Posts Tagged ‘Basic Income’

Most economic policy debates are predictable. Folks on the left urge higher taxes and bigger government while folks on the right advocate lower taxes and smaller government (thanks to “public choice” incentives, many supposedly pro-market politicians don’t follow through on those principles once they’re in office, but that’s a separate issue).

The normal dividing line between right and left disappears, however, when looking at whether the welfare state should be replaced by a “universal basic income” that would provide money to every legal resident of a nation.

There are some compelling arguments in favor of such an idea. Some leftists like the notion of income security for everybody. Some on the right like the fact that there would be no need for massive bureaucracies to oversee the dozens of income redistribution programs that currently exist. And since everyone automatically would get a check, regardless of income, lower-income people seeking a better life no longer would face very high implicit tax rates as they replaced handouts with income.

But there are plenty of libertarians and small-government conservatives who are skeptical. I’m in this group because of my concern that the net result would be bigger government and I don’t trust that the rest of the welfare state would be abolished. Moreover, I worry that universal handouts would erode the work ethic and exacerbate the dependency problem.

And I have an ally of the other side of the ideological spectrum.

Former Vice President Joe Biden…will push back against “Universal Basic Income,”… UBI is a check to every American adult, but Biden thinks that it’s the job that is important, not just the income. In a blog post…timed to the launch of the Joe Biden Institute at the University of Delaware, Biden will quote his father telling him how a job is “about your dignity. It’s about your self-respect. It’s about your place in your community.”

I often don’t agree with Biden, but he’s right on this issue.

Having a job, earning a paycheck, and being self-sufficient are valuable forms of societal or cultural capital.

By contrast, a nation that trades the work ethic for universal handouts is taking a very risky gamble.

Let’s look at what’s been written on this topic.

In an article for the Week, Damon Linker explores the importance of work and the downside of dependency.

…a UBI would not address (and would actually intensify) the worst consequences of joblessness, which are not economic but rather psychological or spiritual. …a person who falls out of the workforce permanently will be prone to depression and other forms of psychological and spiritual degradation. When we say that an employee “earns a living,” it’s not merely a synonym for “receives a regular lump sum of money.” The element of deserving (“earns”) is crucial. …a job can be and often is a significant (even the primary) source of a person’s sense of self-worth. …A job gives a person purpose, a reason to get up in the morning, to engage with the world and interact with fellow citizens in a common endeavor, however modest. And at the end of the week or the month, there’s the satisfaction of having earned, through one’s own efforts, the income that will enable oneself and one’s family to continue to survive and hopefully even thrive.

Dan Nidess, in a column for the Wall Street Journal, opines about the downsides of universal handouts.

At the heart of a functioning democratic society is a social contract built on the independence and equality of individuals. Casually accepting the mass unemployment of a large part of the country and viewing those people as burdens would undermine this social contract, as millions of Americans become dependent on the government and the taxpaying elite. It would also create a structural division of society that would destroy any pretense of equality. …UBI would also weaken American democracy. How long before the well-educated, technocratic elites come to believe the unemployed underclass should no longer have the right to vote? Will the “useless class” react with gratitude for the handout and admiration for the increasingly divergent culture and values of the “productive class”? If Donald Trump’s election, and the elites’ reactions, are any indication, the opposite is likelier. …In the same Harvard commencement speech in which Mr. Zuckerberg called for a basic income, he also spent significant time talking about the need for purpose. But purpose can’t be manufactured, nor can it be given out alongside a government subsidy. It comes from having deep-seated responsibility—to yourself, your family and society as a whole.

An article in the American Interest echoes this point.

…work, for most people, isn’t just a means of making money—it is a source of dignity and meaning and a central part of the social compact. Simply opting for accelerated creative destruction while deliberately warehousing the part of the population that cannot participate might work as a theoretical exercise, but it does not mesh with the wants and desires and aspirations of human beings. Communities subsisting on UBIs will not be happy or healthy; the spectacle of free public redistribution without any work requirement will breed resentment and distrust.

Writing for National Review, Oren Cass discusses some negative implications of a basic income.

