The Toothpaste Argument for Universal Basic Income

The following argument is based on the words of the late Götz Werner, who was a long-time supporter of the concept of unconditional basic income in Germany, who gained a unique understanding of UBI as a successful businessman and billionaire co-founder of the drugstore chain “dm,” and who passed away in 2022.

In an interview given in 2012, Götz Werner said the following to help the audience understand the concept of unconditional basic income:

“If you go shopping, and take a tube of toothpaste from a shelf then you all think, when you go to the checkout, that you are paying for this toothpaste. That is an error. Because the tube of toothpaste that you are taking from the shelf is already paid for, is already paid, else it couldn't be on the shelf. What you are paying at the checkout, is that you are enabling the creation of another tube of toothpaste. That's how you have to see it. Payment is never backwards-oriented. Payment is always forward-oriented. Payment doesn't balance out, but when you are buying something, you are ordering its continued production and sale.”

Hearing Werner’s take on production coming before consumption, which seems entirely obvious, but for some reason isn’t, was a lightbulb for me years ago when I first heard it. Once one properly understands that order of events, it’s easier to recognize the importance of UBI as enabling work instead of rewarding work.

In the same interview, Werner makes this connection explicit:

“What is a fact, is that when we are in this world and we need to live. That is obvious. Self evident, right? And if one wants to live in this world, one needs an income. Or else you can't live… Human beings want to develop. For developing, I need work. For existing I need income. And then I realized, after doing hundreds of job interviews, inevitably, that income isn't the payment for the work, but the prerequisite. That is our mistake in thinking. Our error in reasoning is, that we think, through the work, the income is generated. The reverse is true. Because we have the income, we can work. That has changed the whole view on our company, when we realized, the people that work in our company need an income to be able to afford working with us. There has always been someone who has invested in me. There has always been someone who has given me the prerequisites. There has always been someone, who has put trust in me, and said "Mr. Werner, show us what you can do". And exactly the same is what the basic income is saying. The basic income is saying: "we grant to you, that you can live humbly but with dignity, and now you can show what you can do". That is actually the request to you.”

The above logic hit me like a lightning bolt when I first heard it. It’s one of those things that just seems so obvious after you hear it, but you never thought of that way before. Essentially, income is not the fruit born from the seed of work, but instead work is the fruit born of the seed of income.

To further support this point, think of what happens when someone accepts a new job, and how common it is for that person to work for two weeks before they get their first paycheck. Because that’s the order of events, we think of the paycheck as paying for the prior two weeks of work, but obviously money was needed to make the work possible. If that person is you, you needed to eat three meals a day for two weeks to make that work possible. You needed to have a roof over your head when you slept, and you needed transportation to get to work. You needed clothes and electricity. You needed your phone. You needed lots of things that income made possible. It was the income that came first. When you get that first paycheck, it’s not paying for what you already did, because you already did it. It’s paying for you to continue doing what you’re now doing. It’s fueling your work. It’s providing you the freedom to continue that work. It’s an unleashing of potential.

Not understanding this is one of the primary reasons people assume that once provided basic income, people will choose to work less, because they see income as a reward for prior work. But when you recognize that income is the fuel that makes work possible, it’s easier to see that basic income will enable far more work for multiple reasons. For one, having basic income means that people can choose unpaid or paid work. It also means that people are more able to choose self-employment. Second, basic income also means that there are a greater number of people with a greater amount of money that they are able to spend at the businesses in their local communities. That money is essentially a form of voting on what work the community wants local businesses to continue doing.

Werner’s realization was that people with basic income could choose to shop at his stores and vote on which products they wanted his chain of stores to keep buying and selling to customers, and that basic income meant his employees were the ones who actually wanted to be there and do that work, and that their paychecks were enabling them the freedom in their lives to really focus on that work and on their own lives.

Realizing that income is forward-oriented instead of backward-oriented also enabled Werner to realize that of course we can afford basic income, because all of the basic needs it would secure already exist. They are already produced. There isn’t a shortage of food. There’s just a shortage of ability to buy food. So just create the money people need to buy food, and provide it to them so they can tell businesses to keep making the food they prefer to eat.

