Why It’s Time for a Universal Basic Income
America is facing an impending crisis with its growing debt, trillion dollar deficits and massive interest payments on the debt. The cost of entitlements is swelling as more baby boomers retire in line with an overall ageing population. Currently, the goal of status quo redistributive welfare programs in America is to distribute taxpayer dollars in a targeted manner for the poor as well as senior citizens. Many of these programs, however, are inefficient mechanisms of allocating public funds and it would be better for welfare recipients to instead receive simpler, more efficient and less expensive direct payments. The fact of the matter is that we cannot continue on the unsustainable path of financing generous and expensive programs such as Social Security, Medicare and Medicaid. We need welfare system reform.
In 1962, renowned libertarian economist Milton Friedman published Capitalism and Freedom, in which he called for the replacement of the government’s system of welfare with a Universal Basic Income (UBI). This may be surprising given that Friedman is hailed by conservatives and libertarians as a free market capitalist who despises government intervention. However, Friedman recognized that not only is a UBI more efficient than our current welfare system, but he treated it essentially as a “negative income tax” that reduces government bureaucracy, enhances the efficiency of free markets, ends disincentivizing work, enables more charitable and volunteering work and promotes social justice and equality as the income amount is the same and there is no discrimination against anyone.
A UBI in theory provides every citizen an unconditional cash transfer on an annual basis of enough cash to be able to afford basic necessities, such as shelter, clothing and food. In contrast, our current welfare system is rooted in means-testing, meaning that it prioritizes giving more money to those with less by taking from those with more.
The UBI is not a brand new idea. It has been around for centuries starting with Thomas More in the early 1500s who believed in that every person should receive a guaranteed income. This idea extended to thinkers such as Thomas Spence, Marquis de Condorcet and Thomas Paine in the late 1700s as they called for a guaranteed income for all citizens. The UBI as a policy proposal rose to prominence when President Nixon wanted all citizens of the U.S. to be guaranteed at least $1,600 a year ($10,000 in today’s dollars).
Nixon was not only intrigued by the idea, but wanted evidence to back up its implementation. Several million dollars were budgeted to provide a basic income for more than 8,500 Americans in New Jersey, Pennsylvania, Iowa, North Carolina, Indiana, Seattle, and Denver. The results speak for themselves. The researchers found that reductions in working hours were limited across the board and were not significant to warrant any “doomsday scenario” with a UBI. Moreover, in every state where work hours decreased even negligibly, it was mostly people in their twenties and women with young children who worked less. One of the biggest criticisms of the UBI is that it would discourage work and lead people to live off of a government check. Not only do the Nixon-era experiments refute that notion, but show that it leads people to live more productive lives and redirect attention to other core aspects of life such as family and fun.
In fact, the experiments were overwhelmingly in support of a UBI. “The "declines in hours of paid work were undoubtedly compensated in part by other useful activities, such as search for better jobs or work in the home,” noted the Seattle experiment’s concluding report. For example, one mother who had dropped out of high school worked less in order to earn a degree in psychology and get a job as a researcher. Another woman took acting classes; her husband began composing music. “We’re now self-sufficient, income-earning artists,” she told the researchers. Among youth included in the experiment, almost all the hours not spent on paid work went into more education. Among the New Jersey subjects, the rate of high school graduations rose 30%.” These are all socially and economically beneficial outcomes that prove superior to the status quo and desirable in the 21st century.
Nixon’s plan would have been a huge step in the right direction to eradicate poverty once and for all, but alas it failed in the Senate, and no serious proposals have been made since. However, due to the changing times and skewed incentives of our current welfare system, it is time for the United States to reconsider the option.
Why a UBI is Better Than the Status Quo and Improves Overall Social Welfare
A UBI would improve overall social welfare better than the status quo in many key ways. For starters, the War on Poverty has raged on since 1964 when Lyndon B. Johnson responded to the official poverty rate of roughly 19 percent and led Congress to pass the Economic Opportunity Act. However, since the War on Poverty was declared, the official poverty rate is still over 13 percent, which is around the same as it was in 1964. Moreover, although the Trump Administration recently declared the War on Poverty “largely over”, poverty remains a huge problem in America. A universal basic income has the potential to fix that permanently.
