Universal Basic Income's Growing Appeal

Speaker Ryan released the first part of his anti-poverty agenda this morning. If there ever was a consensus in this town, it is that the current welfare system is broken and needs to be reformed. The status quo is not acceptable anymore. The overall objective presented in the paper is the right one (work is important, put the state and local government at the center of the effort and demand accountability). But I am not sure how good the proposal really is since there aren’t much concrete details available yet (how many job training, housing, or income security programs will be cut? that is not very clear).

To be sure, the plan would be an improvement over the current system (how can it not be?). But I am afraid that it will continue to build on the current system more than it should and won’t be going as big as it should. After all, the plan proposes to “reduce duplication and overlap across programs” rather end all duplication and overlap. But who knows, I may be surprised in the end.

One thing is sure though, for better or worse, he isn’t going the Universal Basic Income route. Yet, judging by the number of articles on the issue published in the last few days , UBI is definitely on many commentators’ and scholars’ list of options worth exploring.

The Economist published a piece a few days ago that does a good job showing the growing interest in the policy. Also, economist Charles Murray had a really great piece in the Wall Street Journal over the weekend detailing his proposal for a UBI. Murray wrote a book in 2006, In Your Hands — which he is updating now — where he made a very good case for a guaranteed minimum income. I like Murray’s caveat:

"Either way, the UBI is an idea whose time has finally come, but it has to be done right.

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."

As I have written before in these pages, this is a very important point. As much as I like the idea of getting rid of all bureaucrats working for welfare offices and empowering low-income Americans with cash, the problem with the UBI is our ability to implement it properly. In my opinion, in the best case scenario the “UBI as a replacement for everything else” position may be the starting point on Capitol Hill — but once the proposal would have gone through the sausage-making business that is our political process, it’s hard to imagine that politicians won’t have caved to the many interest groups who don’t want this or that welfare program to go away. Also, if by some miracle lawmakers do get rid of all welfare programs before they implement the UBI, how do you make sure they don’t start bring these programs back?

Unfortunately, if (and it’s a big if) you can’t properly implement UBI and guarantee that welfare programs won’t be making a comeback in the future, then it is not worth trying.

Now if I ignore my two main objections to the idea, I like Murray’s proposal:

"Second, 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. Three thousand dollars must be used for health insurance (a complicated provision I won’t try to explain here), leaving every adult with $10,000 in disposable annual income for the rest of their lives.

People can make up to $30,000 in earned income without losing a penny of the grant. After $30,000, a graduated surtax reimburses part of the grant, which would drop to $6,500 (but no lower) when an individual reaches $60,000 of earned income. Why should people making good incomes retain any part of the UBI? Because they will be losing Social Security and Medicare, and they need to be compensated.

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."

Murray’s whole piece is a must-read — it is as strong and reasonable a case for the idea that you will ever read. For a more piece on the same issue, I recommend reading this by Ed Nolan from 2014.

John Daniel Davidson also makes the case today that UBI would cut the intermediaries and hence cut cronyism in the welfare system.

"One of the main problems with our welfare system is that we routinely outsource government services to third parties. Those third parties have an interest in maintaining the welfare system and advocating for ever-more taxpayer funding for it. In many cases, complex business models are built on extracting as much funding from federal and state governments as possible…

If we’re going to have a welfare system, and it seems that we are, then we should let individuals choose how best to use those funds—even if some people use them to indulge in “idleness and vice.” While it’s true that a guaranteed income would still suffer from the inherent problems that plague all welfare schemes, it would solve one of the most pernicious problems with our current welfare system by cutting out the middlemen who profit from it."

Now, not everyone agrees. It’s worth reading an article in The Economist called “Basically Flawed.” As the title suggests, the author is strongly against the idea. It addresses the argument that we need a UBI because sooner than later the robots will be taking over and 47 percent of people will be unemployed. That’s an argument you hear a lot in support of the policy and, as the author says in the article, it doesn’t hold water. First, the fears that robots will bring the end of employment are not new and have so far been misguided. Moreover, even if it was the case that robots will bring that level of unemployment, the UBI may still not be the solution, the author notes, because it is expensive, it “would destroy the conditionality on which modern welfare states are build on,” and its universality would make it impossible to welcome any immigrants to our shore.

If the argument for the UBI is the shadow of something that may never happen then the conclusion of the article is absolutely correct:

"A universal basic income might just make sense in a world of technological upheaval. But before governments begin planning for a world without work, they should strive to make today’s system function better."

I would add that if we ever were to live in a world with 47 percent unemployment, we will face bigger challenges than simply finding ways to pay for the people who lost their jobs.

Finally, over the weekend Swiss voters just rejected a proposal to adopt a UBI. The proposal was vague but with the potential of being extremely costly:

"No specific amounts are mentioned in the wording of the initiative, but groups that support the measure have suggested about $2,500 for each adult Swiss citizen and foreigners who have legally resided in the country for five years, as well as an additional $640 for each child of theirs."

But the cost isn’t what killed the proposal. Immigration is:

"The reason for the opposition isn’t what you’d expect, either. Most aren’t worried that a universal basic income would disincentivize workers from finding jobs or turn Switzerland into a Marxist dystopia. The fear is that $2,500 a month would make the country too attractive to economic migrants.

Luzi Stamm, who represents the right-leaning Swiss People’s Party in parliament, said to the BBC, “Theoretically, if Switzerland were an island, the answer is yes. But with open borders, it’s a total impossibility, especially for Switzerland, with a high living standard.”

With that all that said, let’s see what the speaker really has to offer.