by Michael Lytton | Jul 26, 2016 | Opinion
The editorial below is a response to Pranab Bardhan’s “Could a Basic Income Help Poor Countries?”
Pranab Bardhan is a professor of economics at the University of California, Berkeley. Writing on the Project Syndicate website, he is skeptical about a universal basic income in rich countries, but asks if it isn’t both fiscally feasible and socially desirable in poor countries.
Comparing applicability of a Universal Basic Income (UBI) between advanced and low-or middle-income countries, Bardhan argues that there is a better fit where “the poverty threshold is low and existing social safety nets are both threadbare and expensive to administer.” His response to his own question is still cautious. “In India,” he says, “the answer could be yes.”
Unfortunately, his argument is muddled. He correctly diagnoses the administrative chaos that is India, and identifies sources of funding for a UBI in subsidies and tax exemptions that could be ended. At the same time, he warns that existing key social welfare programs cannot all be eliminated, nor should the government get out of the business of public education, health care, preschool nutrition or employment guarantees in public works. In effect, a UBI would supplement existing programs and thereby loses its rationale as a reducer of bureaucracy.
Bardhan also paints a contradictory picture of the results, describing it as both a “reasonable basic income”, yet “severely limited,” which is why other social welfare programs can’t be discontinued. And ignoring the ample evidence to the contrary from cash transfer experiments in India, he says there is “no way to ensure that individuals would allocate enough of it to achieve socially desirable education, health or nutrition levels.”
Apparently agreeing with “prominent advanced-country economists” who warn that a UBI is “blatantly unaffordable,” Bardhan uses the United States as an example. He writes that an annual payment of $10,000 per adult would “exhaust almost all federal tax revenue, under the current system,”, and suggests that this sort of arithmetic explains the failure of the Swiss UBI referendum last month.
Invoking the specter of affordability to end debate on UBI is reminiscent of earlier and now discredited arguments that it is too expensive to do anything about climate change, which is tantamount to saying our world is short of wealth, so “Say goodnight, Gracie.”
The Global Commission on Economy and Climate makes the evidence-based argument that climate-smart cities can spur economic growth and a better quality of life—at the same time as cutting carbon pollution. Recent research (from economists, no less) has found that investing in compact, connected, and efficient cities will substantially reduce greenhouse gas emissions and generate global energy savings with a current value of US $17 trillion by 2050 (Gouldson et al., 2015).
To these savings can be added reduced pollution impacts and costs. In 2013, the World Bank conducted its first-ever economic assessment of environmental degradation in India and reported the amount to be 5.7% of the country’s GDP (World Bank, 2013). And in another first-of-its-kind study conducted in 2015, the Organisation for Economic Co-operation and Development (OECD) found that air pollution-related illnesses and mortalities cost $1.7 trillion annually in OECD countries, $1.4 trillion in China, and $0.5 trillion in India (WHO Regional Office for Europe, OECD, 2015).
And then there is inequality. The global inequality crisis is reaching new depths, with the richest 1% now having more wealth than the rest of the world combined. The wealth of the richest 62 people on the planet rose by 45% in the five years since 2010 to $1.76 trillion, while the wealth of the bottom half fell by just over a trillion dollars in the same period—a drop of 38% (Oxfam et al., 2016). Meanwhile the tiny elite at the top is using its power and privilege to manipulate the economic system to further concentrate returns to capital.
Paying taxes is not high on the agenda of the absurdly wealthy, and the use of tax havens and other tax-dodging practices afflicts countries of all income levels, even the poorest. It is estimated that tax dodging by multinational corporations costs developing countries some $100 billion annually, and a global network of tax havens enables the richest individuals globally to hide $7.6 trillion. As taxes go unpaid due to widespread avoidance (with political approval and support), government budgets shrink and vital public services and social programs are diminished. Levying higher taxes on less wealthy segments of society just hurts the poor and makes inequality worse.