If we provide a guaranteed basic income in our current capitalist system, people will be free to engage in non-market-oriented, socially productive activity. As many scholars such as Robert Putnam in Bowling Alone have noted, social capital in America, as defined by the number of non-government organizations in existence and other social factors, has been on an alarming declining trend. There are several activities which many people want to do but private markets and public institutions both fail to provide incentives for these outcomes to occur. For instance, modern economics does not incentivize care-giving labor—of children, of the elderly, and in many situations, of the ill. Engagement in the arts, in politics, and in various kinds of community service would also be facilitated by UBI. UBI makes it possible for people to choose to do this kind of activity without having to enter into an employment relation. In this way it contributes to a shift in the balance of power within class relations and further promotes equity and fairness.
Basic income also provides an economic freedom because individuals are less directly dependent on employers for sustenance, which firmly establishes each individual's status as a free person. The current relationship between employers and employees is that employees often need to work just to provide for themselves, namely those working in low-skill professions. With a universal income guarantee, individuals would be able to pursue different occupations for beyond the sake of just providing for themselves which relieves economic anxiety and promotes creativity. This is also an efficient outcome as theoretically, more people would pursue what they are good at or discover some untapped potential private markets overlook. The increase in leisure time is also beneficial directly to mental health and happiness, things that modern economics does not include in measures of productivity and welfare.
Additionally, the UBI can be one way to promote social justice and equity for historically underprivileged and underrepresented groups. For instance, low-paying jobs such as retail are more likely to be held by blacks and Hispanics than whites or Asians and employees do not have much leverage over their wages or hours. This is the case with several other low-wage professions and leads to families becoming trapped in a cycle of poverty while being unable to afford basic necessities. A UBI would free these hardworking yet underappreciated folks from being chained to their jobs that have excruciatingly low wage growth and little room for socioeconomic mobility. Another recent study from the Brookings Institution found that the pain and cost of losing one’s job is not the same across racial groups—it is more stressful for black Americans than other groups. They cite a likely reason being the difference in net worth between races as whites have more savings, household value and overall assets to rely on while searching for another job, a luxury for many black Americans. The UBI is a remedy to this problem. Providing a direct check to members of these groups who are disproportionately in poverty would go a long way in empowering minority communities to rise above poverty and achieve socioeconomic equality. The blowback and cost from losing a job or demanding better pay would be reduced as employees have a basic income to fall back on, leading to happier outcomes and more productive citizens. While this doesn’t address other policy issues negatively affecting these groups or institutional racism, the UBI helps to level the playing field for underprivileged groups in an attempt to help secure further economic, civil and social freedoms.
An additional concern that the UBI addresses is the threat of automation in displacing millions of jobs, namely low-skill ones. The current system of welfare was created with the goal of providing temporary relief during unemployment so that people can return to the workforce. However, this will prove to be impossible when the rise of artificial intelligence and more automation eat up millions of jobs. For instance, self-driving cars threaten to replace up to 3.4 million low-skill jobs and it is easy to imagine that food services and other fields might be soon to follow. This is expected to occur in a manner that is drastically more severe than previous displacements such as the Industrial Revolution. These millions of jobs that are lost means that millions of households will lose income from wages. Here, the UBI becomes a savior. The reason that many of the UBI’s supporters include tech moguls such as Mark Zuckerberg and Elon Musk is that they anticipate the need for providing citizens with disposable income when there will be less jobs in the future, especially less low-skilled ones. When people lose their jobs and consumption takes a steep downturn as a result of automation, there needs to be a way to continue encouraging consumption and empowering people to invest their time in education and job training programs they may not currently have the time for working at dead-end jobs that will be replaced anyway.
