This past week, Finland released the final results from its two-year “basic income” experiment. The program produced a modest increase in working days among basic income recipients and noticeable improvements in perceived happiness and healthiness.
Is this a surprise? When governments give people cash assistance, of course, their lives will improve. And with financial stress alleviated, these recipients will still find productive uses for their time.
Simply imagine the unearned suffering billions of people could have been spared if governments had implemented basic income prior to the pandemic and global economic depression.
Basic income skeptics should consider which system failed when confronted with the current avalanche of suicide, descent into addiction, and hungry mouth these twin crises have created. But according to the government’s standard, Finland’s basic income experiment still “failed” because recipients only increased their working days by a week or so.
Let that sink in. Despite proof that the program improved basic income recipients’ physical and mental well-being, it was deemed a failure because it did not fix every aspect of the labor market in two years. Recipients worked more, but that apparently still was not enough.
Maybe the standard by which success is judged is, therefore, the true failure.
Our current situation shows us that the government was dead set on keeping us in jobs at all costs. And the natural result of that obsession to “preserve work” is that governments are now bailing out corporations instead of their people.
Of course, well-connected businesses like airlines are bailed out first (and multiple times) as average people languish on the edge of financial ruin. Meanwhile, complicated schemes in the United States like the “Paycheck Protection Program” are designed to create the impression of modest job loss, since employees are kept tacked to their employer by way of payroll. But these “jobs saved” are meaningless insofar as many small businesses will immediately shutter from falling demand whenever the program ends. Many are zombie employers, animated by governments’ obsession with “jobs” over human wellbeing.
Even increasing unemployment benefits with a $600 bonus has been a nightmare, having never gone to many informal workers like caregivers and mothers in the first place. The unemployed will now make every effort possible not to return to work. Unlike with basic income, where the payment is available unconditionally, people will lose their leisure time and $600 unemployment bonus when they accept their next job.
Unemployment payments are also being used to threaten employees to return to work before the pandemic is even under control. In Iowa, the governor said unemployment recipients will be thrown off unemployment assistance if they do not return to work when lockdowns are eased: even if their workplaces are still hotspots for COVID. This means even more lives will be sacrificed on the altar of “increasing work” and “saving jobs.”
In contrast, basic income would empower people to make an informed decision whether it is safe to return to work without the loaded gun of economic self-destruction being held to their head. Governments should pay people directly instead of paying their employers. If they did, employers would have to meet the safety and pay standards of the people they hope to woo back into work
Almost a year ago, I wrote that the era of “experimenting” with basic income to determine whether it causes “laziness” should end. This question is more often than not asked in bad faith by opponents of basic income, who ignore overwhelming evidence that it generally increases the number of hours recipients work: even leaving aside the productivity gains in those work hours, as people are given more freedom to choose how their labor is allocated.
When the article was written, Canada cancelled its basic income experiment and Finland released its first year of results. These experiments were deemed failures at the time. But the absurdity of that belief is clearer than ever before.
We stand at the abyss, with the highest unemployment rates and deepest recession of our lifetimes on the horizon. And yet governments have doubled down on putting “jobs,” narrowly defined as roles serving corporate interests, over our wellbeing. This paradigm, by supercharging the economic fallout of the pandemic and forcing people back to work without safety rails in place, defies all logic.
Basic income never failed us. Our “jobs” did.
By Tyler Prochazka and James Davis
A debate has broken out in Taiwan over sending cash to combat the economic downturn related to the global coronavirus pandemic.
The ruling Democratic Progressive Party (DPP) plans to stimulate select areas of the economy using coupon vouchers. The second-largest party, the Nationalist Party (KMT), has pushed for cash instead.
The DPP argued that cash is more likely to be “saved,” while vouchers have a better “stimulative” effect on the economy because they must be spent.
Chiang Wan-an, a member of the KMT, said sending cash is a more realistic way of providing financial security for Taiwanese. Cash can be used on paying education fees, healthy food items, and other essential areas, Chiang said.
