Economic News
Universal Basic Income: What It Is and What People Are Saying About It
In recent years, universal basic income has been discussed by several notable figures, including Silicon Valley totems Elon Musk and Mark Zuckerberg as well as political notables like Barack Obama and Bernie Sanders. Yet, while you might assume that, based on those names, UBI was strictly a progressive platform issue, the truth is that different versions of the idea have been floated by libertarians on the fiscal far right and leftists alike (although the details can vary greatly). As a result, the topic has been gaining steam lately resulting in numerous articles exploring the possibilities, as well as public and private pilot programs launching domestically and abroad. Add in the release of the book Give People Money by Annie Lowrey last year and now 2020 Democratic Presidential candidate Andrew Yang making UBI the star of his campaign platform and it’s easy to see that the discussion around the concept is growing exponentially.
So what exactly is universal basic income and what are people saying about it? Let’s take a look at the idea of universal basic income, why it may be necessary for the future, the potential benefits of such a system, and some the arguments against it:
What is UBI and Why Might it Be Necessary?
What is Universal Basic Income?
The idea behind universal basic income (or “UBI” for short) is to give everyone in a given community a no-strings-attached payment they can use however they see fit. For example, in her book, Lowrey continually returns to the premise of sending $1,000 to every U.S. adult each month, meaning they’d make at least $12,000 a year regardless of their other endeavors or lack thereof. Thus, these funds would make up an income floor that no one would dip below.
Reasons for Why It’s Needed (Or May Be)
Robots
Perhaps the most cited reason for why universal basic income is becoming a hot topic now has to do with the growth in automation. Beyond the reduction in manufacturing jobs that have long been seen as a threat to blue-collar workers, everything from fast food ordering kiosks to autonomous driving technologies seemingly signal a shift from human workforces to robots. If that’s the case, the U.S. could soon be facing a major employment crisis as, to put it in apocalyptic sci-fi terms, the machines take over. As a result, a UBI may be necessary to support the throngs of displaced workers.
To be fair, there are some that argue that the advent of automation won’t actually mean fewer jobs — just different ones. Still, there’s little doubt that the workers being replaced would need to be trained in order to join the new fields being created. Once again, UBI could be used to smooth out this transition and serve as a viable alternative to either trying to hold back advancements in automation or putting a major strain on the country’s current social safety nets.
Social Security insolvency
There’s a good chance you’ve at least heard some rumblings about potential problems facing the nation’s social security system. Of course, like most economic and politically-tinged matters these days, there’s debate about just how bad those problems are. Still, the latest Social Security Trustees’ report suggests that the general fund will run out by 2034. That said, current tax revenues would still allow the system to pay out 77% of benefits (which is why some have argued the “insolvency” warnings are hyperbolic).
Regardless of whether true insolvency is on the horizon, it’s hard to argue that the current social security system doesn’t have issues — issues that could potentially be fixed by a universal basic income. As you’ll see a bit later, there are multiple schools of thought on how UBI could either be used to replace social security as we know it or to supplement the system as we transition. In either case, this long-running program is certainly playing a role in current UBI discussions.
The Gig Economy
Depending on which side of the political spectrum you fall on, the term “gig economy” may be a pejorative signaling a “race to the bottom” or an exciting prospect that’s increasing worker choice. Setting that debate aside, the number of self-employed individuals, freelancers, and contractors is growing. In fact, estimates suggest that independent contractors will make up 50% of the American workforce by 2020. The problem is that gig economy jobs typically come sans benefits such as health insurance, retirement savings plans, etc., while also offering unpredictable income. This is something that could also be addressed by UBI — perhaps even repairing the reputation of the gig economy in the process.
Where Has UBI Been Tried and What Plans Have Been Proposed?
First the bad news: it’s nearly impossible to point to any current test of universal basic income and assume that the same exact results could be replicated with a nationwide program in America. Despite that reality, it is still interesting to note where various UBI principals have been explored so far.
Perhaps the most notable test of UBI is actually set to take place stateside. As part of an 18-month test, 100 residents of Stockton, California will receive $500 a month in no-strings-attached payments. Sadly the program just began in February, meaning results of the pilot program won’t be available for some time.
Stepping outside of the United States, Finland is also currently experimenting with the concept of UBI, granting 2,000 citizens with payments of €560 (currently about $640 USD) regardless of employment status or wealth. With that program about half way complete, early data shows mixed results. While reports show that those receiving the unconditional payments were happier and less stressed than those receiving traditional benefits, the program has yet to show an increase in jobs. Commenting on these findings, researcher Minna Ylikanno said, “The basic income may have a positive effect on the wellbeing of the recipient even though it does not in the short term improve the person’s employment prospects.” Of course “in the short term” could be the key phrase here as we won’t have full test results for another two years.
