Universal Basic Income: Is Theory About to Become Reality?

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It’s not often that a single idea can unify libertarians, conservatives and liberals, but once in a while a concept comes along that does just that. The Universal Basic Income (UBI) is an idea that has been floating around (in various forms) in economic theory for almost a century, and it seems that it’s about to come out of the shadows and into the bright light of public scrutiny. Finland has committed to beginning its UBI experiment in 2016, and Switzerland is set to vote on its version next year as well. In Belgium, the city of Utrecht is also contemplating its own local version of the concept. Here in the US, think tanks on both side of the political spectrum are arguing that the U.S. should also develop its own version of UBI. So perhaps it’s a good moment to take a short look at this idea and its potential impact for U.S. business and labor.

First of all, what exactly is a UBI?  Basically, it is a payment made by a government to every citizen (typically adults) regardless of income. Most current models propose that this one payment replace every other form of social payment (welfare, health insurance, unemployment payments, etc.). It’s this second aspect of the concept that is most attractive to both right and left. Conservatives like the idea of eliminating a great swath of the federal bureaucracy, and liberals like the idea of a well-defined safety net that does not depend on repeated congressional revalidation. (This is the basic UBI model, though there are variants such as the so-called Negative Income Tax (payments made to people below a certain tax level) or a “threshold” UBI that phases out after a certain level of income.)

Interestingly, the UBI in one form or another is really an old idea, and some scholars point to as far back as ancient Rome’s free grain to citizens program as an antecedent. As one Cato Institute paper noted:

Thomas Paine, author of Common Sense and one of the inspirations for the American Revolution, called for a “national fund, out of which there shall be paid to every person, when arrived at the age of twenty-one years, the sum of teen pounds sterling.” In the depths of the Great Depression, Senator Huey Long gained some traction with his “Share Our Wealth” plan that sought to guarantee that each household had at least one-third of the average family wealth.

More recently, notes CATO, President Nixon:

…established the Commission on Income Maintenance Programs, which would recommend “the development of a universal income supplement program to be administered by the Federal government. ‘The Family Assistance Plan, as it was known, would have provided roughly $1,600 in 1969 dollars for a family of four with no earned income (the equivalent of roughly $10,320 in 2014 dollars), plus an additional $800 in 1969 dollars ($5,160 in 2014 dollars) in food stamps. There would have been a work requirement, and benefits would have been phased out as earned income increased.

Nixon’s proposal actually made it through the House but died in the Senate, where liberals thought the benefits were set too low and conservatives objected to the overall cost of the program.

A U.S. UBI model would have many things to recommend it. For liberals, the appeal would be that:

  • It would lift the poorest people up to at least some minimal level of income
  • It would make access to the entire Federal benefit sum easy and automatic for the poor
  • It would give today’s minimum-wage workers greater bargaining power with employers
  • It would eliminate the social stigma of having to apply for welfare, food stamps, etc.

For conservatives and libertarians, the appeal would be that:

  • It would be the single largest reduction in the Federal bureaucracy in the history of the Nation
  • It would allow the poor to make individual decisions about how to use their benefits without government telling what is and is not allowed
  • It would remove the disincentive to work that today’s welfare models have (which eliminate benefits if the recipient starts to work)
  • It would eliminate the economic incentive welfare families have to expand their families, since payments would not begin until adulthood

 

All these theoretical benefits are driving the experiment in Finland — and it is just an experiment at this point, not a done deal as most press reports have stated. Indeed, as a government web site makes clear:

On Monday, December 7, many international media-outlets published misleading stories alleging that a basic income scheme would be launched in Finland in the near future.

“This is not correct. At this point only a preliminary study about the basic income has started”, says Professor Olli Kangas who is leading the study at Kela (Social Insurance Institution of Finland).

An experimental study on a universal basic income began in October. A working group of researchers from a range of organisations under the project leadership of Kela is exploring ways in which to carry out an experimental study focusing on the implementation of a universal basic income scheme. The project is part of the Finnish Government’s analysis, assessment and research plan for 2015.

In its current form, if implemented, the Finnish UBI would, after an initial phase-in period, guarantee each adult citizen about $900 in tax-free income per month, replacing most other payments. Any other income gained would be taxed normally. The Swiss model would be more generous, targeting about €30,000 per year. Current models for the U.S. point to about an $11,000 annual payment target in order to make a 1-1 replacement for today’s dozens of benefits with one amount.

It’s easy to see why many people would be against the UBI in this country. For example, liberal lawmakers would lose the ability to rig benefits legislation to favor one group of constituents over another. On the other side, conservative lawmakers would have to admit that the government owes everyone a minimum wage on which to live. Even Libertarians (who are the most ardent proponents of the idea) would lose by having to admit that their cherished dream of a minimalist government would be gone forever. Other critics of the idea suggest that under a UBI scheme, people “won’t work” or that it will be inflationary. Of course, a lot of people object to it because “it’s Socialism” or that once it’s in place the pressure to increase it wold bankrupt the system.

I agree that there are very valid criticism of the UBI concept, but I do not think they are insurmountable. Indeed, perhaps it’s because every major party would feel to have both won and lost that the UBI actually has a chance of coming into being. If it did, it’s easy to see how drastically the landscape would change for workers and employers alike. For workers, the UBI would radically improve their leverage position, since income earned from even the lowest-paying jobs would be above and beyond the UBI. Employers, on the other hand, would lose their marginal leverage over the poorest workers, while at the same time benefiting from the subsidy that the government would pay their poorest workers. Exactly how this new dynamic would play out in the end is a hot debate topic, but I think both sides would win more than they lose. Workers would get more value from their labor, since bargaining position would improve. Employers would find that a workforce not subsisting on today’s minimum wage would be more stable and more productive.

It will be very interesting to see how the Finland experiment (and other discussions across Europe) evolve. I, for one, hope it is a success. I think a policy that unites almost everyone across the political spectrum and which would in one sweep raise millions from misery is worth trying. As much as the libertarian in me dislikes the idea of a national wage, it is no doubt infinitely better than the dysfunctional and inefficient social welfare model we have today.

 

Read more:

http://object.cato.org/sites/cato.org/files/pubs/pdf/pa773.pdf

http://www.demoshelsinki.fi/wp-content/uploads/2015/09/Design-for-Government-–-Governance-through-experiments.pdf

http://www.kela.fi/web/en/news-archive/-/asset_publisher/lN08GY2nIrZo/content/contrary-to-reports-basic-income-study-still-at-preliminary-stage?_101_INSTANCE_3a1vR0IztzeZ_redirect=%2Fweb%2Fen

http://www.theatlantic.com/politics/archive/2014/08/why-arent-reformicons-pushing-a-guaranteed-basic-income/375600/

http://www.demoshelsinki.fi/en/2015/12/08/this-is-why-finland-is-able-to-implement-the-basic-income-experiment/

http://www.demoshelsinki.fi/wp-content/uploads/2015/09/Design-for-Government-–-Governance-through-experiments.pdf

http://object.cato.org/sites/cato.org/files/pubs/pdf/pa773.pdf

http://object.cato.org/sites/cato.org/files/pubs/pdf/pa773.pdf

http://object.cato.org/sites/cato.org/files/pubs/pdf/pa773.pdf

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