…even if it could work, it should be rejected on principle. A UBI would redefine the relationship between individuals, families, communities, and the state by giving government the role of provider. It would make work optional and render self-reliance moot. An underclass dependent on government handouts would no longer be one of society’s greatest challenges but instead would be recast as one of its proudest achievements. Universal basic income is a logical successor to the worst public policies and social movements of the past 50 years. These have taken hold not just through massive government spending but through fundamental cultural changes that have absolved people of responsibility for themselves and one another, supported destructive conduct while discouraging work, and thereby eroded the foundational institutions of family and community that give shape to society. …Those who work to provide for themselves and their families know they are playing a critical and worthwhile role, which imbues the work with meaning no matter how unfulfilling the particular task may be. As the term “breadwinner” suggests, the abstractions of a market economy do not obscure the way essentials are earned. A UBI would undermine all this: Work by definition would become optional, and consumption would become an entitlement disconnected from production. Stripped of its essential role as the way to earn a living, work would instead be an activity one engaged in by choice, for enjoyment, or to afford nicer things. …Work gives not only meaning but also structure and stability to life. It provides both socialization and a source of social capital. It helps establish for the next generation virtues such as responsibility, perseverance, and industriousness. …there is simply no substitute for stepping onto the first rung. A UBI might provide the same income as such a job, but it can offer none of the experience, skills, or socialization.

Tyler Cowen expresses reservations in his Bloomberg column.

I used to think that it might be a good idea for the federal government to guarantee everyone a universal basic income, to combat income inequality, slow wage growth, advancing automation and fragmented welfare programs. Now I’m more skeptical. …I see merit in tying welfare to work as a symbolic commitment to certain American ideals. It’s as if we are putting up a big sign saying, “America is about coming here to work and get ahead!” Over time, that changes the mix of immigrants the U.S. attracts and shapes the culture for the better. I wonder whether this cultural and symbolic commitment to work might do greater humanitarian good than a transfer policy that is on the surface more generous. …It’s fair to ask whether a universal income guarantee would be affordable, but my doubts run deeper than that. If two able-bodied people live next door to each other, and one works and the other chooses to live off universal basic income checks, albeit at a lower standard of living, I wonder if this disparity can last. One neighbor feels like she is paying for the other, and indeed she is.

In a piece for the City Journal, Aaron Renn also comments on the impact of a basic income on national character. He starts by observing that guaranteed incomes haven’t produced good outcomes for Indian tribes.

…consider the poor results from annual per-capita payments of casino revenues to American Indian tribes (not discussed in the book). Some tribes enjoy a very high “basic income”—sometimes as high as $100,000 per year— in the form of these payments. But as the Economist reports, “as payment grows more Native Americans have stopped working and fallen into a drug and alcohol abuse lifestyle that has carried them back into poverty.”

And he fears the results would be equally bad for the overall population.

Another major problem with the basic-income thesis is that its intrinsic vision of society is morally problematic, even perverse: individuals are entitled to a share of social prosperity but have no obligation to contribute anything to it. In the authors’ vision, it is perfectly acceptable for able-bodied young men to collect a perpetual income while living in mom’s basement or a small apartment and doing nothing but play video games and watch Internet porn.

Jared Dillian also looks at the issue of idleness in a column for Bloomberg.

I do not like the idea of a universal basic income. Its advocates fundamentally misunderstand human nature. What they do not realize about human beings is that for the vast majority of them, a subsistence level of income is enough — and those advocates are blind to the corrosive effects that widespread idleness would have on society. If you give people money for doing nothing, they will probably do nothing. …A huge controlled experiment on basic income has already been run — in Saudi Arabia, where most of the population enjoys the dividends of the country’s oil wealth. Saudi Arabia has found that idleness leads to more political extremism, not less. We have a smaller version of that controlled experiment here in the U.S. — for example, the able-bodied workers who have obtained Social Security Disability Insurance payments and are willing to stay at home for a piddling amount of money. …the overarching principle is that people need work that is worthwhile, for practical and psychological reasons. If we hand out cash to anyone who can fog a mirror, I figure we are about two generations away from revolution.

By the way, it’s not just American Indians and Saudi Arabians that are getting bad results with universal handouts.

Finland has been conducting an experiment and the early results don’t look promising.

The bottom line is that our current welfare system is a dysfunctional mess. It’s bad for taxpayers and recipients.

Replacing it with a basic income probably would make the system simpler, but at a potentially very high cost in terms of cultural capital.

That’s why I view federalism as a much better approach. Get Washington out of the redistribution racket and allow states to compete and innovate as they find ways to help the less fortunate without trapping them in dependency.

Read Full Post »

The notion that government should automatically give everyone money – a policy known as “universal basic income” – is now getting a lot of attention.

From an economic perspective, I acknowledge that the idea should not be summarily rejected. Here’s some of what I wrote earlier this year.

…there actually is a reasonable argument that the current welfare state is so dysfunctional that it would be better to simply give everyone a check instead.

But I’m nonetheless very skeptical. Simply stated, the math doesn’t work, people would have less incentive to work, and there would be “public choice” pressures to expand the size of the checks.

So when the topic came up as part of a recent interview, I criticized the proposal and praised Swiss voters for rejecting – by an overwhelming margin – a referendum that would have created a basic income in that nation.

