by Claire Bott | Mar 15, 2018 | News, Research
The UK-based Royal Society for the Encouragement of Arts, Manufactures and Commerce (RSA) has released a report suggesting a Universal Basic Opportunity Fund (UBOF) as a stepping-stone to a full universal basic income (UBI).
The suggested UBOF would consist of £5000 a year for two years, and would be made available to every person in the UK upon request. Although this would fall significantly short of a full, life-long UBI, the study’s authors, Anthony Painter, Jake Thorold and Jamie Cooke, suggest that the UBOF would have a number of potential uses: “A low-skilled worker might reduce their working hours to attain skills enabling career progression. The fund could provide the impetus to turn an entrepreneurial idea into a reality. It could be the support that enables a carer to be there for a loved one without the need to account for one’s caring to the state.”
Noting that the UK’s rate of corporate tax is currently being gradually reduced from 28% to 17%, the study suggests that the UBOF could be funded simply by returning the corporate tax rate to its original level.
The study states that “The UBOF is an ambitious effort to re-envisage the relationship between citizen and state, emphasising trust in people as opposed to a default of suspicion as is the case currently. It also represents a practical step and valuable experiment on the possible road towards a more permanent Universal Basic Income model.”
The RSA states that its mission is “to enrich society through ideas and action.” It regularly publishes research papers on a variety of social issues. Anthony Painter is the Director of its Action and Research Centre, while Jamie Cooke is the head of RSA Scotland, and Jake Thorold is a research assistant.
More information at:
Anthony Painter, Jake Thorold and Jamie Cooke, “Pathways to Universal Basic Income“, RSA Action and Research Center, February 2018
by Karl Widerquist | Mar 14, 2018 | Opinion, The Indepentarian
This essay was originally published in the USBIG NewsFlash in May 2009.
The global recession has been spreading and deepening for nearly a year. It could become the worst downturn since the Great Depression of the 1930s, and it has captured nearly all of the attention we, our media, and our leaders pay to economic issues. Perhaps we’re paying too much attention to it. I want to convince you in this editorial that a recession—even a major depression—is not an economic problem of the first magnitude. Our most pressing economic problems are distribution, and they exist whether we are in recession or not. Recessions appear to be a major problem primarily because we allow existing distributional problems to get worse during recessions.
To see my argument, imagine that you lived through the entire Twentieth Century. You were born on January 1st, 1900 and died exactly 100 years later on January 1st, 2000. During all of that time, you were a member of a representative American family of three with an income equal to the average U.S. income for a family of that size.
I have included figures below of average income per person and per family of three for the entire Twentieth Century. The appendix includes a table with the background data for these figures as well as some information about the percentage changes you’re looking it. Don’t fear all these numbers. I’ll just ask you to glance at it and take a closer look at a few important ones. These figures are “adjusted for inflation” meaning that they are reported in 2008 prices. It is notoriously difficult to adjust for inflation in a world in which the prices of different goods are changing at different rates, new products are being introduced, and old products are being discontinued. Adjusting for inflation is much more subjective than most economists let on, but these figures represent our best guess about how to do it.
Financially, your imaginary family did awfully well during the Twentieth Century. A simple glance at the graph shows that your family’s income goes up and down, but mostly up. Your family’s income started at about $20,000 in 1900. It rose sporadically to reach $136,000 in 1999. That an increase of more than 577 percent—almost six times what your family made the day you were born. In the early years you could not have afford a computer, television, and many things we now take for granted, but your family’s $20,000 income would have been more than enough to pay for a home, for food, and for clothing for the whole family. At no time in that 100 year period would your family have had any difficulty securing its basic needs, and you were able to consume many luxuries as well.
Figure 1: GDP per family of three for the Twentieth Century
THIS FIGURE FAILED TO UPLOAD.
Figure 2: GDP per capita for the Twentieth Century
THIS FIGURE FAILED TO UPLOAD.
Your income didn’t rise every year; it fluctuated with the business cycle. Glance down the third column of the appendix table. That shows the percentage change in your income from year to year. The years when your income dropped (shown in bold) are the recession years. In the first half of the Twentieth Century, the business cycle was volatile. Your income could go down 9 percent one year and up 10 percent the next. But if you look at the graph, you see that the only downturn that looks terribly significant was the period of 1930-1933, when over four years your family’s income declined from by nearly 25% from $34,093 to $23,607.
You might be tempted to think that 1945-1947 was worse because your income declined by a greater percentage in a shorter time. To see that this isn’t so, you have to realize that there is a lot this table doesn’t show. I doesn’t show how hard you are working, how much you want to work, and what you’re working for. You had a great increase in your income during the years 1940-1945, but that was largely because you were working extra hard for the goal of winning the Second World War. The decline from 1945 to 1947 mostly reflects that you no longer needed to work so hard because the war was won. Your income in 1947 (after 3-years of decline) was still more than 25% percent higher than 1940 and 85% higher than in 1933. You were actually doing just fine in that year.
The depression was different. You didn’t want to work any less in those years, but as a representative American, you were unemployed 25% of the time in 1933. This would have been difficult for your family. You might have had to sell some of your luxuries or move into a smaller home. But your inflation-adjusted income was still more than 16 percent higher than when you were born. If you could feed, cloth, and house your family in 1900, you could do so in 1933 and you could have spent all of your additional income on luxuries that you couldn’t afford in 1900. As a representative American family, you were not in financial distress even in the depths of the Great Depression. There would have been no reason for a member of your family to stand in a bread line or head to California in search of work as a migrant farm laborer.