These are just a few of the many basic income tests that have been tried, are currently underway, or are being discussed (for many more, I recommend checking out Lowrey’s book). For better or worse, each of these programs seems to be taking on a different shape and execution, meaning the data gained from them won’t necessarily be applicable to the needs of other cities, states, and countries. Still, these are the much-needed first steps that could one day bring a universal basic income system to the United States and beyond.
Andrew Yang’s 2020 Campaign and “The Freedom Dividend”
As I mentioned earlier, one of the recent developments that’s brought universal basic income into the mainstream conversation is the 2020 presidential campaign of Democrat Andrew Yang. Currently the serial entrepreneur is polling at about 1% in the crowded field but has picked up enough individual donors to claim a spot in initial debates. While Yang is quick to point out that he has several other unique policy proposals, there’s no doubt that UBI is at the heart of his pitch to voters. Like many touting basic income these days, Yang’s largest concern is automation fundamentally changing the U.S. economy and sees basic income payments as a way to prevent a host of negative issues that could impact the country.
Dubbed “The Freedom Dividend” — which Yang admits is a phrase that tested the best among partisans on both sides — the plan would give every American citizen over the age of 18 $1,000 a month tax-free and with no-strings-attached. Moreover the plan models a true UBI as even the Jeff Bezoses of the world would receive this monthly payment. As Yang notes, this $1,000 a month wouldn’t even be noticed by the wealthy but could make a major difference in the lives of those living paycheck to paycheck. Moreover, as noted, he believes these payments will help ease the blow of worker displacement due to automation.
Of course it has yet to be seen how far Yang’s Freedom Dividend carries him into the Democratic primaries but his candidacy is already bringing more attention to the idea of a UBI — along with discussions about the pros and cons of such a plan.
Potential Positive Effects of UBI
Ending poverty and raising the middle class
I should mention that the full title of Lowrey’s book is Give People Money: How a Universal Basic Income Would End Poverty, Revolutionize Work, and Remake the World. Like that title states, easily the largest argument among those in favor of a UBI is that it would eradicate poverty by creating an income floor that no individual could fall beneath. Similarly the added income could help those in the middle class break out of the all-too-common cycle of living paycheck to paycheck.
To ensure that no American lives in poverty, some UBI supporters have suggested setting the level of payments just above the poverty line. Not only will this (by definition) lift the population out of poverty but is also likely to prevent the basic income from being used as an “only income,” if it can be helped. This is to say that payments will be large enough to cover basic needs but not so generous as to encourage intentional unemployment. To that point, since UBI payments are unconditional, workers aren’t disincentivized from earning more, fearing that they’ll lose their benefits — a side effect that some argue exists under current means-tested programs.
As for the middle class, we’ve heard time and time again that the majority of adults couldn’t come up with $500 to cover an emergency. It’s hard to imagine that an extra $1,000 a month wouldn’t be able to fix that problem, while also allowing them to afford healthcare, education, and preparing for retirement. Put simply, a basic income could serve to restore the middle class to what it once was and bring greater prosperity to millions of Americans.
Boosting the economy
A great side effect of giving people money is that they’ll also be spending more. Because of this, economists predict that a universal basic income could boost the U.S. economy significantly. One study conducted by the Roosevelt Institute last year estimates that a $1,000 a month UBI would grow the economy by 12.56% over eight years and add $2.5 trillion to the GDP by 2025. An argument can be made that these increases could help offset the costs a UBI would require.
Greater freedom
Although libertarians may be known to call for the smallest of small government — something that universal basic income might seem incompatible with — one aspect of UBI that’s been touted by the Cato Institute and others is the increased amount of choice that such a system could bring. Since UBI payments are unconditional, recipients are free to spend the money as they see fit. This stands in contrast to means-tested programs like food stamps (WIC and/or SNAP) that may have restrictions on what types of items can be purchased. Furthermore, while these programs might cover their food needs, they don’t necessarily address other necessities such as heating, cooling, transportation, etc.
Universal basic income could offer additional freedom in a much broader sense as well. Arguments have been made that UBI could enable workers to quit their menial jobs in pursuit of higher education or empower individuals to free themselves from abusive relationships that might otherwise prove “too expensive” to leave. The reality is it’s hard to quantify the potential such a system could have on someone’s life.