My reaction was probably even more hostile than normal because I don’t like it when guilt-ridden rich people try to atone for their wealth by giving away my money.

Moreover, it’s silly for Zuckerberg to use Alaska as an example because of its oil wealth and small population.

That being said, if I had more time, I would have been more nuanced and pointed out that we hopefully will learn more from some of the experiments that are happening around the world. Especially what’s happening on the other side of the north pole from Alaska.

The New York Times published an in-depth preview of Finland’s experiment late last year. Here’s a description of the problem that Finnish policymakers want to solve.

…this city has…thousands of skilled engineers in need of work. Many were laid off by Nokia… While entrepreneurs are eager to put these people to work, the rules of Finland’s generous social safety net effectively discourage this. Jobless people generally cannot earn additional income while collecting unemployment benefits or they risk losing that assistance. For laid-off workers from Nokia, simply collecting a guaranteed unemployment check often presents a better financial proposition than taking a leap with a start-up.

For anyone who has studied the impact of redistribution programs on incentives to work, this hardly comes as a surprise.

Indeed, the story has both data and anecdotes to illustrate how the Finnish welfare state is subsidizing idleness.

In the five years after suffering a job loss, a Finnish family of four that is eligible for housing assistance receives average benefits equal to 73 percent of previous wages, according to data from the Organization for Economic Cooperation and Development. That is nearly triple the level in the United States. …the social safety net…appears to be impeding the reinvigoration of the economy by discouraging unemployed people from working part time. …Mr. Saloranta has his eyes on a former Nokia employee who is masterly at developing prototypes. He only needs him part time. He could pay 2,000 euros a month (about $2,090). Yet this potential hire is bringing home more than that via his unemployment benefits. “It’s more profitable for him to just wait at home for some ideal job,” Mr. Saloranta complains.

So the Finnish government wants to see if a basic income can solve this problem.

…the Finnish government is exploring how to change that calculus, initiating an experiment in a form of social welfare: universal basic income. Early next year, the government plans to randomly select roughly 2,000 unemployed people — from white-collar coders to blue-collar construction workers. It will give them benefits automatically, absent bureaucratic hassle and minus penalties for amassing extra income. The government is eager to see what happens next. Will more people pursue jobs or start businesses? How many will stop working and squander their money on vodka? Will those liberated from the time-sucking entanglements of the unemployment system use their freedom to gain education, setting themselves up for promising new careers? …The answers — to be determined over a two-year trial — could shape social welfare policy far beyond Nordic terrain.

The results from this experiment will help answer some big questions.

…basic income confronts fundamental disagreements about human reality. If people are released from fears that — absent work — they risk finding themselves sleeping outdoors, will they devolve into freeloaders? “Some people think basic income will solve every problem under the sun, and some people think it’s from the hand of Satan and will destroy our work ethic,” says Olli Kangas, who oversees research at Kela, a Finnish government agency that administers many social welfare programs. “I’m hoping we can create some knowledge on this issue.” …Finland’s concerns are pragmatic. The government has no interest in freeing wage earners to write poetry. It is eager to generate more jobs.

As I noted above, this New York Times report was from late last year. It was a preview of Finland’s experiment.

People have been getting checks for several months. Are there any preliminary indications of the impact?

Well, the good news is that recipients apparently like getting free money. Here are some excerpts from a report by Business Insider.

…some of the 2,000 recipients are already reporting lower levels of stress. The $600 they receive each month might not be much, but it’s enough to put some people’s anxiety at ease.

But the bad news is that the handouts are giving people the flexibility to reject work.

Marjukka Turunen, head of Kela’s legal benefits unit, told Kera News. “There was this one woman who said: ‘I was afraid every time the phone would ring, that unemployment services are calling to offer me a job,'”… Scott Santens, a basic income advocate and writer…says basic income redistributes power into the middle-class — namely, to turn down unappealing jobs.

The last sentence of the excerpt is particularly worrisome. Some advocates think universal handouts are good precisely because people can work less.

It’s obviously too early to draw sweeping conclusions, especially based on a couple of anecdotes.

However, a recent column in the New York Times by two left-leaning Finns suggests that the data will not be favorable to universal handouts. The authors start with a basic explanation of the issue.

Universal basic income is generating considerable interest these days, from Bernie Sanders, who says he is “absolutely sympathetic” to the idea, to Mark Zuckerberg, Facebook’s chief executive, and other tech billionaires. The basic idea behind it is that handing out unconditional cash to all citizens, employed or not, would help reduce poverty and inequality… As a rich country in the European Union, with one of the highest rates of social spending in the world, Finland seemed like an ideal testing ground for a state-of-the-art social welfare experiment. …Kela, the national social-insurance institute, randomly selected 2,000 Finns between 25 and 58 years of age who were already getting some form of unemployment benefits. The subsidies were offered to people who had been unemployed for about one year or more, or who had less than six months of work experience.