Singapore plans to send a one-time payment of $420 USD to all Singaporeans above age 21 on April 14.
Taiwan’s proposed vouchers could be used to reduce the price of certain goods by 25 percent. KMT members argued this would not be convenient for those who do not understand the mobile payment system it would require.
This voucher system would also not help the poor who need to make essential purchases not covered by the vouchers, the KMT said.
Taiwan’s ruling DPP party did not rule out cash, but said that plans to send out cash would be targeted to “disadvantaged groups.”
Reports are emerging that Spain is hoping to deploy a “permanent” basic income type program in the near future. The program comes as Spain aims to respond to the economic crisis from the global coronavirus pandemic.
Spain has one of the worst coronavirus outbreaks in the world with over 13,000 deaths.
Spain’s push for establishing basic income as a “permanent instrument” that “stays forever” will help reduce financial anxieties for many families worried about their jobs. Sending cash to families rather than corporations will better ensure economic security for the most vulnerable.
However, questions remain about the nature of the program and whether it will be truly universal and unconditional.
If Spain successfully implements basic income, it will become the first European country to implement the program on a national scale and one of the only places in the world to do so.
Finland famously experimented with a basic income pilot program. The experiment made recipients happier and healthier. Nonetheless, some government officials were upset the basic income pilot did not significantly affect employment status within a year for recipients.
Nadia Calviño, Spain’s minister for economic affairs, said the payments will be targeted to families and will differentiate based on their “circumstances.” In practice, differentiating based on circumstances will result in means tests that fall on the poor. If there are strict criteria, then some families who need assistance may be unnecessarily excluded or have their assistance delayed.
A better system is presuming each individual qualifies and allowing wealthier individuals to opt-out. If an individual who received basic income has a large income by the end of 2020, the government can phase out their basic income through the income tax system the following year.
Universality helps the poor, not the rich. It ensures all those who need assistance can receive it immediately. The true costs of universality are lower because it requires less administration and bureaucracy to implement the program.
As US presidential candidate Andrew Yang continues to outperform expectations, his signature policy proposal, the Freedom Dividend or Universal Basic Income (UBI), is receiving increased scrutiny. Some of the criticisms are well warranted, while others are misconceptions based on a flawed understanding of how basic income would operate.
The following addresses some of the primary misconceptions regarding Yang’s plan.
UBI is too expensive
The cost issue is one of the most persistent misconceptions about basic income.
A basic income system would have a built-in clawback through the tax system. In Yang’s case, a portion of the clawback comes through the opt-in system that would substitute cash-like welfare programs for the Freedom Dividend, such as food assistance. However, most of the burden of the clawback would be on the wealthiest families who would pay more in taxes than they could receive from basic income
As I have noted previously, the UBI clawback can be both direct and indirect. For example, the Affordable Care Act (ACA) requires families to pay back some or all of their healthcare subsidies at the end of the year if their yearly income exceeds a certain amount. A UBI system can similarly create a phase-out in the income tax system.
Considering Yang’s Freedom Dividend is opt-in, it is likely that many wealthy families would not opt to receive the dividend anyway.
Indirect clawback mechanisms could include Yang’s proposed Value Added Tax (VAT). The VAT is effectively a national sales tax, meaning even lower-income people would pay back a portion of their basic income depending on how much they spend their dividend on taxed goods.
Yang has said he would exclude many essential items from the VAT, though. Calculations show the VAT combined with UBI would have a net positive effect on purchasing power for low-income individuals.
Any taxes paid on the UBI would be used for the following year’s dividend, meaning much of the money is repeatedly recycled through the system. The additional amount that is redistributed to lower-income families is called the “net cost” or real cost of basic income. The net cost is the amount the government would actually redistribute every year under UBI.
Factoring the clawback, the real cost of basic income to the government would be approximately $539 billion annually, according to Georgetown Professor Karl Widerquist. This is less than 25 percent of existing entitlement spending.
