Universal Income

A basic income (also called basic income guarantee, unconditional basic income, universal basic income, universal demogrant, or citizen’s income) is a proposed system of social security in which citizens or residents of a country regularly receive a sum of money unconditionally from the government. (Wikipedia)

When I first heard about “universal income,” I laughably dismissed it as extremely naive leftist thinking that was so patently ridiculous that it bordered on satire. The government gives everybody a standard amount of money? Where does that money come from if not the very people it is being given to? Wouldn’t such a policy totally destroy any incentive to work? And then who is going to pay for it?

However, I have since learned that the idea has some interesting substance to it, and it has actually been promoted by several prominent conservative and libertarian thinkers throughout history. Discussion of the old concept has seen much revival across the Internets lately due to global economic trends and the emergence of experiments in various places that have been providing interesting results.

Arguments For Universal Income

Universal income is often promoted as a superior alternative to the plethora of benefit programs provided today. Instead of dispersing an endless array of tax credits, Medicaid, SNAP, WIC, affordable housing subsidies, ‘Obamaphones’, etc, etc, etc, just give people cash!

First, individuals can (in theory) make better decisions about how to spend that money than having it all pre-allocated into various categories by a paternalistic, lobby-inviting bureaucratic system. Second, all of the administrative costs of processing applications and checking for fraud and the like are completely eliminated. Third, the disincentives of steep marginal tax rates, where you start losing benefits as you start making more money, are also completely eliminated.

Additionally, the simplicity is more democratic, as the libertarian’s favorite economist Hayek argued:

The assurance of a certain minimum income for everyone, or a sort of floor below which nobody need fall even when he is unable to provide for himself, appears not only to be wholly legitimate protection against a risk common to all, but a necessary part of the Great Society in which the individual no longer has specific claims on the members of the particular small group into which he was born.

Milton Friedman, the libertarian’s other favorite economist, also endorsed the idea via a “negative income tax.” Now if you are more radical you might prefer no safety net whatsoever, but if we’re going to have something, universal income may be a “more humane and effective” and even cheaper way to deliver welfare than our current ballooning entitlement structures.

Why Now?

If the idea is so old, why is everybody talking about it now? Global trends are making the idea more attractive than it’s ever been. Throughout history, increases in productivity have always eliminated old jobs while creating new ones. As we needed fewer farmers, people moved to the cities to manufacture stuff. As we needed fewer manufacturers, people diversified into all kinds of other work.

But now that we have computers, some think that “this time it’s different.” As artificial intelligence gets better and better, could it end up eliminating more and more jobs at more and more IQ levels? There may always be more jobs to manage and fix and improve the machines, but what if those are more and more elusive? There’s a narrative that globalization has delayed the inevitable outcome of increasing automation, as low wages in Asian countries ran ahead of the potential savings from the robots for a couple decades, but as the low wage pool starts to run out and the robots keep getting smarter, we may finally be getting close to that tipping point – if various metrics of stalled wages and growing inequality don’t mean we’re already there.

There have been a lot of fast-food protests in the US lately from workers demanding wage increases to $15/hour. It’s easy to dismiss their economic naivety, but it’s important not to miss that their unhappiness might be symptoms of global economic trends that might be limiting opportunities for advancement. Computers and robots might be coming to replace their jobs either way. Maybe everybody’s overestimating the future of AI and underestimating the future of employment opportunities, but what if we’re not?

Another reason people are talking so much about universal income is that after decades of theory and discussion, it’s actually starting to be tried, complicating the picture with that terrible inconvenience of empirical evidence.

Evidence for Universal Income

There are charities that have started just giving cash to poor people, with apparently promising, albeit limited, results. GiveDirectly’s transfers are said to “have had positive impacts on nutrition, education, land, and livestock — and haven’t increased alcohol consumption.” If you’re skeptical, apparently the data was convincing enough to Google that they “donated $2.5 million” to the organization.

But these are mostly limited experiments among the poorest of the poor. Maybe they have little to say about long-term programs for the relatively impoverished in developed nations. Well, Switzerland may be getting ready to test that out. I haven’t figured out yet when their referendum is supposed to take place, but if it passes, you can bet every economist will be eagerly watching.

But Could It Work In the US?

Even if Switzerland kicks off a successful basic income system, that still doesn’t mean it would work in the United States. Can small, homogenized nation-states do things our giant “too big to govern” system can’t?