Despite Professor Bardhan’s quick dismissal, the United States would seem to be a good test case for UBI. For a number of reasons, the country has been characterized as an outlier among developed nations. It is one of the richest in the world, but among wealthy nations it has the highest income inequality. It has high private but low public social spending, with vast differences within the country as a result of states’ rights under federalism. Public expenditures have tended to shift toward the disabled and elderly, and away from those with the lowest incomes—consistent with a widespread belief that people are poor because of laziness or lack of incentive. Tony Judt’s rejoinder is, “Anyone who thinks that the poor like living on a pittance should try it.”
There is bipartisan aversion to taxes, especially among the rich — it is difficult to imagine how much worse income inequality might be had the United States spent even less on reducing poverty. Progressive taxation that would redistribute wealth from the rich to the poor is political anathema, and taxation is increasingly regressive—the poor pay higher effective tax rates than the rich. Enforcing tax avoidance and tax evasion is correspondingly weak.
It is one of the richest nations in the world, and yet among the 35 wealthiest countries it has the second highest child poverty rate (Adamson, UNICEF, and Innocenti Research Centre, 2012). More than one in five children is food insecure, and nearly one-third of U.S. children are in a household where neither parent holds full-time, year-round employment. The cost of child poverty in economic and educational outcomes has been recently estimated to be half a trillion dollars a year, or the equivalent of nearly 4 percent of the Gross Domestic Product (Coley, J. and Baker, 2013).
Reducing child poverty seems sufficient in itself to justify a UBI experiment. Not only would public social assistance costs fall, but families with more income are better able to purchase nutritious meals and better housing, and support child development with higher quality family relationships and parental interactions. Some observers warn that current poverty levels combined with the growing wealth gap threaten to destabilize the US democracy and curtail the social and economic mobility of children for generations to come (Coley, J. and Baker, 2013).
Professor Bardhan would also have found money for UBI just by crossing the Berkeley campus. His colleagues at the Institute for Research on Labor and Employment (IRLE) published a research brief in 2015, titled The High Public Cost of Low Wages: Poverty-Level Wages Cost U.S. Taxpayers $152.8 Billion Each Year in Public Support for Working Families.
Over the past three decades the share of income going to labor has been declining in most countries around the world, while the capital share has been rising. Unemployment is part of the problem. The International Labour Organization (ILO) estimates that over 201 million people were unemployed around the world in 2014, an increase of over 31 million since the start of the global financial crisis. The ILO reports that this trend is common in all regions of the world, despite an overall trend of improved educational attainment. At the same time, wages are not keeping up with the productivity of workers. In the US between 1973 and 2014, net productivity grew by 72.2 percent, yet inflation-adjusted hourly pay for the median worker rose by just 8.7 percent. (Oxfam et al., 2016).
As the authors of the IRLE research brief point out, when jobs don’t pay enough workers turn to public assistance to meet their basic needs. These programs provide vital support to millions of working families in the United States whose employers pay less than a living wage. The researchers found that between 2009 and 2011, more than half of the combined state and federal spending on public assistance went to working families—a total of $152.8 billion per year. “Overall, higher wages and employer provided health care would lower both state and federal public assistance costs, and allow all levels of government to better target how their tax dollars are used” (Jacobs, Perry, and MacGillvary, 2015).
Next stop for UBI, the United States.
Sources:
Adamson, Peter, UNICEF, and Innocenti Research Centre. 2012. Measuring Child Poverty New League Tables of Child Poverty in the World’s Rich Countries. Florence, Italy: UNICEF Innocenti Research Centre.
Coley, J., Richard, and Bruce Baker. 2013. Poverty and Education: Finding the Way Forward. Princeton, NJ: Educational Testing Service, Center for Research on Human Capital and Education.
Gouldson, A. P., S. Colenbrander, A. Sudmant, N. Godfrey, J. Millward-Hopkins, W. Fang, and X. Zhao. 2015. “Accelerating Low Carbon Development in the World’s Cities.”
Jacobs, Ken, Ian Perry, and Jenifer MacGillvary. 2015. “The High Public Cost of Low Wages: Poverty-Level Wages Cost U.S. Taxpayers $152.8 Billion Each Year in Public Support for Working Families.” Institute for Research on Labor and Employment, UC Berkeley Center for Labor Research and Education.