But then they denigrate the study.

…the Finnish trial was poorly designed… The trial size was cut to one-fifth of what had originally been proposed, and is now too small to be scientifically viable. Instead of giving free money to everyone, the experiment is handing out, in effect, a form of unconditional unemployment benefits. In other words, there is nothing universal about this version of universal basic income. …The government has made no secret of the fact that its universal basic income experiment isn’t about liberating the poor or fighting inequality. Instead, the trial’s “primary goal” is “promoting employment,” the government explained in a 2016 document proposing the project to Parliament. Meaning: The project was always meant to incentivize people to accept low-paying and low-productivity jobs.

Maybe I’m reading between the lines, but it sounds like they are worried that the results ultimately will show that a basic income discourages labor supply.

Which reinforces my concerns about the entire concept.

Yes, the current system is bad for both poor people and taxpayers. But why would anyone think that we’ll get better results if we give generous handouts to everyone?

So if we replace all those handouts with one big universal handout, is there any reason to expect that somehow people will be more likely to find jobs and contribute to the economy?

Again, we need to wait another year or two before we have comprehensive data from Finland. But I’m skeptical that we’ll get a favorable outcome.

P.S. The Wizard-of-Id parody shown above contains a lot of insight about labor supply and incentives. As does this Chuck Asay cartoon and this Robert Gorrell cartoon.

P.P.S. Since I rarely write about Finland, I should point out that it is ranked #20 for economic liberty, only four spots behind the United States (and the country is more pro-market than America when looking at non-fiscal policy factors).

P.P.P.S. On the minus side, Finland has decided that broadband access is somehow a human right. On the plus side, the country’s central bank produces good research on the burden of government spending, and its former president understood the essential flaw of Keynesian economics.

Read Full Post »

Since I can’t even keep track of schools of thought on the right (libertarians, traditional conservatives, neocons, reform conservatives, compassionate conservatives, Trump-style populists, etc), I’m not going to pretend to know what’s happening on the left.

But it does appear that something significant – and bad – is happening in the statist community.

Traditionally, folks on the left favored a conventional welfare state, which revolved around two components.

  1. Means-tested programs for the ostensible purpose of alleviating poverty (e.g.., Medicaid, food stamps, welfare, etc).
  2. Social-insurance programs for the ostensible purpose of alleviating sickness, unemployment, and aging (e.g., Social Security, Medicare, unemployment insurance, etc).

This agenda was always a bad idea for both macro and micro reasons, and has become a very bad idea because of demographic changes.

But now the left has expanded its goals to policies that are far more radical. Instead of a well-meaning (albeit misguided) desire to protect people from risk, they now want coerced equality.

And this agenda also has two components.

  1. A guaranteed and universal basic income for everyone.
  2. Taxes and/or earnings caps to limit the income of the rich.

Taking a closer look at the idea of basic income, there actually is a reasonable argument that the current welfare state is so dysfunctional that it would be better to simply give everyone a check instead.

But as I’ve argued before, this approach would also create an incentive for people to simply live off taxpayers. Especially if the basic income is super-generous, as was proposed (but fortunately rejected by an overwhelming margin) in Switzerland.

I discuss the pros and cons in this interview.

By the way, one thing that I don’t mention in the interview is my fear that politicians would create a basic income but then not fully repeal the existing welfare state (very similar to my concern that politicians would like to have a national sales tax or value-added tax without fully eliminating the IRS and all taxes on income).

Now let’s shift to the left’s class-warfare fixation about penalizing those with high incomes.

This isn’t a new phenomenon, of course. We’ve had ideologues such as Bernie Sanders, Thomas Piketty, and Matt Yglesias arguing  in recent years for confiscatory tax rates. It appears some modern leftists actually think the economy is a fixed pie and that high incomes for some people necessitate lower incomes for the rest of us.

And because of their fetish for coerced equality, some of them even want to explicitly cap incomes for very valuable people.

The nutcase leader of the U.K. Labour Party, for instance, recently floated that notion. Here are some excerpts from a report in the Guardian.

Jeremy Corbyn has called for a maximum wage for the highest earners… The Labour leader would not give specific figures, but said radical action was needed to address inequality. “I would like there to be some kind of high earnings cap, quite honestly,” he told BBC Radio 4’s Today programme on Tuesday. When asked at what level the cap should be set, he replied: “I can’t put a figure on it… It is getting worse. And corporate taxation is a part of it. If we want to live in a more egalitarian society, and fund our public services, we cannot go on creating worse levels of inequality.” Corbyn, who earns about £138,000 a year, later told Sky News he anticipated any maximum wage would be “somewhat higher than that”. “I think the salaries paid to some footballers are simply ridiculous, some salaries to very high earning top executives are utterly ridiculous. Why would someone need to earn more than £50m a year?”

