by Patrick Hoare | Nov 4, 2017 | News, Research
In a paper released in October 2017, the International Monetary Fund (IMF) has analysed the feasibility and effects of introducing a Universal Basic Income (UBI) in various economies, looking at how it might help ease destructive levels of inequality present in many societies around the globe.
The ‘IMF Fiscal Monitor: Tackling Inequality’ focused on how fiscal policy can help governments address high levels of income inequality (from here simply ‘inequality’) while minimizing potential trade-offs between efficiency and equity. As part of the second half of the discussion, the UBI was considered as a mechanism of fiscal redistribution currently being widely debated.
Underpinning the analysis of UBI were a number of premises. The first of these was the assumption that some inequality was inevitable within a market-based economic system. Even though data reveals a decline in the global levels of inequality over the last three decades, the increased inequality within certain economies has had adverse effects, not only in terms of social corrosion and political polarisation but also in terms of economic prosperity. As such, the inequality the report sought to address was the type that was specifically having a negative impact.
The second premise clarified that measures aiming to alleviate inequality should not come at the expense of achieving economic GDP growth. Supporting this, data was presented showing that between 1988 and 2008, across all types of economies, there had been an average growth of real income per capita across every income bracket, even if the increases had been greater for those earning more. It was also shown that an increase in overall growth between 1985 and 2015, in particular in East and South Asia and the Pacific Region, had coincided with huge reductions in relative poverty and absolute poverty, and, therefore, with increases in social welfare. With no clear trend between increased inequality and growth, and with various studies suggesting, contrarily, either that redistributive policies may slow growth or that redistributive policies may help growth (given that the marginal propensity to consume among the poor is higher), it was determined that, on balance, growth should not be unduly undermined.
The third condition stipulated that, given the limited fiscal space most economies operate within, simulations measuring the impact of a UBI should be performed under the assumption of budget neutrality. The vast drop in progressivity among the tax systems of the OECD member states, in particular the drop in the average top rate of personal income tax (PIT) from 62% to 35% between 1980 and 2015, does not seem to have been economically motivated, since during this period there was no evidence of: increased income tax elasticity; proportionally less income going to the top earners (the opposite was the case); increased support for the social welfare of the rich; decreased support for redistribution (the opposite was the case); or, a more progressive tax system being harmful to growth (there was some evidence to suggest the opposite could be the case). It was therefore accepted that this lower progressivity must be the consequence of political preference. As such, in order to control for various political perspectives, the funding for a UBI would have to come from a combination of spending cuts and increased taxes.
Following the establishment of such conditions, the central examination of the UBI was based around simulations of implementation within eight economies: Brazil, Egypt, France, Mexico, Poland, South Africa, the UK and the US. The choice of countries controlled for heterogeneity in geographical area, developmental stage (emerging market and advanced economies), and the generosity and progressivity of the countries’ current noncontributory transfers. The analysis of a UBI was then judged on whether it could increase coverage (the number of beneficiaries) and progressivity (those most in need benefiting proportionally more) of current redistributive programs, without impeding growth.
In almost all cases coverage increased, given the universality of UBI, however improvements in progressivity very much depended on the financing method and the existing level of progressivity within a particular economy. Where UBI was seen as a replacement for current benefit systems, countries with low progressivity but high coverage, such as South Africa, saw larger swathes of their lower earners suffer at the expense of a smaller percentage of beneficiaries within the same income category. In this circumstance, where consumption inequality is higher as a consequence of income inequality, progressivity as well as coverage could be improved if a UBI was financed by increased indirect taxation (consumption tax) rather than through cuts to the current system. In economies where both coverage and progressivity are already relatively high, such as the UK and France, replacing the current system with a UBI would be regressive. Similarly, even in a country where progressivity is high but coverage low, such as Brazil, the introduction of a UBI as a replacement would likely trade one off against the other, ultimately negatively affecting lower income households. In the situation where PIT among the top-earners is increased as a way of financing a UBI (altering the economic behaviour of these payers), the model calibrated to the US economy (moderate coverage and progressivity) found that, although efficiency, in terms of output forgone, was lower than against a system with indirect taxes, the PIT increase yielded greater overall welfare, especially where aversion to inequality was high. The final scenario, where simulations focused on comparing a UBI funded either directly, indirectly or through cuts, against the expansion of a benefit – the Earned Income Tax Credit (EITC) in the US – at the same fiscal cost, found that, due to the targeted nature of the EITC subsidy, welfare improvements were higher than would experienced under the implementation of a UBI.
