Alaska’s ‘Universal Basic Income’ Is A Case Study In How To Bamboozle Mark Zuckerberg

Alaska’s ‘Universal Basic Income’ Is A Case Study In How To Bamboozle Mark Zuckerberg

In repeating a story about Alaska as an model of the basic income, Mark Zuckerberg offers us a pretty good guide on how to bamboozle a billionaire.
Robert Tracinski
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Continuing his “Let’s get to know normal people” tour, Facebook’s Mark Zuckerberg and his wife traveled to Alaska and came back with some musings on the “basic income,” the idea of giving everybody in the country a monthly check to live on whether they do any work or not.

But in drawing on Alaska as an example, Zuckerberg gets a lot of the actual facts wrong and ends up offering us a pretty good guide on how to bamboozle a 33-year-old billionaire who doesn’t possess much apparent experience of the world outside of Silicon Valley la-la-land.

Here’s what Zuck had to say about the basic income:

One thing that stood out to us is how different Alaska’s social safety net programs are in a way that provides some good lessons for the rest of our country.

Alaska has a form of basic income called the Permanent Fund Dividend. Every year, a portion of the oil revenue the state makes is put into a fund. Rather than having the government spend that money, it is returned to Alaskan residents through a yearly dividend that is normally $1000 or more per person. That can be especially meaningful if your family has five or six people.

This is a novel approach to basic income in a few ways. First, it’s funded by natural resources rather than raising taxes. Second, it comes from conservative principles of smaller government, rather than progressive principles of a larger safety net. This shows basic income is a bipartisan idea.

It sounds like somebody got the executive summary from a local official who wanted to make the system sound like it’s all just fine. But the problem with billionaires going on weekend tours and listening to the executive summary is that they don’t put in any of the first-hand effort at fact-finding that they would devote to their own business interests, so they’re easily convinced to parrot somebody’s agenda.

In Zuckerberg’s case, he gets a lot wrong about Alaska’s Permanent Fund, and about the basic income.

A Basic Income Is Not Like the Permanent Fund

To begin with, the Permanent Fund payments actually have very little to do with proposals for a “basic income,” because $1,000 per year per person is a much, much smaller amount than current basic income proposals. The idea of the basic income is to provide everyone with a monthly check that is enough to live on at a lower-middle-class lifestyle. That’s the whole point: to end poverty just by handing out money. But $1,000 per year doesn’t do that. If you’re poor, that money can defray a few expenses and alleviate your poverty, but it’s not going to radically change your position.

Moreover, the median household income in Alaska is $73,000 a year, about $20,000 above the national average, thanks largely to well-paying blue-collar jobs in natural resources extraction. Remember that “median” means half of the state’s households make more than that. So for the overwhelming majority of Alaskans, the Permanent Fund payments are nice, but they’re not the difference between poverty and prosperity.

The Alaskan Permanent Fund Dividend is actually a good case study of the Basic Income Impossible Trinity. The idea is that there are three things people want out of a basic income: 1) a generous payment that can support a standard of living above the poverty line, 2) a universal payment that’s the same for everyone and isn’t means-tested and therefore doesn’t discourage work, and 3) a program that is affordable. The “impossible trinity” is the fact that you can have only two of these three things. A basic income that is generous and universal is unaffordable. One that is generous and affordable can’t be universal. In Alaska’s case, it can be affordable and universal, but it can’t be very generous.

Robbing Peter to Pay Peter Plus Bureaucrats

Even the affordability part is in doubt. Zuckerberg says that Permanent Fund payments are “funded by natural resources rather than raising taxes.” That’s a nice little bit of legerdemain. In fact, the “natural resources” themselves don’t write any checks. The companies that lease Alaska’s government-owned oil fields are the ones who pay into the Permanent Fund. This may not technically be taxation, but it amounts to the same thing. Remember that Alaska is a prosperous state in large part because of all the workers in those oil fields. So Alaska is taking money away from their employers to pay it back to them. Keep this in mind, because taking money out of your pocket on one side and putting it back in on the other is going to be a recurring theme here.

This is all definitely relevant to how Alaska’s example can apply to the rest of the nation. How would you replicate this model elsewhere, where the government doesn’t own a sufficient amount of natural resource wealth on which it can negotiate royalties? It would require a vast nationalization of oil fields and other natural resources, which would be an economic disaster that outweighs any claimed benefits from the basic income.

