Hillary Clinton just released a new memoir, What Happened, about her 2016 campaign for US President. In the memoir, she claims to regret not embracing a type of Basic Income proposal, which she dubbed “Alaska for America”, as part of her platform.
Hillary endorses Peter Barnes’ idea of a national dividend and, like Barnes, she suggests that it should be financed in part from the revenue of shared national resources such as “oil and gas extracted from public lands and the public airwaves used by broadcasters and mobile phone companies” and the “same with the air we breathe and carbon pricing.” Clinton goes even further, however, saying that she would additionally view “the nation’s financial system as a shared resource” and implement a “financial transactions tax”. She suggests there could be a capitalized fund financed by these resources which would not only provide a “modest Basic Income” every year – which appealed to Clinton as a way to increase incomes – but also “make every American feel more connected to our country and to one another-part of something bigger than ourselves.”
Hillary says that she and her husband were fascinated by this idea and spent weeks working with her policy team to see if the idea was viable and could be included in the campaign. The proposal would be called “Alaska for America.” The campaign did not pursue this proposal because, according to Clinton, “we couldn’t make the numbers work.” In the book, Clinton also quotes Republican former U.S. Treasury Secretaries James Baker and Hank Paulson who proposed a nationwide carbon dividend that would “tax fossil fuel use and refund all the money directly to every American” as an alternative to government regulation. Again, however, Clinton claims she looked at the proposal but couldn’t make the “math work without imposing new costs on upper-middle-class families.”
If we look back, Basic Income was seldom mentioned during Clinton’s Presidential campaign, and, when it was, she was dismissive. Asked about the idea by LinkedIn’s Daniel Roth, during a discussion of education and job training, the Democratic nominee replied, “I’m not ready to go there,” and proceeded to discuss the need to create new jobs. At the time of this interview, she viewed Basic Income as an undesirable alternative to full employment, concluding, “[W]e’ve got to help create better opportunities … without just giving up and saying, ‘Okay, fine, you know, the rest of us who are producing income, we’ve got to, you know, distribute it and you don’t really have to do anything anymore.’ I don’t think that works for a democracy and I don’t think it works for most people.”
In the LinkedIn interview, Hillary suggested that job loss due to automation could (and should) be addressed by skills training and the creation of new jobs. Her memoir, however, seems to treat technological unemployment as a more dire threat, saying that she takes Silicon Valley seriously when they claim “this could be the first great technological revolution that ends up displacing more jobs than it creates” – and one which requires us to think “outside the box.” She mentions she was so impressed by this that her staff lived in fear that she’d start “talking about ‘the rise of the robots’ in some Iowa town hall”. She adds: “Maybe I should have.”
Hillary concludes this portion of her memoir by urging us that “we have to think big and think different”, suggesting policies like “taxing net worth instead of annual income” in order to reduce inequality. She says we need to “rethink how Americans receive benefits such as retirement and health care so that they’re universal, automatic, and portable”.
On August 29, 2017, the Roosevelt Institute released a report where researchers Michalis Nikiforos, Marshall Steinbaum, Gennaro Zezza model the macroeconomic effects of implementing Basic Income. (Marshall Steinbaum is a Research Director and a Fellow at the Roosevelt Institute. Michalis Nikiforos and Gennaro Zezza are both associated with the Levy Institute.)
The Roosevelt Institute, following the legacy of Franklin and Eleanor Roosevelt, presents itself as re-imagining “America as it should be: a place where hard work is rewarded, everyone participates, and everyone enjoys a fair share of our collective prosperity”, and as building a “new economic and political system: one built by the many for the good of all”.
The report presented by the Roosevelt Institute evaluates three different variations of Basic Income, $1000 a month to all adults, $500 a month to all adults, and a $250 a month child allowance. The researchers also analyzed two different types of funding, increasing the federal debt and increasing taxes on households. The model is designed considering an eight year time period and Basic Income is progressively introduced throughout that period.