In summary, The Fiscal Monitor concluded that a perfectly implemented means-tested system would always be superior to a UBI, since it would ensure the necessary coverage and provide the greatest level of progressivity within the bounds, constraints and conditions assumed. Therefore, in countries where there is a ‘good’ transfer program, the finance necessary to fund a UBI would be better used on improving the current system. That said, in reality, given the existence of imperfections in such systems, a UBI could be a powerful means of combating poverty and extreme poverty, especially in countries where both progressivity and coverage is poor. It was also noted that a UBI could be implemented for other reasons, such as in combatting job market disruptions associated with technological progress.
More information at:
IMF Publications, ‘IMF Fiscal Monitor: Tackling Inequality, October 2017’, International Monetary Fund website, October 2017
by Claire Bott | Nov 3, 2017 | News
A short-term universal basic income (UBI) pilot in India has been found to have positive effects years after it concluded, according to a recent follow-up study. Researchers who returned to the villages involved in the original pilot study, which took place in 2012-2013, found that many of the improvements caused by a year of basic income had been wholly or partially maintained.
In a few cases, there had even been what are called “momentum effects”, in which behaviour changes due to the year-long UBI had continued to build during the intervening years. For example, in the original study, it was found that, prior to the provision of the UBI, women (or “the spouse of the head of the household” as it is expressed in the report) made decisions on how to spend money only about 9% of the time. At the end of the original study, women were making monetary decisions nearly a quarter of the time, while in the recent follow-up, this had gone up to virtually one-third of the time.
Other instances where positive and long-term effects have been maintained well after the end of the subsidy include an improvement in regular income (related to using the UBI to invest in farming equipment or to set up businesses), and a considerably larger percentage of girls in education.
However, there are also some areas where the effects of the UBI have been found to have been rolled back over the years. One of the most prominent of these is in the area of indebtedness. In the original study, the villagers who were provided with the UBI found that 70% had reduced their debt, but the new study found that there is no longer any statistically significant difference in indebtedness between those who had received the UBI and those who had not.
The study also includes a number of case studies and quotations, including one from the head of the village school, who stated, “The experiment gave a major push to the economy of the village in many ways. In front of my eyes, I could see things changing. Equally, I have also noticed a major positive behavioural change in these people because of that experiment.”
The original study, which was a pilot to test the effects of UBI, involved nearly 140 people in two villages, one of which was provided with a UBI and one of which acted as a control. Every precaution was taken to ensure that the two villages were as similar as possible in all socio-economic characteristics.
The study’s authors include Guy Standing, who is a Professorial Research Associate at SOAS University of London and co-founder of BIEN, as well as Sarath Davala, a sociologist who co-wrote a book entitled Basic Income: A Transformative Policy for India with Standing and Renana Jhabvala, another of the study’s authors. The report concludes by recommending that further UBI pilot studies take place, that existing welfare studies be analysed, and that an Independent Commission on Universal Basic Income is established.
Asked to comment, Davala provided the following statement: “We went back after four years to the same village that received Basic Income for a year in 2012. It was heartening to see that some of the effects still continued when we compared with the situation in the control village. So, what does that show? That unconditional basic income payments have a deeper psychological impact, and that even when they are given for a short period like a year, they do leave a lasting positive impact. They provide people with a sense of economic security. This is a very valuable insight for us and policy makers.”
by Dawn Howard | Nov 2, 2017 | News
The 3rd episode of the “In All Seriousness” podcast presented a casual but poignant round table discussion on UBI with Zeitgeist Movement founder Peter Joseph, Rob Dew, and Michael Jordet. Special guests included Larry Cohen, founder of The Economic Security Project and Build the Floor, as well as Scott Santens, an activist and columnist who has been a recipient of a crowd-funded monthly basic income since January 2016.
The group covered a wide range of topics, including the history of basic income as a concept, the ubiquity of automation and its destabilizing effects on the economy, the Left’s rejection of Nixon’s 1969 Family Assistance Plan, the nature of work and what it means to live a meaningful life, the popularity of the Alaska dividend, the effects of poverty on the cognitive development of children, stress and its relationship to political apathy, the role of “The State” in social progress, the blockchain as a game-changing technology, the notion of “the three pillars” (universal healthcare, universal education, basic income) and the “adjacent possible”, the disproportionate benefits of UBI on women and minorities, open-source resource and food management, and the greatest obstacles to the implementation of UBI present today.