This is so radical that even other members of the Labour Party have rejected the idea.

Danny Blanchflower, a former member of Corbyn’s economic advisory committee, said he would have advised the Labour leader against the scheme. In a tweet, the former member of the Bank of England’s monetary policy committee said it was a “totally idiotic, unworkable idea”. …Labour MPs expressed reservations… Reynolds also expressed some uncertainty. “I’m not sure that I would support that,” she told BBC News. “I would like to see the detail. I think there are other ways that you can go about tackling income inequality… Instinctively, I don’t think [a cap] probably the best way to go.”

The good news, relatively speaking, is that Crazy Corbyn has been forced to backtrack.

Not because he’s changed his mind, I’m sure, but simply for political reasons. Here’s some of what the U.K.-based Times wrote.

Jeremy Corbyn’s attempt to relaunch his Labour leadership descended into disarray yesterday as he backtracked on a wage cap… The climbdown came after members of the shadow cabinet refused to back the idea of a maximum income while former economic advisers to Mr Corbyn criticised it as absurd.

There don’t seem to be many leftists in the United States who have directly embraced this approach, though it is worth noting that Bill Clinton’s 1993 tax hike included a provision disallowing deductibility for corporate pay over $1 million.

And that policy was justified using the same ideology that politicians should have the right to decide whether some people are paid too much.

In closing, I can’t help but wonder whether my statist friends have thought about the implications of their policies. They want the government to give everyone a guaranteed basic income, yet they want to wipe out high-income taxpayers who finance the lion’s share of redistribution.

I’m sure that work marvelously in the United States. Just like it’s producing great outcomes in place like Greece and Venezuela.

Read Full Post »

Like America’s Founders, I like constitutional constraints on government and dislike untrammeled majoritarianism.

So my gut instinct is to reject Swiss-style direct democracy as a governing system.

Yet I have to give credit to the Swiss people for being very sensible when asked to vote in national referendums. Here are some recent results.

And don’t forget they voted by a landslide margin in favor of a spending cap back in 2001.

Now they’ve done it again.

Voters were asked today to decide whether every adult should automatically receive more than $2,500 per month as part of a guaranteed basic income.

Sounds like a nice free lunch, right? That offer might be very attractive in a place like France, but Swiss voters apparently understand that government can’t give all that money to people without first taking that amount of money from people. They rejected Bernie-nomics by an overwhelming margin.

In Switzerland, there don’t appear to be left-wing blue states and right-wing red states. Instead, the entire nation favors limited government. Even the French-speaking parts of the country voted against the scheme.

I’d like to take credit for these results. I was in Switzerland early last month to discuss and debate this plan. Here’s what I said (click here to watch the entire panel discussion).

In reality, I’m sure my remarks didn’t have any impact on the outcome. Nonetheless, it’s nice to be on the winning side.

Though you may have noticed that I said some nice things about a guaranteed basic income in my presentation. That’s because, as I wrote back in 2013, these plans also would get rid of the current dysfunctional welfare state.

Writing in the Wall Street Journal a couple of days ago, Charles Murray of the American Enterprise Institute makes the best possible case for an automatic government-provided income.

The UBI has brought together odd bedfellows. Its advocates on the left see it as a move toward social justice; its libertarian supporters (like Friedman) see it as the least damaging way for the government to transfer wealth from some citizens to others. Either way, the UBI is an idea whose time has finally come… First, my big caveat: A UBI will do the good things I claim only if it replaces all other transfer payments and the bureaucracies that oversee them. If the guaranteed income is an add-on to the existing system, it will be as destructive as its critics fear.

Here are the highlights of Murray’s plan.

…the system has to be designed with certain key features. In my version, every American citizen age 21 and older would get a $13,000 annual grant deposited electronically into a bank account in monthly installments. …The UBI is to be financed by getting rid of Social Security, Medicare, Medicaid, food stamps, Supplemental Security Income, housing subsidies, welfare for single women and every other kind of welfare and social-services program, as well as agricultural subsidies and corporate welfare. As of 2014, the annual cost of a UBI would have been about $200 billion cheaper than the current system. By 2020, it would be nearly a trillion dollars cheaper. …Under my UBI plan, the entire bureaucratic apparatus of government social workers would disappear.

And while he acknowledges that some people will stop working and live off their handouts, he makes a reasonably persuasive argument that some people will be encouraged to enter the labor force.