From their models of the three scenarios, the researchers conclude that, if funded by increasing the federal debt, each Basic Income policy would have a result of economic growth, the $250 child allowance would increase the GDP by 0.79%, while the $1,000 per adult would increase the GDP by 12.56%. When the Basic Income is financed by household taxes, the model forecasts no effect on the economy if the program was simply giving “ with one hand what it takes away with the other”. However, if the model is adapted using what the researchers call a “distributional model”, it forecasts a beneficial effect on economic growth. As the researchers describe it, “the distributional model incorporates the idea that an extra dollar in the hands of lower income households leads to higher spending. In other words, the households that pay more in taxes than they receive in cash assistance have a low propensity to consume, and those that receive more in assistance than they pay in taxes have a high propensity to consume.” The general idea is that lower income brackets tend to spend everything they earn, therefore consuming more, and higher income brackets tend to save part of their earnings, therefore, consuming less in relation to their potential as consumers. Therefore, if you take from the rich to give to the poor, the money will be flowing more than when it is simply accumulated by the few, and in this way, the economy will grow. The researchers (and this is the official position of the Roosevelt Institute as well) assume that our economy is “not currently operating near potential output” and this is so partly because of current gaping inequality, which is “one of the main reasons why the US economy faces the prospect of secular stagnation”.
Besides assuming that the economy could be preforming better, the model used also incorporates two microeconomic assumptions: “(1) unconditional cash transfers do not reduce household labor supply; and (2) increasing government revenue by increasing taxes levied on households does not change household behavior.” These assumptions have been promptly criticized in the media. However, the researchers themselves are aware that the assumptions are contentious, and have thus sought to establish them with evidence. They base assumption (1) on a survey of experiments done by Ionana Marinescu in a paper entitled “No Strings Attached: The Behavioral Effects of U.S. Unconditional Tax Transfer Programs” that estimates the microeconomic behavioral impact, using several experimental designs, results in labor supply remaining unchanged. Regarding assumption (2), the idea that increasing taxes does not change household behavior, the researchers assume that since the tax increase is progressive, the most affected households are the higher income brackets who tend to save and “hoard” money, so to speak, so they would save less but not change their consuming behavior in a drastic way. In order to justify this assumption, they use data from the Congressional Budget Office.
The report concludes that the researchers’ aim is not to have the final word on how to model the macroeconomic impacts of Basic Income but, instead, simply to have applied a valid model, which has done a reasonably good job of explaining macroeconomic effects so far, and used it to predict the effects of three Basic Income variations; on this model, the introduction of a Basic Income with a distributional component would mostly result in economic growth.
The greatest challenge of this generation is managing both environmental sustainability and a growing human population. Climate change and income inequality are making this an increasingly difficult prospect.
The Sufficiency4Sustainability Network (S4SN) is working on analyzing the intersection of these issues and the solutions that can address them.
S4SN is led by Peter Knight, a former lead economist at the World Bank. The network of researchers analyzes different policies and how they may interact with ecological and economic trends. Knight recently joined the UBI Podcast to discuss his work with S4SN.
“We’re exploring how changing values and policies might result in lower resource use by the relatively well-off, while raising the consumption of the poor to a level sufficient to meet their basic human needs on a planet with limited resources and moving toward a population of 11 billion by the end of the century,” Knight said.
The network is interested in researching Universal Basic Income (UBI), and it is included as one of the main research topics of S4SN.
“It seems to me that Universal Basic Income is right on this issue of what are the technological trends that’s going to make this important for not only economic sustainability but social, political, and ecological sustainability,” he said.
UBI is of interest to Knight because he thinks it may be an important solution to address the upcoming dramatic shifts in employment due to technology.
“I think the exponential rates of change involved in Artificial Intelligence and all those technologies that are related to Moore’s Law and their speed and cost of computation, jobs are going to be destroyed faster than they can be replaced, so UBI is a method of separating work and paid remuneration from enough to live on,” Knight said.
While Artificial Intelligence has the potential to help solve many of the problems facing humanity, Knight said, the problems it creates means that it must be coupled with a UBI.
“Exponential technologies including artificial intelligence offer potential substitutes for the limited resources, provide cleaner energy, and reduce the need for physical labor. But they also tend to concentrate income and wealth, so UBI is necessary to provide economic, social, and political sustainability,” Knight said.
For Knight, it is important to consider that the sacrifices made for environmental sustainability should not be made by the poorest among in society.
“You just can’t tell people that are starving, ‘look you’ve got to cut back your consumption. If you want their support for broader changes, you need to both change values and provide enough income to live for people who are increasingly not just manual labor, agricultural labor, industrial, but increasingly the white-collar professions are going to be displaced,” Knight said.
The section on basic income consists of three short articles:
“Basic income: An idea whose time has come?” by Troy Henderson (PhD Candidate in Political Economy at the University of Sydney)
“Basic income: Political economic considerations” by Frank Stilwell (Professor Emeritus in Political Economy at the University of Sydney)
“Basic income or job guarantee: What is to be done?” by Neale Towart (Unions New South Wales).
