The Interplay of Modern Money Theory, Basic Income, and the Technological Frontier

Introduction: Modern Money Theory (MMT) and Universal Basic Income (UBI) have emerged as focal points in recent economic discussions. While each theory has its unique principles and objectives, they converge in their potential to reshape our understanding of fiscal policy and its implications for income distribution and social equity. This transformation becomes especially pertinent considering the fast-paced advancements in artificial intelligence (AI), robotics, and automation. These technological forces are redefining the nature of work, necessitating a reevaluation of income distribution systems like UBI. This post delves into the academic research supporting the integration of these concepts.

Modern Money Theory (MMT) - A New Understanding: Governments and banks create money by spending and lending it into existence through "keyboard strokes" out of thin air. Conversely, taxes, government bonds sold outside of banks (to households and firms), along with repaid loans, return money from circulation. MMT posits that a country with monetary sovereignty, i.e., issuing its own currency, cannot face bankruptcy as it can always create more money to pay its debts. This understanding could empower governments to fund significant public programs, from infrastructure to education, without necessarily resorting to increased taxes or borrowing.

Universal Basic Income (UBI) - A Necessity in the AI Era: UBI, a policy where all citizens receive a guaranteed income to cover basic needs without prerequisites, becomes especially crucial in the age of AI, robotics, and automation. These technological advancements, while driving economic growth and productivity, also threaten job security and income stability. UBI can combat poverty, reduce income inequality, and provide a safety net in this new era of work.

MMT and UBI - The Economic Synergy in the Technological Age: Academic studies have illuminated the core principles of MMT and the necessity of UBI in the context of AI and automation. Two primary insights emerge:

1. "Taxes are not a source of revenue for fiscal spending", or "fiscal spending does not require financial resources." Taxes reduce demand by cutting disposable income, while fiscal spending increases demand for goods. Balancing the two can achieve stable sustainable growth without inflation.

2. There is no need to pay off government debt with taxes. All government bonds could be redeemed without raising taxes if desired. The central bank could simply buy them all up, which may lower interest rates but will not directly increase demand for goods or cause high-rate inflation.

Incorporating the principles of Universal Basic Income (UBI) with Modern Money Theory (MMT) presents a compelling fiscal policy blueprint. This approach could prove effective in mitigating income inequality and poverty while promoting economic growth. Importantly, it seeks to do this within the economy's productive capacity, thus avoiding excessive inflation. In the context of rapid advancements in artificial intelligence, robotics, and automation, this integration could provide a robust response to the evolving economic landscape.

Criticisms and Counterarguments: If government bonds are redeemed without raising taxes by injecting new money into the economy, it could cause high inflation, particularly if a significant share of the bonds is purchased from households and firms outside of banks. Critics express concerns about the potential for reduced work incentives, and the challenge of managing such substantial policy shifts. However, proponents argue that these concerns can be mitigated through strategic policy management. They suggest that proper regulation, effective taxation, and strategic management of government bonds can help maintain a balanced money supply, thereby keeping inflation in check. The integration of MMT and UBI could provide a dynamic and adaptable framework to navigate the rapidly evolving economic landscape shaped by technological advancement.

Conclusion: The fusion of MMT and UBI presents a compelling response to the economic challenges amplified by advancements in AI, robotics, and automation. The body of work suggests that this combination could offer a powerful tool for addressing poverty, inequality, and economic instability, while fostering resilience in the face of rapid technological change.

Contact us

If you have a question, suggestion, comment, or are interested in collaborating, please use the form below to connect with us.