Spurring entrepreneurship
Speaking of freedoms, a big expectation of UBI supporters is that this reliable cash could serve to support blossoming entrepreneurs. A recent survey found that 45% of those who wanted to open a business held off due to financial concerns. Although $1,000 a month might not add up to enough capital for some businesses, a basic income could give would-be entrepreneurs the security they need to at least give their ideas a shot.
Removing stigma
For as much talk as there is about how some bad apples may be abusing current welfare offerings, something far less discussed are those who may be too intimidated to even apply for services they may be entitled to simply because of the stigma surrounding these means-tested programs. In 2013 The Huffington Post reported that, although around 51 million people qualified for federal nutrition assistance, only around 38 million had signed up for the program. Of course, even if these low-income earners do accept the help, they may still encounter embarrassment when utilizing their benefits, despite moves to more discreet options such as EBT (electronic benefits transfer) cards.
While not all universal basic income proposals include the removal of means-tested programs, making the switch to a UBI will eliminate this stigma of safety net programs for one simple reason: everyone would get the same benefit (or some form of it). This might not mean much to those who aren’t currently utilizing government assistance programs but could make a huge difference in the lives of those that do — or could be and are afraid to.
Increasing efficiency
Returning to our small government libertarian friends, another common argument for UBI is that such a system would be far more efficient than the current arrangements. With a universal basic income, gone would be the bureaucracies of means-tested programs (again, depending on which proposal you’re looking to), replaced with a relatively simple system requiring little oversight. Additionally, for those that complain of welfare abuse, a UBI system would likely prove much harder to “game,” ensuring a fair system all around.
Uniting Americans
In her memoir What Happened reflecting on her 2016 presidential run, former Senator and Secretary of State Hillary Clinton revealed that she had considered making basic income a pillar of her campaign platform. As Vox reports, Clinton based her version of UBI on a policy in Alaska known as the Alaska Permanent Fund, which takes oil royalties the state receives and divvies them up among residents in the form of an annual check. Clinton even says she planned on calling the program “Alaska for America.” She writes “Besides cash in people’s pockets, it would also be a way of making every American feel more connected to our country and to one another — part of something bigger than ourselves.”
Clinton is not alone in thinking that a UBI could prove to grow the connection Americans feel to their country. Some argue the payments could be used as a dividend paid to citizens based on economic performance, akin to profit-sharing arrangements found at many private corporations. Meanwhile others argue that a UBI could help erase the perceived divide between “earners” and “takers” in the country, increasing the “we’re all in this together” notion. Clearly these concepts are hard to quantify but could produce real change were a UBI to be implemented in America.
Arguments Against Universal Basic Income
The cost
Settle in — this is a big one. Simply put, to start issuing unconditional payments to every American would be a huge undertaking that the U.S. could not afford in its current state. To understand just what we’re talking about here, in Give People Money, Lowrey pegs the cost of issuing $1,000 to every U.S. adult each month at roughly $3.9 trillion per year. That’s approximately $1.2 trillion a year more than we currently spend on a whole host of social programs. With that, the question becomes, how do we pay for it?
As I mentioned, there are several different versions of what a UBI in America would look like. On the right, such suggestions for covering the tab include dismantling all current safety net programs, closing some tax loopholes and ending certain deductions, and cutting other such spending. Meanwhile, a common answer on the left is simply to raise taxes on the wealthy. Unfortunately, neither solution is likely to completely cover the cost of a UBI. Furthermore, with each plan, there are trade-offs that could potentially limit or remove some of the stated benefits of UBI.
While there may not be any magic bullet solution, there are some creative ways others have proposed to help alleviate the bill a universal basic income program would require. Looking to the aforementioned automation debate, something that’s not often discussed is how robots will be taxed. After all, in the case of human workers, the government functions by taxing their income. That’s why some have suggested various taxes on automation as well as broader tax code additions such as carbon taxes.
In the case of Yang’s Freedom Dividend, the candidate argues that the $3.9 trillion price tag would come down quickly due to a few elements of his plan. First, while the dividend would take the place of other federal payments for individuals, it wouldn’t completely replace them. Instead those who are part of federal program or receive social security payments would have to choose between retaining their benefits as is or opt for the $1,000 a month. Additionally, Yang is suggesting implementing what’s known as a value-added tax (VAT), which are utilized in several European countries and beyond. As the candidate explains a VAT is “much more efficient way to capture the true value of the American infrastructure and will be increasingly necessary over time as more and more work is done by software, robots and artificial intelligence.” Yang is proposing a 10% VAT to fund his plan, noting that this is about half of European levels.
