violate the rights of the producers in a society.

Having demonstrated that a universal income is both a bad idea from an economic stand point, and that it is a violation of individual rights, I am going to suggest that once again Robert Reich is wrong.

Automation Won't Lead To Poverty

You Can’t Tax Your Way to Prosperity

Wealth Redistribution Isn’t Compatible With Freedom