Oxfam, Deborah Hardoon, Sophia Ayele, and Ricardo Fuentes Nieva. 2016. An Economy for the 1%: How Privilege and Power in the Economy Drive Extreme Inequality and How This Can Be Stopped. Briefing Paper 210. Oxford, UK: Oxfam GB for Oxfam International.
WHO Regional Office for Europe, OECD. 2015. “Economic Cost of the Health Impact Air Pollution in Europe: Clean Air, Health and Wealth.” WHO Regional Office for Europe, Copenhagen.
World Bank. 2013. “India-Diagnostic Assessment of Select Environmental Challenges: An Analysis of Physical and Monetary Losses of Environmental Health and Natural Resources.” World Bank.
by Kate McFarland | Jul 13, 2016 | Opinion
A recent article in The New York Times, entitled “Universal Basic Income is Poor Tool to Fight Poverty,” spawned a debate on the desirability of implementing a UBI in the United States. This Basic Income News feature analyzes the NYT column’s argument against UBI, and looks at the counterarguments posed in several response pieces.
On May 31st, the New York Times published an article that launched a debate about the cost and effectiveness of implementing a universal basic income in the United States.
The column’s author, Eduardo Porter, argues that “universal basic income is a poor tool to fight poverty” (to cite the article’s title). He makes two main arguments against UBI:
First, on his assessment, a UBI would be either insufficiently low to end poverty, or require too many cuts to existing programs, or it would be prohibitively expensive to administer:
It amounts to nearly all the tax revenue collected by the federal government. Nothing in the history of this country suggests Americans are ready to add that kind of burden to their current taxes.
Second, even if a UBI could be afforded, Porter believes that it would have “many undesirable features” due to its unconditionality. These include a “non-negligible disincentive to work” — work, in his view, “remains an important social, psychological and economic anchor” — and a lack of social control. (Porter brings up housing vouchers as an example of the latter: “Say we know the choice of neighborhood makes a difference to the development of poor children. Housing vouchers might lead them to move into a better one. A monthly check would probably not.”)
Additionally, Porter dismisses one popular argument in favor of basic income: he denies that technological unemployment is a pressing concern.
While Porter admits that poverty and precarity are problems in dire need of better solutions, he believes that there are better policy options than a universal basic income. In particular, he is fond of the idea of subsidized employment, suggesting that “The government could subsidize jobs as varied as school repairs and fixing potholes.”
Is a basic income too expensive?
Before the end of the day, responses to Porter’s argument appeared across the Internet, defending both the feasibility and desirability of a universal basic income.
Three notable replies include those of Vox columnist Matthew Yglesias, former BIEN secretary Almaz Zelleke, and popular basic income activist Scott Santens. All three of these authors respond to the cost objection, although they employ slightly different strategies in doing so.
While Zelleke remains focused on matters of principle, largely bypassing the attempt to numerically “prove” that a basic income would be affordable, Yglesias and Santens both crunch a few numbers. Yglesias calculates the cost of a basic income of $10,000 per adult (which is, admittedly, below the poverty line) and $6,000 per child. Santens considers an amount of $12,000 per adult (topped-up for seniors and people with disabilities) and $4,000 per child. They conclude that, although expensive, a UBI is not prohibitively costly.
Yglesias points out that the level of spending required, as a percentage of GDP, would not be out of line with the amount of government spending in social democracies like France and Sweden. Thus, while a UBI would “take federal spending to a level never before seen” in the United States, this level would not seem farfetched when compared to other developed nations.
But, of course, the question that worries critics of the UBI is not just “Could America afford a UBI?” but, more to the point, “Where would the money needed to fund a UBI come from?” On this point, all three of Porter’s opponents seem to agree, nodding to an answer that some Americans might not want to hear: funding a UBI will require some tax increases and redistribution.
Zelleke cuts to the chase here: the question of financing a UBI is not really a matter of affordability at all, but of political will:
It’s true that basic income is expensive, but calling it unaffordable short-circuits the discussion we should be having about the costs and benefits of a basic income. Raising taxes is never an easy sell, but might it be worth it if the additional revenues were spent on a program guaranteed to eliminate poverty?