Here again are his own words:

“Now how do you finance it? This is a problem of our understanding of money. The biggest problem, that we think money would have a value as such. Because it is only an illusionary value. The value are the produced and delivered goods and services that we live on. So when if we want to finance something, we don't have to ask, where is the money, but where are the goods, and when you look at our society, and ask, where are the goods, then you will see that we have never been as rich as today. We have never been as rich as today. We have enough goods and services for each person in our society to live a humble but dignified life… We have enough goods and services. I haven't found anyone to tell me, “No, no, no Mr. Werner, listen, there is a shortage.” So, when we have these goods and services, we have to ask ourselves, then why are we affording ourselves poverty? How come we are affording ourselves child poverty? Which is stupid, right? How come we are affording ourselves old age poverty? Which is ungrateful, right? How come we are affording ourselves fear of survival? Why are we putting people under pressure, resulting in hindering them to develop their "better nature", in the sense of Schiller. That is our... that is a purely conceptual problem, really. It isn't a problem of financing. Once you have immersed yourself into this matter, I recommend it to everybody, but to convince, you can only do that to yourself… You will see the money doesn't matter. Money you can print. We have experienced that in this financial crisis. You can arbitrarily increase it. The question is, whether the corresponding goods are present. The poverty in our society isn't a precariat problem. It is an elite problem.”

So as you can see, all of this flows naturally from the understanding that what comes first is the resources required to make goods and services possible. That tube of toothpaste already exists when you buy it. Your purchase of it does not in any way impact the fact it was created. If it's the first tube of toothpaste the manufacturer is selling, it's because they first acquired enough money from loans or investors to create it. All your purchase does is function to signal that you want more of that toothpaste made. All that money does is provide you the permission to take that toothpaste home with you and vote for more.

If basic income exists, does that mean there won’t be enough toothpaste for everyone, and that the price of toothpaste will need to go up? Well, likely, most people are already buying the toothpaste they need, and the people who aren’t, who will newly buy toothpaste, are just going to signal to toothpaste producers to make more of it. Scarcity of toothpaste is not a thing, especially in the United States. There’s plenty of toothpaste for everyone and the capacity to produce it. There's plenty of food and electricity and internet too. So let’s just make sure that people can buy it all, and that people can signal to producers to keep making it all, and how much of it to make, and where to distribute it.

The ability to signal what we want producers to keep producing is also why a market with a basic income floor is a market that has better price signals than a market without a basic income floor. The market can’t tell the difference between lack of income and lack of demand. Without basic income, it’s entirely possible for a store to go out of business, not because their customers didn’t like their product or preferred a competitor or competing product, but because their customers lost the ability to afford their product. Markets work better when everyone can vote on what the market should be supplying, not when only rich people can vote. There’s only so much stuff one rich person can buy. Markets produce more and function better for everyone when everyone can vote in them.

Let customers signal to businesses what they want from those businesses, and let workers have the fuel and the freedom to choose which businesses they want to work at or start up, and the price of their labor and their time. Stop worrying about people working less if they can afford not to work, and start worrying about people being unable to afford to keep working if they lack the fuel they need to work.

"Payment is never backwards-oriented. Payment is always forward-oriented."

If you still doubt that income comes before work, consider all forms of unpaid work too. How's unpaid work possible if income comes after work? Unpaid work is only possible if one already has sufficient access to resources to make it possible. Volunteers can afford to be volunteers. Income independent of volunteer work is what makes volunteering possible. Basic income would therefore lead to a lot more of that too.

Finally, if you'd like some evidence to back all this up too, one study I find particularly interesting is one that looked at the impacts of financial constraint on worker productivity by varying payment timing and found that workers who had just received cash became more productive afterward, increasing their output and also making fewer unintentional mistakes.

"The cash infusion leads workers to reduce their financial concerns by immediately paying off debts and buying household essentials. Subsequently, they become more productive at work: their output increases by 7.1% (0.12 SDs), and they make fewer costly, unintentional mistakes. Workers with more cash-on-hand thus not only work faster but also more attentively, suggesting improved cognition. These effects are concentrated among more financially constrained workers."

In other words, making sure people have cash first leads to more and better work.

So that's what I call the Toothpaste Argument for Basic Income, and I highly recommend watching the entire interview with Götz Werner that inspired it.

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