Henderson provides an overview of the idea of basic income, and then addresses four concerns facing its implementation in Australia: cost, cultural opposition to giving “handouts” to the poor and unemployed, lack of agreement between left-wing and right-wing proponents of basic income programs, and lack of mass social support.
Stilwell briefly articulates five political economic reasons in favor of basic income: sharing the nation’s abundant wealth, quelling anxiety about the future of work and technological unemployment, reducing inequality, simplifying the social safety net, and increasing individual freedom. He weighs these advantages against two main concerns: “could the nation afford to pay a BI?” and “would a BI have a big cost in terms of national output because people might decide not to work?” Stilwell offers tentative support for basic income, but only if combined with a strengthening of public health services, education, housing, transportation, and utilities.
Towart argues in favor of a job guarantee as a way to harness the potential of automation to free people from unfulfilling toil while ensuring well-paid employment in “work that we need done to create a fairer, sustainable society.” He raises concerns that a basic income would act as a subsidy for low wages and fail to empower workers to the extent of a well-designed job guarantee.
Reviewed by Russell Ingram
Photo (Lake Clifton, Western Australia) CC BY NC-ND 2.0 inefekt69
According to the OECD, basic income (BI) is not an effective tool for reducing poverty. However, the outcome would depend on the model chosen for implementing a BI system, as well as the changes made in other parts of social protection.
The Organisation for Economic Co-operation and Development (OECD) published in May a Policy Brief paper studying the feasibility of a basic income model in four OECD countries, one of which was Finland.
On June 16, Kela organized a seminar in which Herwig Immervoll, a senior economist at the OECD, discussed the findings of his study and analysed the strengths and weaknesses of a BI scheme. After the seminar, the national broadcasting company YLE reported: “Universal basic income might increase poverty and inequality”.
Apart from Finland, the OECD study includes France, Italy and the United Kingdom. The analysis was done with the help of the EUROMOD microsimulation model. In each country, the starting point for the analysis was to take all existing spending on social cash-transfers together and see what level of BI they would amount to. Eventually, the level of BI was set near the existing levels of guaranteed minimum-income benefits for single individuals in each country, adjusted so that it would not increase the public expenditures.
In Finland, this resulted a BI of 527 euros for the working age adults and 316 euros for children and youth under 18 years of age. Those entitled to old-age pensions within the current main statutory retirement age (in Finland over 65-year-olds) were excluded from the BI model.
In the BI model used in the OECD analysis, all existing working-age benefits (including social insurance benefits) apart from cash transfers for housing and disability would be abolished. Also, the zero-rate tax bands of income-tax schedules and equivalent tax-free allowances would be abolished, and all income-tax thresholds would be shifted downwards by a corresponding amount. BI would be made taxable under personal income taxation alongside other taxable incomes.
The OECD model would create many gainers and losers
The most important outcome of the OECD study is that the simulated BI model would strongly impact the income distribution in all studied countries. However, the effects vary greatly among the countries.
In all income groups, the BI model would create many gainers and losers. It would change the net income of most people in one way or another. It would lift some groups out of poverty and thrust others below the poverty line.
The simulated BI model would increase the income level of those small income groups who are currently not receiving any social benefits, or whose benefit level is very low. In turn, those receiving earnings-related benefits or several means-tested benefits would see a decline in their standard of living.
In Finland, those below 65-years-old receiving old-age pensions and single parents with low incomes would be among the losers of the model. The middle-income earners instead would generally benefit from the model.
The conclusion of the OECD is that particularly in countries with a comprehensive social protection BI is not an efficient tool for reducing poverty, since it does not target the benefits effectively. According to the OECD, a budget-neutral BI would not be distributionally neutral. High enough to be socially and politically meaningful and fiscally realistic, a BI would still require tax rises as well as reductions in existing benefits.
A very low basic income, instead, would have little other significance but increase poverty.
The outcomes of BI depend on reforms in taxation and social protection
How the findings of the OECD study are to be interpreted in the Finnish context?
Perhaps the most important issue that the research sheds light on is the fact that there are many institutional challenges in implementing a BI system, and those challenges differ among countries due to their different systems of social security and taxation.
As the OECD report (p. 5) notes, BI as an idea is simple, but the existing social protection systems are not. Therefore, there are grounds to argue that the same model of BI does not fit everywhere. If a reform such as BI were to be carried out, it needs to be adjusted to the existing institutions of social protection and taxation in each country separately. The parameters of the model should be adjusted so that it will not produce excessive changes in people’s incomes.
