Long-term unemployment is a big thing in Germany, and they are essentially getting a UBI-equivalent (generous housing including utilities, health care, TV etc, cash, ~1000€ a month in total on average). While it's hard to quantify "productive use of their lives", it's certainly not productive in a contributing-to-society kind of way, and there's also no creative explosion happening.

I believe the big misunderstanding is that intrinsically motivated people assume everybody is like them. But most people are not like them at all, so what might work for you will probably not work for them.