Of all the issues facing UBI, this is clearly the most difficult to overcome. Then again, there are those that say that the deficit spending a basic income might require will ultimately pay off. In any case, expect this to be a sticking point for many as UBI discussions progress.
UBI will allow people to do nothing
Earlier this year, former Vice President (and potential 2020 presidential candidate?) Joe Biden was asked about universal basic income, in which he called supporters of such a policy “class clueless.” As he explained, “a job is about a lot more than a paycheck.” Biden went on to say, “Getting an annual wage, you sit home and do nothing. You strip people of their dignity.”
This is a sentiment that many opponents of UBI express. Along similar lines, some have suggested a guaranteed work program would be better than unconditional payments, although such a program is rife with its own set of pros and cons. Of course it should also be noted that there’s no clear indication of how many UBI recipients — be they displaced by automation or voluntarily choose to leave the workforce — would forgo employment of any kind. Still, the issue Biden raises is one that certainly warrants discussing.
Easy to cut or grow
If America learned anything from the transition between the Obama and Trump administrations it’s that few programs are set in stone. And while Republicans have found it surprisingly difficult to dismantle the 44th president’s signature health care bill entirely, they have chipped away at it significantly while erasing other Obama-era policies with the flick of a pen. Whether you see this as a step toward Making America Great Again or as disheartening regression is irrelevant — what matters is that, with the political divide seemingly widening, the peaceful transfer of power can come with some major reversals of policy. As a result, some worry that the institution of a universal basic income could be ushered out as quickly as it came in, upending the lives of those who had depended on it.
Making matters worse in such a scenario, if other social programs were cut to make way for a UBI in the first place, low-income earners could be left without a net. Even if politicians didn’t completely wipe out UBI payments, any cuts could deal a major blow to not only the poor but the middle class as well.
On the other end of the same argument, there are those who worry that the popularity of a UBI would bring calls to increase the amount each citizen receives. Deficit hawks would warn that this could take a program that was sustainable and bring it to a level that no longer makes sense. So while there’s no predicting exactly what the future will hold, it’s clear that any UBI policy would need to be truly bipartisan (or, better yet, nonpartisan) to ensure its long-term viability.
Leaving out immigrants
Earlier we talked about how a UBI could help remove the stigma the comes with certain social safety net programs. As mentioned, some have even suggested that a basic income could help repair race relations and heal some of the divides that exist between us. However, at the same time, there are those that worry that a universal basic income would actually cause a larger rift: one between U.S. citizens and undocumented immigrants.
The question of whether such immigrants should be eligible to benefit from any UBI program is a complicated one. On the one hand, including these workers would surely prove controversial and could even doom the bipartisanship that would be essential. Yet, on the other hand, leaving these undocumented workers out of a basic income plan would, again, likely leave them without any sort of safety net. That might be just fine by some but, for others, it’s simply unacceptable and immoral.
Inciting inflation
A common objection to raising the minimum wage is that employers will simply pass the added expenses down to customers. In turn, with everything costing more, the raises workers fought for will be rendered moot. Similarly, there those that say that creating an income floor of $12,000 will just make $12,000 the new $0 by increasing inflation.
Once again, where you land on this issue will likely depend on your political bent and economic school of thought. That of course also means that it will be something hotly debated as UBI discussions continue. Ultimately it will be hard to say for sure whether such effects are likely until a true basic income is instituted on such a scale that they could be measured.
Paying the rich
Sticking to the most literal sense of “universal” in “universal basic income,” even the tippy top of earners — those “top tenth of one percent” that Senator Sanders often talks about — would still receive monthly payments. Obviously, this notion doesn’t sit so well with some. Thus, some proposals have made compromises, drawing the line at various income levels. Others go even further away from the “universal” idea and have suggested a sliding scale for payments.
To be sure, universal basic income would require a major change to American policies, politics, and presumptions. With only a few small-scale pilot studies to go by, it’s also an incredible leap of faith for a nation of our size to take. However, with our world changing at a rapid pace, it seems clear that big changes will be necessary as we move forward.
Complicating matters, even those who agree on the theory of universal basic income might find that the devil is in the details. This is exactly why I think it’s worth discussing these theories and ideas now and working toward a solution — even if it’s not ultimately a UBI — before the problems we are facing get worse. In these Divided States of America, maybe just maybe it will be the idea of a basic income that can help bring us together.
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