Under the current system, taking a job makes you ineligible for many welfare benefits or makes them subject to extremely high marginal tax rates. Under my version of the UBI, taking a job is pure profit with no downside until you reach $30,000—at which point you’re bringing home way too much ($40,000 net) to be deterred from work by the imposition of a surtax. Some people who would otherwise work will surely drop out of the labor force under the UBI, but others who are now on welfare or disability will enter the labor force.

Sounds good, but then consider all the leftists who support a basic income scheme and imagine how such a system would work if they were in charge.

That’s what worries me. If Charles Murray was economic czar and there was never a risk of his plan being modified, I’d be sorely tempted to say yes.

But that’s not a plausible scenario. In the real world, a guaranteed basic income might start small and the current welfare state might be curtailed as part of the original deal, but I would be very worried about subsequent reforms that would expand the size of the handout (much as the EITC has been expanded in America) and reinstate misguided redistribution programs.

Perhaps this is why, in a column for the Financial Times, John Kay is not very sanguine about the numbers.

Bernie Sanders, a candidate for the Democratic presidential nomination, has expressed sympathy for basic income while stopping short of endorsement. Yanis Varoufakis, the former finance minister of Greece, is a proponent. …Yet simple arithmetic shows why these schemes cannot work. Decide what proportion of average income per head would be appropriate for basic income. Thirty per cent seems mean; perhaps 50 per cent is more reasonable? The figure you write down is the share of national income that would be absorbed by public expenditure on basic income. The Swiss government reckoned spending on social welfare would approximately double. To see the average tax rate implied, add the share of national income taken by other public sector activities — education, health, defence and transport. Either the basic income is impossibly low, or the expenditure on it is impossibly high.


P.S. On a separate topic, the death of Mohamed Ali, the larger-than-life superstar boxer, has generated a lot of reminiscing.

Well, courtesy of Mike Flynn, here’s my favorite Ali historical flashback.

P.P.S. Speaking of athletic superstars (at least in our fantasies), the Beltway Bandits finally prevailed in a 2016 softball tournament. Here’s our team photo after winning the Crabtown Classic.

P.P.S. Returning to the main topic of today’s column, here’s an amusing cartoon strip on the notion of a basic income.

It’s from the same person who put together the “magic boats” cartoon strip about the minimum wage.

Read Full Post »

One of the more interesting policy debates, both in America and around the world, is whether convoluted and counterproductive welfare states should be scrapped and replaced with a “basic income” payment from the government.

Finland is experimenting with the concept.

Authorities in Finland are considering giving every citizen a tax-free payout of €800 (£576) each month. Under proposals being draw up by the Finnish Social Insurance Institution (Kela), this national basic income would replace all other benefit payments, and would be paid to all adults regardless of whether or not they receive any other income. …the basic income is intended to encourage more people back to work. At present, many unemployed people would be worse off if they took on low-paid temporary jobs due to loss of welfare payments.

This idea has been, or will be, tried in a few places.

…previous experiments where a basic income has been successfully trialed. The Canadian town of Dauphin experimented with a basic income guarantee in the 1970s and the results – both social and economic – were largely positive. …The Dutch city of Utrecht is also planning to introduce a basic income, albeit solely for welfare recipients. From next month more than 250 unemployed residents of the city will be given a monthly sum to live on, with researchers monitoring the outcome to determine what effect it has on employment.

In a column for City Journal, Guy Sorman has a positive assessment of the Finnish plan.

…each citizen will be free to use the money as he or she sees fit. The idea is that people are responsible for their actions. If someone decides to spend their €800 on vodka, that is their decision, and has nothing to do with the government. In return for the UBI, however, the public accepts the elimination of most welfare services. Currently, the Finnish government offers a variety of income-based assistance programs for everything from housing to children’s education to property insulation. Axing these programs should free up enough public resources to finance the UBI. The bureaucracy that currently governs welfare payments will disappear. …The Left is cheered by the socialistic idea of government-assistance-for-all. The Right looks forward to the unprecedented drop in bureaucratic control over citizens… The Finnish government is expecting the negative income tax to have a beneficial effect on employment and growth.

Though apparently the scheme will have a limited rollout.

Finland’s trial of a basic income model is set to start in 2017 and will involve a payment of 550 euros to those selected to participate.

And those selected will be a limited group.

…the full, unconditional basic income proposal would be too expensive. Instead the trial will target people already in receipt of benefits and offer a basic income at the same level to replace them. …People would then be able to take on new work without losing their social security payments, which could remove one of the disincentives to employment. People with income-linked unemployment benefits, which are higher than the state-provided basic unemployment benefit, would continue to receive them. …The trial will focus on individuals aged 25 to 63 with low incomes as that group will provide the best data on whether or not the basic income increases employment.

Here’s more reporting about the potential Dutch experiment.