A few weeks ago, the New York Times ran a much-cited long story about the struggles of a homeless child in New York City. It’s easy to read this paragraph about her father and wonder how more money would change anything:

Suddenly, Supreme leaps into the air. His monthly benefits have arrived, announced by a recording on his prepaid welfare phone. He sets off to reclaim his gold teeth from the pawnshop and buy new boots for the children at Cookie’s, a favored discount store in Fulton Mall. The money will be gone by week’s end.

It almost sounds like right-wing satire, not esteemed NYT reporting. How typical is that experience? How much is this sort of short-term thinking affected by the disincentives of the current system and how much would a better system affect it? I believe most stereotypes of the poor are truly stereotypes, but anecdotes can be powerfully discouraging. Even if a universal income system was a net win, Megan McArdle argues that, among other problems, “you only need one story on the nightly news” to make the politics unsustainable.

Indeed, it’s questionable whether such a system could ever arise in the first place. The arbitrary tinkering attempts to save Obamacare reveal the political incentives that perhaps explain why the simple universal health care systems of smaller countries are still not plausible here. With huge interest groups having huge incentives to lobby for huge pieces of huge government pies, we seem to have a knack for making things as complicated as possible, as National Review’s Jim Manzi brilliantly but depressingly explains:

the debate in global-warming circles sometimes pits a “simple, efficient carbon tax” against the politicized mess of the cap-and-trade bill that emerged from Congress. But in that case, the real difference is not that between a theoretical carbon tax and a theoretical cap-and-trade system; it is the difference between an academic idea that has not yet been subjected to lobbying and legislation, on one hand, and real laws that are the product of a democratic process, on the other. In the same way, there is nothing inherent about an NIT [negative income tax] that will prevent Congress from creating thousands of pages of special rules, exemptions, tax expenditures and so on, that are collectively just as convoluted as the current welfare system. After all, “tax each person a given fraction of income” is a pretty simple idea too, but look at the 2011 federal income tax code.

Should we expect any simple “universal income” idea to end up any less mangled by the time it emerged as law, thus eliminating any advantages over our current system? The enormous variation in U.S. cost-of-living alone could make it difficult, if not impossible, to find that sweet spot of income that would provide a helpful floor while still incentivizing more work for most people, before we even begin to consider whether or not it’s affordable.

Still, I see no harm in continuing to argue for a theoretically simpler system as being better than the one we have. As global trends and technological developments continue, it also seems like a better long-term solution than, say, increasing the minimum wage and/or dreaming that growing masses of poor people will somehow become contented and self-reliant. As such, I think I will cautiously join the long tradition of conservative and libertarian thinkers supporting some sort of universal basic income, while eagerly anticipating the coming experiments for signs of discouragement or further reasons to hope.

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2 Responses to Universal Income

  1. My worry would be the transition period. We can’t just flip a switch from the current welfare programs to a universal income; there would have to be some period of time when the two overlap while welfare is phased out and universal income is phased in. But once the universal income starts to phase in, the incentives will be to keep it phasing in at the same rate while delaying the phase-out of the programs it’s supposed to replace until we end up with both systems.

    I would also say that the point of welfare is (should be?) not to make the poor better off, but to help them make themselves better off. With that goal in mind, programs like the Obamaphone and housing subsidies make sense (have you ever tried applying for a job with no contact number on your resume? or going to an interview when you don’t have access to a shower?), while universal income is harder to justify.

    • joshua says:

      I agree that the transition period would likely add to the political disincentives. I’m curious to learn more about Switzerland’s existing system and the referendum’s proposed transition method.

      I agree on the one hand about phone/housing programs making more sense than cash for enabling the poor to improve themselves, but once you start with the clearly useful programs I think it’s hard to know where that stops… I find myself caught between the fiscally conservative notions of trying to spend (my taxpayer) money wisely and the paternalistic liberal notions of deciding the best ways for people to spend money. If food stamps can’t be used for tobacco or alcohol, should we ban soda and candy, as well? Etc.

      I think the theory at least is that universal income is a better way to help the poor make themselves better off, i.e. the international experiments encouraging entrepreneurship. The question is whether or not that would actually be the case in practice in the United States, especially depending on whether or not we compare universal income to all the existing programs or just the ‘clearly useful’ ones.

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