And Santens puts matters even more bluntly, asserting that the money needed to fund a UBI “comes from the raises no one has gotten since productivity decoupled from wages and salaries back around 1973. Basic income belongs to us because it’s been effectively stolen from us for decades.” On Santens’ view, a UBI is not merely an affordable option to eliminate poverty; basic principles of fairness and justice make it mandatory.
At base, the disagreement between Porter and his opponents is not a dispute about the mathematics. It’s a question of value: it is more important abolish poverty, or to give individuals the shares of collectively-generated wealth that they deserve, or is it more important to avoid raising taxes and federal spending?
Interestingly, Porter himself seems to tacitly agree with opponents like Yglesias that, technically, the United States could afford a universal basic income. In an article published just a week later, he complains that paying for a sufficiently high basic income would require “raising taxes to Scandinavian levels.” Similarly, U.S. News and World Reports contributor Chad Stone — in an article echoing Porter’s — says of Yglesias: “he assumes that the goal of ending poverty would make conservatives and GOP politicians comfortable with raising federal spending to European levels…”
Even its adversaries, then, seem to admit that a UBI could be financed if the United States was willing to raise taxes to a level that already has a precedent in countries that rank among the happiest in the world. Where money alone is concerned, the United States can pay for a UBI.
As Santens puts it, “The money is there, it’s just massively maldistributed after decades of upward redistribution.”
A June 6th article in Quartz — written in part as a response to Porter’s New York Times piece — makes a similar point: the debate over the cost of basic income “isn’t really about welfare spending: It’s about tax policy.”
The remaining disagreement, I submit, is twofold:
- Is it fair to raise taxes on the highest earners in order to redistribute money to all?
- Even if it is, could this be a viable sell in American politics?
These are the debates that must be had. I believe that, where matters of justice and fairness are concerned, UBI proponents can easily mount the more compelling normative argument. Political feasibility, to be sure, might require a tough and prolonged fight — but the advantages of UBI are enough to warrant it.
(For more background on these normative arguments and practical advantages of UBI, I recommend further exploration of the BIEN website.)
Would a basic income harm society?
So, then, a universal basic income is affordable in the United States — as long as the country can summon the political will to implement it. But would it harm society?
Porter gives two reasons to think that it could: a UBI would disincentivize work, and it would deprive the state of valuable and productive control over how individuals spend money. While Yglesias and Zelleke do not focus on this portion of Porter’s article, Santens addresses both in some detail.
Porter’s first worry is a common objection to UBI: if people can get money for free, they might stop working (specifically, they might abandon or reduce time spent in paid employment [1]).
Note that, in general, there are two ways to respond to this objection:
- Don’t contest the implicit evaluative presupposition that it’s bad if people stop working (in paid jobs), but deny that this is likely to happen under a UBI.
- Don’t contest the prediction itself, but deny that it would be a bad thing if people spent less time in paid employment; that is, deny the evaluative presupposition that more paid work is better for individuals or society.
Of course, one could employ both tacks in tandem — which is, roughly, what Santens does in replying to Porter.
For the most part, Santens takes the first approach, countering Porter’s empirical claim that a UBI would disincentivize (paid) work. In doing so, he cites multiple studies of cash transfers and basic income pilots — notably drawing upon an article written last fall by none other than Eduardo Porter — that show that unconditional cash transfers have not, in fact, had this effect.
There is a danger, though, in relying too heavily on this first tack: it can tend to reinforce the assumption that, all else equal, more time spent in paid work is better than less. It reinforces the view that the issue is an empirical one (“Will people spend less time at jobs or not?”), when the bigger issue is a normative one (“Is it bad or good if people spend less time at jobs?”).
Ezra Klein’s contemporaneous piece in Vox, which was also inspired by Porter’s article, partially exemplifies this danger. Klein takes for granted that some people would leave the workforce if provided with a basic income — and that this would indeed be an unwanted result “in a world where a job with a steady paycheck is the only path to self-respect.”
In fact, he goes so far as to say,
If that’s the reality of the situation, then, yes, a UBI is a bad idea — it’s better to push people to work by supplementing incomes or using the government as an employer of last resort. Sure, that’s more paternalistic, and it means we’ll waste people’s time in unpleasant or useless jobs and consign others to unemployment.