…in Utrecht, one of the largest cities in the Netherlands, and 19 other Dutch municipalities, a tentative step… “We don’t call it a basic income in Utrecht because people have an idea about it – that it is just free money and people will sit at home and watch TV,” said Heleen de Boer, a Green councillor in that city, which is half an hour south of Amsterdam. Nevertheless, the municipalities are, in the words of de Boer, taking a “small step” towards a basic income for all by allowing small groups of benefit claimants to be paid £660 a month – and keep any earnings they make from work on top of that. Their monthly pay will not be means-tested. They will instead have the security of that cash every month, and the option to decide whether they want to add to that by finding work. …The motivation behind the experiment in Utrecht, according to Nienke Horst, a senior policy adviser to the municipality’s Liberal Democrat leadership, is for claimants to avoid the “poverty trap” – the fact that if they earn, they will lose benefits, and potentially be worse off.

The concept is also gaining traction in New Zealand.

Leader of the opposition Andrew Little said his Labour party was considering the idea as part of proposals to combat the “possibility of higher structural unemployment”. …Mr Little confirmed his party would debate the idea at its conference on employment at the end of March. He said significant changes to way people worked were “unavoidable” and “we expect that in the future world of work there will be at least a portion of the workforce that will rapidly move in and out of work”.

You’ll have noticed that some of the arguments for basic income seem very reasonable. Improve incentives to work and reduce bureaucracy.

Indeed, this is why the idea has support among some sensible people. I cited some of them in my article back in 2013, but there are several more.

Sam Bowman explains his support for the concept in a column for the London-based Adam Smith Institute.

For me, it’s about improving the capitalism we already have. …it would be an improvement, for three main reasons.

His first reason is that some people would benefit from more money, though I’m not sure this has anything to do with “improving capitalism.”

Our existing welfare system is designed for a world where finding a job would be enough to give most people a tolerable standard of living. But in-work poverty is an increasing problem…a basic income would reorient the whole system towards helping people who don’t have enough money, irrespective of why that is.

His second reason is that it would be good to streamline the welfare state.

Our existing welfare system has built up a large amount of unnecessary complexity that could be streamlined. …benefits are fundamentally about giving money to people who do not have enough of it. Housing benefit, the pension credit, jobseeker’s allowance, income support and tax credits all do this. …Reducing complexity is valuable but not the only, or indeed the main, appeal of the basic income.

And his third reason is that a basic income could be matched with other reforms that would boost economic performance.

Many other policies that would increase total wealth are not very progressive…doing these things ends up making lower earners pay more tax than we would like. …An easy way to correct that would be to redistribute the overall wealth gain to those poor natives so that they too are made better off in the short run as well as the long run.

Writing for National Review, Iain Murray adds his sympathetic analysis.

Anyone who wants some creature comforts, which most of poor do…would be encouraged to work rather than the reverse. …Most people will use money to make their lives better. Indeed, there is some evidence that most poor people suddenly presented with what amounts to capital will become capitalists. This is surely a good thing. …The lack of a welfare bureaucracy will also encourage charity and mutual aid for the really hard cases.

Though he does recognize that there are “two big, and possibly irresolvable, caveats.”

…unless we were to find some way of exempting this from the political process, politicians would…turn it into a UBI plus extra, targeted, welfare system.  …it still relies on robbing Peter to pay Paul, even if Peter gets some of the money back.

Now let’s shift back from theory to the real world. Switzerland is poised to vote early next month on a referendum that would provide a rather generous government-guaranteed income every month.

Switzerland will become the first country in the world to vote on the introduction of unconditional income at the national level. But it has not won much support from traditional politicians, even those on the left. …The federal government estimates the cost of the proposal at 208 billion francs a year. Around 153 billion taxes would have to be levied from taxes, while 55 billion francs would be transferred from social insurance and social assistance spending.

Why is the cost so expensive? Because, as explained in another article, the referendum would provide “a basic income of about 2,500 francs ($2,600) a month.”

Which may explain why it appears the traditionally sensible Swiss voters almost certainly will vote against the scheme by an overwhelming margin.

Seventy-two percent were against establishing the unconditional stipend, which the initiators say would “enable the entire population have a decent existence and participate in public life,” the survey found. Just 24 percent support it, while 4 percent were still undecided, had voting been conducted this month. “Support for the ‘no’-camp is expected to increase as the campaign progresses,” pollster gfs.bern said in its survey for broadcaster SRG published on Friday. “This indicates a clear rejection on the day of the ballot.” The basic income vote will take place on June 5.

For what it’s worth, I’m at a conference in Switzerland, where I spoke earlier today on this topic as part of a panel that included my colleague Michael Tanner, along with former Labor Secretary Robert Reich and Swiss Professor Reiner Eichenberger.