The greatest problems of the OECD’s microsimulation are that the income taxation is not changed to correspond with the BI model, and that the existing systems are demolished by the same means everywhere without examining the structures of social protection in each country separately. Due to this, BI seems to have unpredictable effects to income distribution.
The income distribution produced by a BI model can be influenced by adjusting the parameters of taxation and social security. In his presentation at the Kela seminar, Herwig Immervoll mentioned that tax reforms should be discussed in parallel with BI. Indirect taxes, such as environmental or value added taxes, have often been proposed as a complementary source for financing a BI scheme, combined with income taxation.
However, the OECD report does not mention these alternatives, and the premise seems to be that taxation in any form should not be increased.
In Finland, as well as in many other countries, some organisations and individuals have launched models of BI adjusted to the local context. Their objective has often (yet not always) been to not radically alter the income distribution or cause reductions in people’s after-tax incomes, especially in the lowest income groups. Microsimulation has been employed at least in the models of partial BI by the Green Party and the Left Alliance, and in the preliminary study for the national BI trial conducted by Kela.
In these models, BI is linked with a reform in income taxation that is designed so that radical changes in after-tax incomes will not occur in any income group. The aim is also to make the models budget neutral, that is, to cover the costs of BI by reforms in taxation and replacing the existing benefit systems. In these models, the old system will be abolished only in those parts where the level of benefits is lower than the BI.
One of the problems with the BI trial currently underway is that due to time constraints, the taxation reform proposed by the research team that designed the experiment was not included.
Will Finland implement a BI?
Though there exist BI models in Finland that would technically allow implementation of a BI system without radical changes in income distribution or public financing, the road of BI will probably be rocky even here.
The preparations of the BI experiment scheme revealed many institutional challenges in implementation of a BI model. The greatest obstacles for a BI are, however, ideological.
In Finland, BI has gained interest especially as a possibility to improve the incentives for paid work. The possibility to combine wages with social benefits more smoothly than today is an issue that no party opposes. Yet, many still find it morally wrong to give people money with no obligations. The opponents of BI fear that the “free money” would reduce people’s willingness to work and give a moral legitimacy to not apply for jobs.
If the only, or at least the most important function of BI is to improve work incentives, the great promises of BI may not be fulfilled after all. The preliminary studies for the BI trial revealed that BI models do not always unambiguously remove incentive traps, if parts of the old social security stay intact.
However, it seems likely that in Finland, as well as in other industrialised countries, the social security will be reformed in a direction that may contain some elements of BI, but not necessarily a ‘pure’ BI model.
If the political thinking emphasizing the labour supply and austerity in public economy prevail, the prospects for more generous BI models seem to be low. In the framework of current economic policies, the implementation of a BI would most probably mean at least demolishing large parts or other forms of social security.
BI as a social dividend?
The OECD report (p. 8) ends up recommending some kind of ’partial’ alternative of a BI model. One option mentioned is a possibility to introduce BI as a separate system from the existing social protection, whose function would be to share the benefits of globalisation and technological progress more equally.
This idea of ‘social dividend’ has often appeared in BI discussions. The state of Alaska is already giving an annual share of the permanent fund based on oil revenues to each citizen as a social dividend. There is similar thinking linked also to the idea of “helicopter money”, originally introduced by Milton Friedman, a cash transfer paid by the central bank to people’s accounts to stimulate consumer demand in economic downturns.
Considering BI as a social dividend would locate it in a new frame, where its function would not be to fix the problems of social security systems, but to distribute purchasing power also to those who lose their jobs or end up in low paid precarious jobs in the labour market turmoil caused by digitalization.
If BI were paid on top of other social benefits, its level could even be lower, or for instance connected to macro economy indicators. In that case, it could also be used to stimulate economies in downturns.
Johanna Perkiö
M.Soc.Sc., Doctoral Candidate
University of Tampere
email: johanna.perkio(at)uta.fi
Hillary endorses Peter Barnes’ idea of a national dividend and, like Barnes, she suggests that it should be financed in part from the revenue of shared national resources such as “oil and gas extracted from public lands and the public airwaves used by broadcasters and mobile phone companies” and the “same with the air we breathe and carbon pricing.” Clinton goes even further, however, saying that she would additionally view “the nation’s financial system as a shared resource” and implement a “financial transactions tax”. She suggests there could be a capitalized fund financed by these resources which would not only provide a “modest Basic Income” every year – which appealed to Clinton as a way to increase incomes – but also “make every American feel more connected to our country and to one another-part of something bigger than ourselves.”