The Challenges With UBI
One major argument against a UBI is that it would discourage people from working. Opponents say that nobody will want to work because they have a cushion from the government which will further lead to falling tax revenues meaning the government won’t be able to fund the program either. In other words, critics argue that since basic necessities can be purchased with the government check, no one will want to work. However, this concern while valid, misses a few key intricacies and overlooks the role the size of the check would play. With a UBI, welfare benefits do not decrease for individuals as their incomes rise so there is actually little disincentive for people to drop out of work. Unless they prefer only having the necessities in life and not affording any other goods, most people will not drop out of the workforce and labor force with a UBI. Rather, since people get to keep the additional income they earn and not lose benefits, there is actually more of an incentive to work with the UBI than is with the status quo welfare system.
While it makes sense that a UBI would have some effect on disincentivizing work as any welfare program or government handout inevitably does, this also depends on the magnitude of the benefits that the program offers. The disincentive in fact could be negligent and very low and people may rather be incentivized to work in order to supplement their incomes. For instance, in a prominent Canadian experiment with a basic income plan known as the Mincome experiment in rural Dauphin, Manitoba, there were only slight reductions in hours worked during the experiment. Moreover, the only two groups who worked significantly less were new mothers and teenagers working to support their families. Within these groups, the new mothers actually spent the time not working with their newborn children while the teenagers put a substantial amount of additional time into their education and studies.
Another example is The Alaska Permanent Fund Dividend program that has been in place for the past 25 years, with money distributed from the oil reserve royalties earned in the state. The program makes annual unconditional cash payments that amount to $2,000 per Alaskan resident. According to a report summarizing the program’s results thus far, “it is reasonable to expect an unconditional cash transfer, such as a universal income, to decrease employment,” the authors say. “A key concern with a universal basic income is that it could discourage people from working, but our research shows that the possible reductions in employment seem to be offset by increases in spending that in turn increase the demand for more workers.” The researchers found that the unconditional payments to residents had no real impact upon full-time employment levels and that part-time work increased by about 17%.
Another study that shows that the fears of a decline in work incentives are exaggerated was a pilot project that implemented a basic income grant in 2008 and 2009 in the Namibian village of Omitara. The results and several evaluations of the project after it ended found that total economic activity actually grew, especially through the growth of small businesses and the enhancement of local markets due to the increase in households’ purchasing power. Additionally, the residents in the treatment group had been raised out of the lowest levels of poverty and now the program has been expanded to other villages with similar levels of success. The increase in economic growth here is also tied to the fact that a basic income would sustain people while they invest in education to get more interesting and well-paid jobs with increased productivity and human capital stock.
Some opponents of the UBI also point out that the program can be very expensive and that proponents offer no way to fund it in a manner superior to the status quo. Admittedly, writing a check of a certain amount to every citizen above a certain age in the U.S. will not be chump change. At the same time, extreme views that say that there will need to be a massive increase in taxes and socialism to steal from the most productive and hardworking citizens are misguided. These arguments do not account for the several economic benefits of a UBI. Specifically, think about the demand-side boom that the economy will experience from a UBI. The money given will be almost immediately spent and the demand for goods and services will mushroom. This leads to a cycle where the economy expands and working-class people are doing better. The rich do not always spend their wealth in its most productive uses to grow the economy and a UBI will help fix that.
UBI is Feasible
A UBI is in fact quite popular among college students, including here at Dartmouth. In fact, a survey conducted by the college polling website Pulse found that if a referendum on UBI were to be held today, 50 percent of college students would vote yes, 34 percent no, and 16 percent are unsure. Another 51 percent believe everyone in the U.S. is entitled to a basic standard of living and 60 percent strongly or somewhat support paying higher taxes to pay for a UBI. When asked how much each person should be given annually with a UBI, the median survey response was $12,000. This amount is in line with what Nixon had in mind and an amount that would cover basic expenses for American families.
The UBI has strong potential for bipartisan support from liberals and conservatives. For liberals such as myself, the UBI represents an opportunity to tackle poverty on its heels by expanding welfare and boosting socioeconomic equality. For conservatives, the UBI as stated earlier is a more efficient form of welfare than the status quo and can lead to slashing other more inefficient entitlements such as Medicare or Social Security. In today’s hyperpolarized society, a feasibly bipartisan measure that eliminates poverty, boosts happiness and advances social justice among other positives should be a no-brainer.