As many Firstlinks’ readers are aware James Gruber departed for a new opportunity at CommSec. I’m extremely grateful for everything James has done and his stewardship of Firstlinks.
It is never easy to follow a founder and I’m proud of how James continued and expanded upon Graham’s legacy. That legacy is front of mind for me as the temporary custodian of Firstlinks.
My goal is to continue to provide a unique and valuable resource to Australian investors. I’m always available for your suggestions and feedback and can be reached at [email protected].
Investor worries about AI
It has been dubbed the SaaS-pocalypse. Software shares are plunging as investors fret over their future in an AI centric world. This dovetails with the narrative coming out of Silicon Valley that this is the last chance to build ‘generational’ wealth.
This worldview anticipates a future where society bifurcates between tech overlords and people made redundant by AI. The race is on to be one of the few that control the machines while avoiding the fate of those supplanted by them.
Frenetically trying to make money in Silicon Valley is nothing new. Yet this scenario taps into anxiety about an emerging technology and fears that AI will further dismantle a middle-class lifestyle that already seems increasingly out of reach in an affordability crisis.
Lest the soon to be displaced rise in opposition there is a convenient solution – the universal basic wage. This concept is nothing new. Thomas Paine an English born fomenter of the American Revolution first proposed a universal basic wage in the early 1800s.
What the universal basic wage can and can’t do
What separates the universal basic wage from traditional forms of welfare is the universality of the payment. Everyone gets it and nobody is required to do any work to receive the payment. A chicken in every pot.
In a small town in Canada located outside of Winnipeg called Dauphin a similar but less extreme concept was tested between 1974 and 1979. A family of four received the 2026 equivalent of approximately 33,000 AUD each year.
For every dollar earned through work 50 cents was taken away from the universal basic wage. This maintained an incentive to work as a family would always be better off with money coming in.
However, it also provided the working poor with money they would not be eligible for under traditional welfare programs. There were no restrictions on how the money was spent and no eligibility criteria to continue receiving payments.
For the most part people continued to work although new mothers chose to stay out of the workforce longer and teenagers stayed in high school at a higher rate rather than dropping out to make money.
During the years of the experiment domestic violence rates dropped and mental health issues decreased. These positive outcomes correlated with the experiment even if direct causation couldn’t be demonstrated.
The Canadian experiment is often cited by proponents of the universal basic wage. But other studies point to the limits of the policy. University of Chicago sociologist Susan E. Mayer questioned the impact of direct payments in isolation of other influences on societal outcomes including values and culture.
Mayer’s research showed that increasing family income alone wasn’t enough to improve outcomes. Much of the increased spending went to consumer goods that did not directly impact children’s development.
Conversely, many of the things that lead to better outcomes for children were either inexpensive or free. This includes more books or simply providing love and emotional support.
Mayer found that it was values that drove better outcomes and not money. These values may be correlated with higher family income, but the income alone was not the cause of the better outcomes.
Mayer’s research is not without critics and is caught up in the often-virulent debate on the source of poverty – structural factors or cultural factors.
But the Silicon Valley iteration of universal basic income is far from utopian. It seems like an easy solution to the complexity of the economic disruption expected from AI. The primary focus is not on the poor but instead on the white-collar middle-class workers most likely to be displaced.
Throughout history there have been waves of economic disruption. New jobs have sprouted to replace those that are innovated away and society continues to advance. That doesn’t mean that individuals or segments of the population haven’t suffered.
If there are any common takeaways from the Canadian experiment and Mayer’s research, it is the importance of having purpose. This often comes from a job. Universal basic wages can supplement employment but not replace it.
It is the very traits that employment fosters like dependability, hard work, teamwork and a sense of accomplishment that improve life outcomes. The universal basic wage may assuage the guilt of the creators and promoters of AI but it can’t fix every issue the new technology will cause.
Mark Lamonica
In this week's edition...
The capital gains tax discount is under review. Matthew Maltman and Matt Nolan size up the debate and propose a better, more targeted approach.
A common assumption is that falling house prices are electorally fatal. Manning Clifford suggests there is evidence from upzoning which may indicate affordability can improve without reducing overall housing wealth.
Investors are jumpy as valuations continue to rise and income investing may provide a respite. In a challenging market for income investing AML’s Michael O’Neil offers their top picks.
Brooke Logan explores the benefits of investment bonds. Often overlooked they can be a versatile and tax-effective option for building wealth for retirement, children’s education and other longer-term goals.
Schroders’ CEO Simon Doyle is retiring after 38 years in the finance industry. In James Gruber’s final interview, he sits down with Simon to explore opportunities and risks in markets today.
Market volatility often creeps higher in US midterm election years. Matt Miller and Chris Buchbinder look to market history to see if there are any lessons for investors before November’s election.
Every day seemingly brings more worrisome headlines. Increasing geopolitical tensions has investors on edge but Joe Wiggins outlines how one study shows evidence of a war premium for equity markets.
Lastly, in this week's whitepaper, Heffron outlines everything you need to know about super contributions in 2025/26.
Curated by James Gruber, Mark Lamonica and Leisa Bell
A full PDF version of this week’s newsletter articles will be loaded into this editorial on our website by midday.
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