by Kate McFarland | Aug 9, 2016 | Research
Johannes Haushofer and Jeremy Shapiro have published “The Short-Term Impact of Unconditional Cash Transfers to the Poor: Experimental Evidence from Kenya” in The Quarterly Journal of Economics. The article analyzes GiveDirectly‘s unconditional cash transfers to poor households in western Kenya, and examines their impact on consumption and psychological wellbeing.
Reporter Chris Weller summarized Haushofer and Shapiro’s findings in a column for Tech Insider.
Abstract of the original article:
We use a randomized controlled trial to study the response of poor households in rural Kenya to large, unconditional cash transfers from the NGO GiveDirectly. The transfers differ from other programs in that they are explicitly unconditional, large, and concentrated in time. We randomized at both the village and household levels; further, within the treatment group, we randomized recipient gender (wife vs. husband), transfer timing (lump-sum transfer vs. monthly installments), and transfer magnitude (USD 404 PPP vs. USD 1,525 PPP). We find a strong consumption response to transfers, with an increase in household monthly consumption from USD 158 PPP to USD 193 PPP nine months after the transfer began. Transfer recipients experience large increases in psychological wellbeing. We find no overall effect on levels of the stress hormone cortisol, although there are differences across some subgroups. Monthly transfers are more likely than lump-sum transfers to improve food security, while lump-sum transfers are more likely to be spent on durables, suggesting that households face savings and credit constraints. Together, these results suggest that unconditional cash transfers have significant impacts on economic outcomes and psychological wellbeing.
The article’s conclusion recaps some of the “significant impacts”:
We find that treatment households increased both consumption and savings (in the form of durable good purchases and investment in their self-employment activities). In particular, we observe increases in food expenditures and food security, but not spending on temptation goods. Households invest in livestock and durable assets (notably metal roofs), and we show that these investments lead to increases in revenue from agricultural and business activities, although we find no significant effect on profits at this short time horizon. We also observe no evidence of conflict resulting from the transfers; on the contrary, we report large increases in psychological wellbeing, and an increase in female empowerment with a large spillover effect on non-recipient households in treatment villages (p. 36).
Johannes Haushofer is a professor in the Department of Economics at Princeton University, as well as the founder and scientific director of the Busara Center for Behavioral Economics in Nairobi, Kenya. Jeremy Shapiro is the current president of the Busara Center; previously, he was a co-founder and director of GiveDirectly (from 2009-2012) and a consultant at McKinsey & Company.
The Quarterly Journal of Economics, edited at Harvard University’s Department of Economics, is the oldest professional journal of economics in the English language. It publishes articles in all areas of economics.
References
Johannes Haushofer and Jeremy Shapiro, “The Short-Term Impact of Unconditional Cash Transfers to the Poor: Experimental Evidence from Kenya,” The Quarterly Journal of Economics; published online July 19, 2016.
Chris Weller, “Here’s more evidence that giving people unconditional free money actually works,” Tech Insider; July 25, 2016.
Photo CC Ninara
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
by Kate McFarland | Jul 11, 2016 | Opinion
An article in the June 4th edition of The Economist, entitled “Basically Flawed,” argues that universal basic income is a radical policy that is just too risky to pursue. The anti-UBI argument itself is flawed, however, largely due to understating the benefit of UBI–if not ignoring its moral necessity.
According to an article in the June 4th edition of The Economist [1], universal basic income (UBI) is a policy of uncertain need but certain costs. A simple risk-benefit analysis, then, would advise us to maintain our current welfare states (perhaps with less radical adjustments) rather than gamble with a UBI.
The argument has two main components: first, establishing that there is no definite need for a UBI; second, establishing that a UBI presents unavoidable costs.
Concerning the first, the author assumes that there is one (and only one) reason why something like a UBI would become necessary: widespread unemployment due to new technologies. Here the author notes that the robot job takeover has not happened yet, and expresses skepticism that it ever will:
Worries that technological advance would mean the end of employment have, thus far, always proved misguided; as jobs on the farm were destroyed, work in the factory was created. Today’s angst over robots and artificial intelligence may well turn out to be another in a long line of such scares.
Having set aside robot-driven angst, the author turns to defend the claim that UBI has sure costs. The first and most obvious of these is financial: a UBI is certain to be expensive to any government that implements it. For example,
An economy as rich as America’s could afford to pay citizens a basic income worth about $10,000 a year if it began collecting about as much tax as a share of GDP as Germany and replaced all other welfare programmes with the basic-income payment.
Moreover, the author complains that a UBI would “destroy the conditionality on which modern welfare states are built” — leading to an “erosion” of the workforce:
During an experiment with a basic-income-like programme in Manitoba, Canada, most people continued to work. But over time, the stigma against leaving the workforce would surely erode: large segments of society could drift into an alienated idleness.
Finally, the author worries that it would be impossible to combine UBI with a reasonable immigration policy; immigrants would have to be barred or else treated as “second-class citizenries without access to state support.”
Thus, the author concludes, the risks of UBI — which are both large and near-certain — greatly outweigh its sole benefit as insurance against technologically-driven job loss (which might or might not occur).
Reply by Basic Income News editor Kate McFarland
The basic income proponent could, if she wished, directly attack any one of the author’s premises. She might be tempted to argue that a universal basic income could be afforded and that it could be reconciled with a fair immigration policy, contest the claim that it would cause people to stop working, or produce evidence that mass technological unemployment is indeed very likely.