You can read more at https://www.reddit.com/r/BasicIncome/ or engage with members of the panel on Twitter:
@tzmglobal @scottsantens @larrycohen
by Andre Coelho | Nov 2, 2017 | Research
Trucks transporting PAL boxes. Credit to: Jesse M. Cunha and Giacomo De Giorgi
Vox Media, a USA online news outlet looks at a food support program in Mexico aimed at its poorest citizens, as a recent article shows. The program PAL (in Spanish “Programa de Apoyo Alimentario [Food Support Program]”) was first initiated in 2003 and has been closely monitored over the years. This program included, as a part of its roll out, three groups: one receiving in-kind transfers (food), another cash transfers with no strings attached and another still got nothing (control group). Recent findings indicate that there have been absolutely no inflation indicators during or related to the program (in kind or cash groups). Critics have been concerned about basic income programs leading to uncontrollable inflation. In fact, for almost 15 years now participants in the PAL program have enjoyed better nutrition and health outcomes, as well as lower prices in larger centres with greater competition and no inflationary outcomes have been found.
More information at:
Jesse M. Cunha and Giacomo De Giorgi, “The price effects of cash versus in-kind transfers”, Federal Reserve Bank of New York, Staff Reports, August 2015
Dylan Matthews, “A new study debunks one of the biggest arguments against basic income”, Vox, September 20th 2017
by Patrick Hoare | Nov 1, 2017 | News
David Simon. Credit to: Flickr
Whilst talking about his new HBO show ‘The Deuce’, David Simon, creator of the award winning series ‘The Wire’, has advocated for a “guaranteed income” to be introduced in the US.
During an interview with David Remnick on The New Yorker Radio Hour on the 29th of September, when asked about the nature of his politics given the content of his journalism and shows, Simon said that he was a “lefty” on “around 85% of the issues” citing a “guaranteed income” as an example of a policy he supported. He explained that, as far as he could see, “we’ve reached the death of work”, and “where we’re going as a society” in terms of “automation” means that we should be guaranteeing people some sort of income. Whilst it was not clear from the interview whether Simon was referring to a Universal Basic Income (UBI) or some form of Guaranteed Minimum Income (GMI), he explained that direct cash transfers to the financially poor were economically viable since the “20 or 30 or 40 thousand dollars” people would receive would go “right back into the economy”. He also pointed out that former US president Richard Nixon initially supported a form of GMI in the 1970s, alluding to the fact that even those who weren’t traditionally seen as being in favour of governmental welfare based solutions to economic growth could be amenable to related mechanisms.
Simon’s thoughts are somewhat of a continuation of the ideas he expressed in a talk at the Festival of Dangerous Ideas in Sydney in 2013. In a critical analysis of the prevailing iteration and implementation of capitalism, he lamented the idea that ‘profit’ was the metric through which we judged the health of both an economy and a society. Although he was unwavering in his support of capitalism as an economic model through which growth and progress occurs, he said that the use of it as a framework to assess the moral justness of people’s experience was mistaken and has led to ‘greed’ being considered as good. In order that we fulfill the notion of what he considers society to be – “that everybody feels as if, if the society succeeds, I succeed, I don’t get left behind” – he believes that “labour doesn’t get to win all its arguments, [and] capital doesn’t get to [either]”, but rather that “it’s in the tension, it’s in the actual fight between the two, that capitalism actually becomes functional”. In this regard, his advocacy of some sort of guaranteed payment policy chimes with other social commentators such as Peter Barnes, author of ‘With Liberty and Dividends for All: How to Save Our Middle Class When Jobs Don’t Pay Enough’, who see basic income as a social dividend rightfully distributed to everyone as a way of representing the fact that the majority of wealth is created together by society.
More information at:
David Remnick, ‘David Simon on the Rise of Pornography’, New York Public Radio, 29th September 2017
‘About Basic Income’, Basic Income Earth Network
Peter Barnes, ‘With Liberty and Dividends for All: How to Save Our Middle Class When Jobs Don’t Pay Enough’, Amazon Books, 30th August 2014