I urged the audience to oppose the referendum because of what I called a nope-hope-dope argument.

  1. The “nope” part is my rejection of the belief on the left that technology will destroy jobs. We’ve had major changes in the economy, leading first to big losses in agricultural jobs and then significant losses in manufacturing jobs. But those changes didn’t lead to less employment. Instead, those jobs were lost as part of changes that made all of us much wealthier. So while I have no idea what will happen in the future, I have considerable faith that market forces will create productive options for people.
  2. The “hope” part is my admiration of the private initiatives that are taking place and my semi-support for the local experiments that are taking place. I want poor people to have more money and I want them to have hope. And these experiments by private charities and local governments may teach us useful things that help us reform the very inefficient welfare states operated by central governments.
  3. And the “dope” part of my presentation was my description of the people who think that we would get good results with a basic income scheme operated by central governments. Simply stated, I fear that such a proposal would be too generous, thus reducing over time incentives to work (perfectly captured by this Wizard-of-Id parody). I also fear it would require economically destructive tax rates, either explicitly to fund a basic income for everyone, or implicitly because it would be phased out like the EITC and therefore drive a larger wedge between pre-tax income and post-tax consumption for a huge number of taxpayers.

Here, for posterity, is a photo of the panelists.

I did mention, by the way, that it would be very interesting to see an individual Swiss canton conduct an experiment, replacing all current redistribution schemes with a basic income.

And since the supporters of the referendum tweeted that statement, I’ll interpret that as a sign that I’m a consensus builder!

But I have to confess that the organizers of the conference probably should have cast me aside and instead invited Professor David Henderson of the Naval Postgraduate School.

In a new article for the Independent Institute, he looks the real-world numbers for the United States and throws very cold water on the idea of the basic income guarantee. Here’s an excerpt of his calculation of the fiscal cost of such a scheme.

The annual BIG expenditure for U.S. citizens, then, would be approximately $2.068 trillion. This expenditure estimate does not include any expenditure for administering the program or for monitoring for fraud. In other words, it is a minimum estimate. …Assume, as Zwolinski advocates, that such a program would displace all 126 federal antipoverty programs and all state and local government antipoverty programs. …Notice what would happen. A $2.068 trillion program would replace programs whose total expenditures in 2012 were $952 billion. Even rounding up the $952 billion to $1 trillion, the program that Zwolinski advocates is more than twice as costly in budgetary terms as current antipoverty programs. …How would Zwolinski fund this major increase in federal spending? …he would need to have the federal government increase taxes from their estimated $2.993 trillion to $4.361 trillion, an increase of 45.7 percent.

Those fiscal costs could be reduced with a clawback mechanism (i.e., means testing the basic income grant), but that would require very high implicit marginal tax rates.

Zwolinski suggests a way around the huge tax increases that I have laid out: the way proposed by Charles Murray in his book In Our Hands: A Plan to Replace the Welfare State (2006). That method is to tax $5,000 of the $10,000 grant with a 20-percentage-point increase in the marginal tax rate on people who make $25,000 or more. At the $50,000 income level, $5,000 of the grant would be paid back. This method does reduce the amount of other taxation required, but, of course, it increases marginal tax rates over a range of incomes by 20 percentage points. …This increase would be a substantial disincentive to work and a substantial incentive to make money in the underground economy.

And he also cites what I fear would be an enormous problem, which is that we couldn’t trust politicians to keep the basic income grant at a modest level, and we also couldn’t trust them to permanently eliminate other redistribution problems.

…there is another major problem: the “public-choice” problem. …those who advocate further government programs…must show that there is a high probability that such government programs will not grow further. …in the case of a BIG, they must show that there is a high probability that a scaled-down BIG really would replace all of the existing programs for the poor and near poor. This is hard to do because the various interest groups that favor the existing programs will not sit back: they will fight to keep some or all of those programs. Zwolinski…writes that if the BIG “were implemented via a constitutional amendment, many of the public choice considerations could be reduced, I think, to an acceptable level.”11 Yet, as Randy Barnett (2004) and Robert Levy and William Mellor (2008) show, even strict constitutional limits on federal government power have yielded to the U.S. president, Congress, and the courts.

Think of this as presenting the same challenge presented by a national sales tax or value-added tax. There are good arguments for those proposals, but the most powerful objection is that politicians can’t be trusted to permanently eliminate or reduce existing income taxes.

So if a basic income isn’t the answer, what should we do?

I agree with the scholars from the Austrian School that decentralization is the right approach. We already did that for basic welfare payments during the Clinton years, and we should do it for all other forms of income redistribution, perhaps starting with food stamps and Medicaid.

Read Full Post »

%d bloggers like this: