Slow and Sustained

It is not a coincidence that it is easier to make money if you are born in America. Compounding isn’t just something that happens on your investments. As a community becomes better at solving problems, the depth of service providers, and support networks expands. 

The ability to make money in America has compounded. Bryan Caplan calls the case for opening borders “Trillion-Dollar Bills on the Sidewalk”. The world would make more money if more people moved to America. 

Money is made in containers. You need to build an environment that maintains and builds capacity. It comes from simple things soaking deep. 

Like the gradual shift to long-term savings in Australia brought about by “Supers” (pension funds), where over the last 40 years they have collectively moved to being the 4th largest holders of pension savings (About AUD$3.4 trillion in assets) from saving a little more each year. 

To breathe properly while running, you need to build your capacity for abdominal breathing. As you inhale deeply, your tummy comes up rather than going in (shallow breath). You use your diaphragm to create more space. Distance runners will practice bringing their focus back to slow, gradual, inhalations and exhalations rather than panting. Breathing correctly. Running correctly. 

These seem basic, but the basics are what allow the flash. Building muscle memory for the relationship between income and expenses is like gaining control of your breath. 

Slow, sustained, strength building. Best done as a team.

Building the Assets

The largest 300 Pension Funds collectively hold about $18 trillion (12 zeros) worth of assets. The idea of a retirement fund has taken root. That you can build capital to put to work on your behalf when you no longer can. Many Retirements Schemes started life as Defined Benefit Pension Plans (DB). This means the payment was a promise from the container the retiree was part of (employer/sponsor). The amount of the promise depended on formulas based on length of service, final salary, and age (for example) rather than on investment returns. Many were funded Pay-As-You-Go (PAYG) with those currently working effectively paying those who retired directly. PAYG is fragile with a constant balance between contributors and beneficiaries. There has been a big shift to Defined Contribution (DC) where individual accounts are set up. Where the amount paid depends on the Capital built over the working life. There are lessons to be learnt in figuring out how Universal Basic Income can be funded. How do we build the assets to support strong, flexible, foundations?

Building over more than a day...

Connecting the past, present, and future

Start Building

I live close to the excavated ruins of a Roman Villa. The building took place over the course of three centuries. Each generation adding something. The end product, before the fall of the Empire led to its ruin sounds absolutely amazing to me. A life full of eating, bathing, sauna, massage, talking, walking, and pondering. Throw in some modern Japanese toilets and I would be sold. They didn't just wave a wand. Neither Rome nor Roman Villas were built in a day.

Chedworth Roman Villa

The idea of "Pensions" and supporting people when they can't work any more feels like a Roman Villa to me. An idea we now accept, even though most people don't end up having the support they require (yet). The big question is always how to pay for it. Something being a "Human Right" doesn't solve the problem of scarcity.

As the idea of Social Security spread, "Defined Benefits" was a way businesses and countries promised to look after people. The amount of the payment being linked to the number of years of service, and their ending salary.  These promises obviously cost money. Many older airlines are now nicknamed "Pension Funds with Wings" because of their responsibilities to old employees.

One way to pay for this, before you can afford it, is for people who are working to support those who have retired. "Pay As You Go" means the people putting into the fund pay money to those they are supporting. This is a merry-go-round, with the problem that if you gradually get more people living longer, those who are working are suddenly having to support more and more people.

This meant many providers have shifted to a "Defined Contribution" approach. This means you know what you put in, and what you get out is independent of your salary or service. It is simply based on how big an Engine you built.

There are lots of lessons to be learned from the various ways we have approached Pensions around the world. Australia is one of the countries leading the way with its Superannuation Funds. In 1992, Australians were required to commit 3% of their earnings to these funds. This has gradually increased and in 2025 will reach 12%. Collectively, in 2018, Australians held about $2.7 trillion in Pension Fund Assets (4th largest in the world).

I believe in a Universal Basic Income. That everyone, not just those who have retired, could receive a basic amount that ensures there is no financial poverty. Something like the forests and rivers that would have been around to live off when the first Romans arrived. A starting point. Waving a wand, this could be like the Norway Oil Fund. Unfortunately, we don't have wands... so we need to look for shovels. And build.

A fully funded Community Wealth Fund could pay 150 people a UBI of $2 a day, if it earned a real (above inflation) sustainable return of 3% on a fund of $3.65 million.

Who Pays?

Many critics of Universal Basic Income focus on the Gross rather than Net cost of proposed funding methods. Gross is simply the size of the population (since UBI is Universal) multiplied by the number of people in the community (since UBI is Universal). The Net cost subtracts the amount contributed in the form of contributions or tax. 

The point of a UBI relative to Welfare Payments is to shift the burden of proof. Welfare is often like the opposite of a job interview. We spend a lot of money on 'means testing' with paperwork and evidence to prove a negative. It is very difficult to prove something doesn't exist. It is also rather demeaning. In a world where we put a lot of emphasis on self-worth being determined by the 'ability to provide'.

Most proposals for a Universal Basic Income don't change the normal progressive tax system. Meaning, if you earn more than enough money, it is rather difficult to hide. If you buy anything, own anything, or earn anything... it is far cheaper to find that out, than to prove you don't. Tax could then remove the cost of providing you with a UBI.

Still, the idea is similar to Pension Funds. When they started, many were 'Pay as you Go', and much of the money paid in by workers was paid out immediately to people who were retiring. This was fine until the proportion of retirees started to grow, as workforces shrunk and people lived longer. This has lead to many large businesses having 'unfunded Pension liabilities'. When you buy a business, you also buy its promises. These can be scary. Most pension schemes have been shifting from Defined Benefit (saying what you will receive) to Defined Contribution (saying what you need to put in). Many airlines are described as Pension Liabilities with wings.

The UBI model I like still needs 'someone to pay'. It just contains the situation within much smaller boundaries. If a 150 person community was built, 75 people could be the 'Breadwinners'. Over the course of 15 years, they could (1) pay for their own UBI, (2) save for their own UBI, (3) pay for someone else's UBI, and (4) save for someone else's UBI.

So, for example, if 75 people paid $8 a day. (1) They would receive $2, (2) they would invest $2 to build an Engine for themselves, (3) they would pay as you go $2 to someone else, and (4) they would invest $2 a day to build an Engine for someone else. After 15 years, I believe they could have, with sound investing, built an Engine to sustain that $2 UBI for themselves and one other person.

The 'Gross Cost' to them is $8 a day. The 'Net Cost' is $6 (they receive the UBI too). $4 is not really a cost, given that it is invested. It grows. Managed sensibly, with good custodians, one day it could live for ever. A fully funded Community Wealth Fund could one day support a Universal Basic Income without any additional contributions.

In a world of hand-to-mouth, someone does need to pay. But we don't need to live hand-to-mouth. A Universal Basic Income doesn't have to be tax funded. It could be a dividend on our Community Wealth. One day. If we make good decisions today.