UBI would have the same cost as a Negative Income Tax (NIT) when factoring the clawback, but the sticker price of the gross cost creates a false impression of a higher cost for UBI. NIT is not universal — it only provides the subsidy to those who qualify, making the cost appear lower than UBI. When I asked Yang whether he would support NIT to avoid the cost misconception, he said NIT would be a step in the right direction.
UBI would cause inflation
The inflation misconception has been around for many years, but it has become more convincingly debunked since I first wrote about it nearly three years ago.
It is essential to note that Yang’s plan is redistributing existing cash, not printing new cash. For every dollar spent, there must be a dollar taxed first, which would offset inflationary pressures.
As Karl Widerquist noted, basic income is no different than other welfare programs in terms of increasing demand for goods. Denmark has one of the most generous welfare states in the world, but they also consistently experience a low and stable inflation rate below two percent.
In the United States, food assistance, which can be freely spent like cash on most food items, has not produced inflation in food prices. On the contrary, research from the London School of Economics shows in states with higher take-up of food stamp assistance, prices have dropped and there is greater product variety relative to those areas with lower food assistance take-up. This is because suppliers respond to increased demand with more competition entering the market.
Thus, the guaranteed demand from basic income could generate higher levels of competition that brings down costs for low-income people.
In Alaska, which has a small Universal Basic Income funded by oil revenues, inflation has been lower than the U.S. average since the program started. Other research in Mexico demonstrates that directly giving cash does not produce inflation.
Since the United States is a globalized market, any short term demand spike creates an economic profit that is resolved by increased production, bringing the price down in the long-run.
In fact, the United States is experiencing unusually low levels of inflation. Contributing factors could include the Amazon.com effect, automation, immigration, and global trade. Basic income would not change these underlying factors keeping a hold on inflation.
The main area where there could be meaningful inflation in the medium term is the cost of rent because there is a fixed supply of land.
Basic income could empower more people to move and find other options. Renters would have a better bargaining position with their landlord if they had a guaranteed dividend than if they are desperately clinging to their job.
In the long-run, greater purchasing power from low-income people should induce more homebuilding and open up a greater share of unoccupied housing. That said, the high cost of rent exists now in many areas and should be addressed as a separate policy issue.
Nonetheless, it is unlikely that any inflation from UBI could completely wipe out the improved purchasing power from the dividend, let alone make people worse off.
UBI would cause laziness
The problem of laziness is one of the most thoroughly debunked misconceptions about UBI. Among those who closely study cash transfers, many no longer consider labor participation an interesting research question because the results consistently show no effect. Those who have read the relevant research and are still convinced that basic income causes laziness will likely never be persuaded otherwise.
As I reported in 2016, “The Overseas Development Institute just released the largest meta-analysis of cash transfer programs ever, spanning 15 years of data and 165 studies. The main takeaway is that studies show a consistent reduction in poverty measures. Perhaps an even more important conclusion is that most evidence showed an increase in work participation after receiving the basic income.”
Many specific examples from across the developmental spectrum corroborate the conclusion that basic income would not meaningfully reduce work. In Finland’s basic income experiment, there was no negative effect on work. Iran’s generous basic income did not reduce overall work but did cause some young people to substitute their time for more schooling. In Alaska, their partial basic income did not reduce overall work. On the contrary, Alaska’s basic income increased part-time work due to the increased demand generated by a basic income.
With a permanent basic income, there is reason to believe that a healthier and more productive labor market will emerge. For example, the Finland experiment showed basic income recipients were happier and more trusting overall. Many polls indicate that individuals would use the basic income to gain additional skills, spend time with family, volunteer, and engage in freelancing.
If the poor are no longer clinging to a job for survival, they can more freely find a job where they can be the most productive. They will also have more bargaining power to demand better working environments.
Most importantly, basic income would allow greater time and mental energy to be focused on the most important job in society: caregiving. Volunteering and caregiving provide enormous economic and societal benefits that are not recorded in GDP because they are typically unpaid.
Basic income gives people the right to say no to exploitation. But the most revolutionary aspect of UBI is that it finally gives everyone the opportunity to yes to their passions.