Although Klein is willing to admit that a UBI could be a good idea if Americans change the way that they view work, he believes that Americans have not yet reached this point.
I submit, however, that it is precisely the job of the UBI advocate to challenge Americans to change the way that they view work — assuming that Klein is correct about the status quo.
This brings us to the second of line of response to Porter’s “a UBI would disincentivize work” objection — which, in fact, Santens also touches upon (although he does not develop it in his response to Porter to the extent that he has elsewhere):
[B]asic income is not at all an idea about paying people to do nothing, but instead about paying people to do anything. There is so much work being done right now that is not seen or recognized as work, but is. And there is so much work people want to be doing on their own volition that they are prevented from doing in a system that requires they spend their hours working for someone else just to survive.
Again, if Klein is right about how Americans view work, then Americans must change the way they view work. She might, though, simply be wrong about the current state of affairs in American culture: plausibly, Americans can see the value of unpaid work — or, in Santens’ words, “work that is not recognized as work” — even if it’s not always obvious that they can.
“Frustrated man at a desk” CC LaurMG
This leaves Porter’s contention that, as Santens puts it, a UBI “would not be paternalistic enough.” Santens’ response here is to argue that the lack of paternalism is for the best: allowing individuals more discretion over how they spend money, and with fewer restrictions and qualifications on who receives it, has been shown to produce the better outcomes.
He takes up Porter’s own example — housing vouchers — to create a compelling case study, combining anecdotal and statistical evidence in favor of the effectiveness of cash transfers and against that of means-tested programs. According to the research he cites, over three out of four people who qualify for housing assistance in the US don’t receive it. Meanwhile, studies of cash-transfer programs show that many beneficiaries do, in fact, use their cash to move into better houses or neighborhoods.
As Santens repeatedly complains, Porter’s attack on UBI rests on little in the way of empirical evidence. Now, perhaps Santens himself has cherry-picked studies in favor of his pro-UBI conclusion. Even if that were the case, however, he at least does provide some hard-and-fast data. Minimally, this shifts the burden of proof back to Porter to demonstrate — with evidence — why paternalistic welfare programs would provide a greater benefit to individuals and society.
Finally, in addition to arguing that direct cash transfers are more effective in producing certain results, one might directly object to the normative presuppositions of means-tested welfare programs — as Santens does here:
I’m fed up with people with positions “up on high” looking down at everyone else and telling them they know better who needs assistance and who doesn’t, and how that assistance should be provided and when that assistance should be taken away. I’m fed up with the idea that anyone must prove their right to live to anyone at all.
I will close with this passage. We do need to consider the evidence; sometimes, though, we need just to step back and ask “What does this policy imply about basic human dignity?”
[1] When critics like Porter complain that a basic income might cause people to “stop working”, they often conflate “working” with working for money — ignoring the many types of unpaid activities that add value to society (if not to the GDP), and that are even colloquially regarded as “work” (e.g., volunteer work, care-work, and housework).
Continuing to use the word ‘work’ in this narrow sense, they paint a false dichotomy between working for money and idleness. The important category of “unpaid work” is ignored — even though it might well that, given a basic income, many individuals would choose to engage in more unpaid work rather than either paid work or “idleness”.
In the interest of clarity, I’ve disambiguated ‘work’ as ‘paid employment’ in my treatment of the argument — but it should be noted that, quite misleadingly, Porter does not.
BIBLIOGRAPHY
Original article:
Eduardo Porter, “Universal Basic Income Is a Poor Tool to Fight Poverty,” The New York Times, May 31, 2016.
Critical responses:
Scott Santens, “Universal Basic Income Is the Best Tool to Fight Poverty,” The Huffington Post, June 2, 2016.
Matthew Yglesias, “A universal basic income could absolutely solve poverty,” Vox, May 31, 2016.
Almaz Zelleke, “Actually, a Universal Basic Income Will Solve Poverty,” May 31, 2016.
Sympathetic responses:
Chad Stone, “A Universal Basic Income Is No Solution,” U.S News & World Reports, June 3, 2016.