For my own part, I am not particularly interested in quibbling over any of these points, however important they might be independently. Instead, I will concentrate on two overarching problems with the author’s argument:
1. The argument understates the potential benefits of a universal basic income, which far exceed security against a robot job apocalypse.
2. The argument assumes that risk-benefit analysis is an appropriate method by which to answer the question of whether to adopt a universal basic income. But this would not be the case if, for example, a basic income is required as a matter of individual rights or social justice.
Why do we need UBI?
In an article published last April, Rutger Bregman writes, “Forget about robots. The reasons why we need basic income are infinitely better.” This is a crucial viewpoint–and one common in basic income discourse, the media’s apparent fondness for “the robot issue” notwithstanding–which must be taken into account when addressing potential benefits of UBI.
Take, for instance, the elimination of poverty. When scholars and researchers like Pranab Bardhan, Nkateko Chauke, and the team at GiveDirectly–to name only a few–argue that developing nations should adopt a basic income, they are not worrying about robots; they are thinking about poverty and inequality.
But, of course, poverty is also a pressing and immediate concern in high-tech countries like the United States. Indeed, a recent article in the New York Times sparked a debate about whether a UBI could abolish poverty in the US. When Scott Santens and Vox’s Matthew Yglesias joined the fray to argue that it indeed could, they remained focused on the issue of present poverty–not future automation.
Perhaps the author of The Economist article believes that a UBI is unnecessary to fight poverty, because existing welfare programs could just as well be tweaked to accomplish this goal. But, if so, the author would overlook many known problems with means-testing, which a UBI might eliminate.
The abolition of poverty–along with all the hurdles, stigmatization, and poverty traps created by means-tested programs–is a potential benefit of UBI that is clearly quite profound, yet one the author fails to mention.
Furthermore, a benefit unique to UBI is that, if high enough, it would enable workers to refuse employment. This too promises many positive results in the here and now, without waiting for robots to arrive at the door.
A UBI could be an enormous boon to workers who need or desire to leave full-time employment, if only temporarily, in order to raise a child, care for an ailing family member, return to school, start a small business, participate in voluntary community services, contribute to the arts, or pursue any other unpaid project. UBI is often said to recognize the value of unpaid labor in all of its forms; current systems of social welfare do not.
Moreover, it is often argued that this ability to refuse work benefits even those workers who do wish to retain full-time employment, insofar as it increases their bargaining power: if a worker cannot be replaced by someone desperate to take any job just to survive, it is easier for that worker to demand higher wages, better working conditions, or shorter or more flexible hours. It is UBI, not existing welfare systems, that would generate this type of bargaining power.
None of these advantages of UBI are mentioned in the risk-benefit analysis in The Economist, despite the fact that they are arguably as near-to-certain as any of the alleged risks–robots or no robots–and would be positive impacts of very high magnitude. A UBI might well be expensive, but one should to consider its full range of benefits in order to properly assess whether it is worth its high price tag. The author does not.
Of course, this is all to grant that the use of risk/benefit analysis is a fitting approach to the decision of whether to pursue UBI–but I believe that even this assumption can, and should, be questioned.
Is UBI “just just”?
As evidenced by the various articles linked above, it is popular to argue in favor of basic income on the basis of its predicted effects: pro-UBI authors of cite empirical evidence of effectiveness cash-transfer to establish the claim that a UBI “will work”. That is, many authors argue that UBI will achieve certain desired outcomes (or not cause certain outcomes generally deemed undesirable, such as decreased workforce participation, laziness, or higher spending on alcohol or other temptation goods).
But what if a basic income is not merely an effective means to attain socially desirable ends? What if universal and unconditional basic income is mandated as a matter of social justice?
This is, in fact, far from an uncommon view within the basic income movement.
For example, Guy Standing and Yanis Varoufakis have recently described UBI as a form of social inheritance (cf. their linked lectures). The idea here is this: the money distributed in a UBI is money that rightfully belongs to all of us, equally, as inheritors of the wealth generated through the collective activities of our forebears.
Alternatively, one might argue for a right to a livable basic income in other commonly recognized individual rights–such as, perhaps most straightforwardly, a right to a certain minimal standard of living, just for being alive. Furthermore, a well-entrenched view in philosophical work on basic income–canonically presented by Philippe van Parijs and later developed in a somewhat different form by Karl Widerquist [2]–holds that the protection of freedom mandates an unconditional basic income.
If a universal basic income is a universal human right, then there is no question of whether the benefits are worth the risks; thus, arguments of the form given in The Economist don’t get off the ground. There is simply no question as to whether a UBI should be adopted: it should. The only question is how to manage whatever risks the policy would create, or perhaps how to tweak and fine-tune the policy to minimize risk.
If a basic income is a right–if it’s necessary as a matter of social justice–then we must find a way to fund it, even if it requires hefty tax increases on the rich (or even German levels of government spending!). And we must be willing to assume risks, including the possibility that some individuals will leave the workforce (some of them, perhaps, to simply smoke weed and watch Netflix).
This is not to suggest that we should ignore the potential risky outcomes. On the contrary, it is crucial to understand what the risks are, so that we might build safeguards against them. But, under the present supposition that basic income is simply a right, they should be viewed as potential problems that can–and must–be surmounted for the sake of what is owed to individuals and society.
[1] “Basically flawed,” The Economist, June 4, 2016.
[2] Such arguments are made in the books mentioned in the embedded links. N.B. All chapters from Widerquist’s work are available for free download from his website.
Thanks to Genevieve Shanahan and André Coelho for reviewing a draft of this article, and thanks to my supporters on Patreon.
“MET II Robot Lab” photo CC Georgina Rose.