Alaska is a state with a small population and vast oil wealth that is controlled by its government, which is pretty much the definition of a petro-state. Yet such states tend to be subject to the Oil Curse, in which easy oil money crowds out investment in other productive enterprises (and props up corrupt governments), making the state more vulnerable to oil price swings and less resilient in responding to them.

The Saudis are a far better case study of the basic income. With much larger oil wealth, the Saudi regime is able to keep itself in power by keeping up a steady flow of money to the royal family and its hangers-on, along with generous support to the rank-and-file Saudi, while most of the blue-collar labor is done by poorly paid foreign “guest workers” and the white-collar work by well-paid Westerners. This is one of the reasons the Saudis are trying to wean themselves off that system, encouraging more entrepreneurship and training young Saudis in engineering and other professions. They are looking forward to a day when the oil might not still be flowing, at least not at the same rate, and they will need to have some other productive base for their economy.

Once You Set It Up It Will Never Go Away

This was also the original conception for Alaska’s Permanent Fund. It was meant to be an emergency reserve built up during the boom times to help Alaska’s government adjust to the loss of oil revenue when production inevitably slows down. But of course the fund got taken for granted as a fact of everyday life that will always be there, and that’s how it was turned into a slush fund to support a handout to individual citizens.

But the bust has now arrived, not in the form of a slowdown of oil production, but in the form of a collapse in oil prices. The result? The Permanent Fund Dividend was recently cut in half, from about $2,000 per person down to $1,000. So much for the security of funding everyone’s income from “natural resources.” And it gets worse. It turns out that Alaska’s overall state budget, which is supposed to be separate from the Permanent Fund dividend, was also being propped up by high oil prices. So the Alaska House voted to impose a state income tax, and when that was rejected, the only solution was to break down the statutory separation between the Permanent Fund and the regular budget, using Permanent Fund revenue to offset budget deficits.

Proponents of the income tax blame its rejection by the state legislature as the reason the dividend got slashed. Then again, as one observer pointed out, the Permanent Fund Dividend is turning into a system in which “taxes from ourselves would go to pay dividends to ourselves.” So much for Zuckerberg’s assurance that the basic income can be “funded by natural resources rather than raising taxes.”

So yes, Alaska is an interesting model to look at in considering the merits of the basic income. But it is more of a cautionary tale. In fact, it is just a small-scale, survivable version of what has been happening in Venezuela. There, the “Bolivarian” regime established by Hugo Chavez seized control of the state oil company and used big oil revenues during the boom times to prop up his experiments in socialism and make them seem viable. (The regime also used the money to buy the loyalty of its private militias and assert increasing authoritarian power.) Then oil prices collapsed, the illusion of prosperity vanished, and now people are starving.

Alaskans aren’t all starving in the streets, thank goodness, but they have gotten a bit of a lesson about depending on revenue from a single commodity whose value tends to fluctuate.

 

Oh, and another thing I should mention from Zuckerberg’s Alaskan weekend travelogue. He praises the government stocking of salmon in the rivers for subsistence fishing as a model for the welfare “safety net.” While he is right to praise the “teach a man to fish” aspect of the program, he omits the fact that it is open only to Native Americans and that they are forbidden to sell the fish they catch, using them only to feed themselves. So it’s not a program that is widely replicable, and it also indicates some of the cruel kindness of the welfare state: we’re happy to help you achieve a subsistence-level standard of living rather than succeeding in the wider economy.

I appreciate that Zuckerberg is trying to get to know the world outside Silicon Valley, even if it produces awkward moments like Zuck dropping himself down into my old neck of the woods—the middle of the Corn Belt—and discovering that an I-80 truck stop is “like a small city” and that people there have “strong views on the Second Amendment.” You don’t say.

The problem is that what he’s actually doing looks more like a billionaire’s flyover tour, where he parachutes in for a weekend, gets a highly selective overview, and encounters complex issues by way of an executive summary given to him by an establishment type with a vested interest in putting a nice coat of varnish on the status quo. So he ends up thinking he is informed while he misses all the crucial parts of the story.

I guess that shows us how to bamboozle a billionaire. It’s up to us to make sure we don’t get bamboozled by him in turn.

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Photo By: Robert Scoble

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