Related:
Alexander Holt, “Critics of Universal Basic Income just don’t understand how the policy would actually work,” Quartz, June 6, 2016.
Ezra Klein, “A universal basic income only makes sense if Americans change how they think about work,” Vox, June 1, 2016.
Thanks to Asha Pond, Tyler Prochazka, and André Coelho for reviewing a draft of this article — and, as always, to my supporters on Patreon (click the link to join ’em!).
Featured image CC Luis Felipe Salas.
by Michael Lytton | Jul 12, 2016 | News
Abhijit V. Banerjee. Credit to: Financial Times
On June 18, The Indian Express—an English-language daily newspaper, published an article about the Swiss vote on UBI. The piece titled “The best way to welfare,” was written by Abhijit V. Banerjee, a professor of economics at the Massachusetts Institute of Technology. (His book—co-authored by Esther Duflo—Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty, won the 2011 Financial Times and Goldman Sachs Business Book of the Year Award)
Banerjee says that although the Swiss voted against a universal basic income, polls conducted after the referendum suggest that the debate is not over. He gives two reasons, the first being the widespread concern, especially in the West, about the future of work. An increasing topic of concern is that absent a radical reassessment of the fundamentals of how our economy works, there could be an enormous population of permanently unemployed whose jobs have become superfluous by automated and intelligent machines.
Banerjee then says the UBI debate is still alive because our current welfare systems are fragmented, bureaucratic and overly complicated. He reminds readers that reshaping its social security system is the primary purpose of Finland’s basic income experiment, scheduled to take place in 2017–2018, an experiment he says that is ‘clearly relevant’ for India.
For more information on the Finland experiment, read the Basic Income News reports listed below.
Banerjee cites Renana Jhabvala, an Indian social worker who gained prominence through her work on behalf of women in the informal economy, and, with Guy Standing among others, co-edited Basic Income: A Transformative Policy for India (published by Bloomsbury in 2014). The book reports on the results of three basic income schemes piloted in India between 2010 and 2013, in which 6,000 individuals received completely unconditional monthly cash payments. The book was reported in a Basic Income News item, December 8, 2014.
A summary of results of the project was released on the Basic Income Earth Network (BIEN) website. On the United Nations Research Institute for Social Development (UNRISD) website, Guy Standing reports on the main outcomes of the social experiment. The UNRISD also hosted a seminar on May 13th 2016, titled “Informality and Income Insecurity: Is Basic Income a Universal Solution?”. Seven speakers are also featured in videos as part of this event.
Jhabvala estimates that there are more than 350 separate welfare programs in the India. “Why not,” says Banerjee, “have one universal basic subsidy that covers everything (perhaps except health and education) and let people decide how they will spend it, rather than trying to target subsidies based on our imperfect knowledge of what people need and deserve?”
Credit to: Give Directly
The immediate benefits are reduced poverty and less red tape, enabling the bureaucracy to be deployed elsewhere. And potentially the poor might use their financial security to plan their lives more effectively and invest in their families and businesses.
Finally, Banerjee mentions another pilot project, announced in April 2016 by the NGO GiveDirectly, that will test a universal basic income in Kenya. The plan is to provide at least 6,000 Kenyans with a basic income for 10 to 15 years. The parameters of the study are that it generates unbiased and transparent estimates of impact, that it is a long-term commitment, and that it is operationalized within well-defined communities. Banerjee is among a group of academic researchers who will test the impacts of the experiment.
More information at:
Stanislas Jourdan, “FINLAND: Government Forms Research Team to Design Basic Income Pilots,” October 15th 2015.
Vito Laterza, “FINLAND: Basic income experiment – what we know”, December 9th 2015.
Tyler Prochazka, “Dylan Matthews, ‘Finland’s hugely exciting experiment in basic income, explained”, December 13th 2015.
Kate McFarland, “FINLAND: KELA has sent preliminary report to Prime Minister”, April 5th 2016
Give Directly website
Wikipedia, “Renana Jhabvala“, 16th May 2016
Wikipedia, “Abhijit Banerjee“, 20th May 2016
Wikipedia, “Poor Economics“, 26th March 2016