After 1950, the business cycle became even less of a problem for you and your family. You experienced the occasional 1 or 2 percent decline, but such a small decline would have been barely noticeable, especially with your income being 300% or 400% higher than a few decades earlier. The worst recessions such as in the mid 70s and early 80s caused less than a 3 percent drop in your income. That might have slowed your accumulation of savings or caused you to put off buying a new luxury for a year or two, but no more than that.
The current recession might well cause national income to drop by 6 percent this year. Suppose it goes on, and we experience a decline similar to the Great Depression, say lowering national income to 20 percent less than it was in 1999. That would bring the income of our representative American family down to $109,509—higher than in the boom year of 1987. That means, even if we suffer the worst depression since the 1930s, we will still have a greater technical capacity to feed, clothe, house, and provide luxuries our people than we did in the boom year of 1987. If we dealt with such a crisis sensibly, it would affect only our consumption of luxuries, not necessities.
These facts illustrate the point that I’m trying to make: if we keep in mind the truly important economic issues, recessions are something we can easily handle. The most important thing about your income is not whether it rises or falls by a few percentage points in a given year, but that’s all a recession is. The most important thing is not even that your income grows over time, although a growing income is always nice. Actually, the most important thing about your income is that it meets your needs.
Our main concern about the national economy should be same the same as each individual’s main concern about his or her own income. Before worrying about the bankers, or about the rise or fall of an abstract figure like GDP, we should ask ourselves: how can we secure food, housing, clothing, medical care, and education for everyone? Whether we are in a recession or not has little to do with our answer to that question. Going back to 1776, there has never been a time when America lacked the economic capacity to secure every citizen’s needs. Nor was there a time when it was even close. This fact is not unique to America. Economist Amartya Sen has found evidence that there has not been a famine in modern history in which any nation actually lacked the economic capacity to feed its citizens. Modern famines have all been caused by mal-distribution of plentiful resources.
Sen’s observation is true only for modern history, not for all of human history. The Norse in Greenland, the Mayan Empire, the Easter Islanders and other societies all apparently experienced episodes in which they simply could not feed their people. But these were environmental disasters, not financial depressions. Once we solve the important economic problems of how to secure our needs without screwing up our environment, even a severe depression means no more than a fluctuation in our accumulation of luxuries. Distribution of necessities is what is important, not a 10 percent fluctuation in our ability to produce luxuries. A recession is a trivial issue for the nation as a whole; it is a minor fluctuation in output. This could and should cause no more than a pause in our accumulation of luxuries.
Of course, what actually happens during recessions is significant: more people are in poverty; more people are homeless; more people lack their necessities; more people have reason to fear economic security. All of this is true, but it is only true because we allow it to happen. We had the technical capacity to eliminate economic deprivation in the recession years of 1982 and 1992 just as we did in the boom years of 1987 and 1999. We did not do solve these problems in boom years and we let them get worse in recession years. A recession cannot hurt anyone in a significant way unless we let it. The tragedy is that we let it.
-Karl Widerquist, begun in Reykjavik, Iceland, completed in Oxford, UK, May 2009
Appendix: GDP per capita and per family of three in constant 2008 dollars for the Twentieth Century
by Patrick Hoare | Mar 5, 2018 | News, Research
Credit to: Flickr
In a new paper, published by the Institute of Labour Economics (IZA) in December 2017, James Browne of the Organisation for Economic Co-operation and Development (OECD) and Herwig Immervoll, of both the IZA and the OECD, have discussed what the social and economic consequences might be when replacing some existing social benefits with a comprehensive basic income. The study contributes to the expanding literature (building on the work of Atkinson 1995) that uses the microsimulation technique, a method that builds a computer program based on economic inputs (such as costs, income, expenditure and savings) in order to see what the effect of one variable output (such as poverty or inequality) would be if an input was changed. It was most recently developed by EUROMOD (the only multi-country EU-wide tax-benefit model currently available), and was used in Malcolm Torry’s paper, published in May 2017 by the Institute for Social and Economic Research, which analyzed similar scenarios and outcomes to Browne and Immervoll’s. This article will compare the two papers in an attempt to better understand the growing work in this area.
The Browne-Immervoll paper focused on four countries across Europe that have different population and labour-market structures, as well as very different tax and transfer policies: Finland, France, Italy and the United Kingdom. It looked at a situation where a universal basic income (UBI) would directly replace other working-age cash-payment benefits, including unemployment benefits, social assistance and other generalised minimum-income schemes, in-work benefits, early retirement pensions (i.e. pensions paid to those below retirement age whatever their official label), student maintenance grants and family benefits. In order to ensure that hardship was not ‘built into’ the policy changes, disability allowances and housing benefits would be retained, as well as the funding of other public services, such as the provision of healthcare and education. In line with BIEN’s definition of the UBI, payments would be, in all other ways, universal, paid to the individual, provided at regular intervals in cash, and be unconditional. The funding for the reform would have to take place under budget-neutrality, which would be achieved by taxing the basic income provided and by removing any tax-free allowance from the fiscal model. The marginal rates of tax, thereafter, would remain in accordance to the rates in place prior.
Torry’s paper, dealing specifically with the UK economy, also deemed it permissible to remove tax-free allowances and to tax all earned income in order to contribute toward the funding of the reform whilst maintaining budget-neutrality. Being guided by Hirsch’s recommendations (2015) based on political feasibility, however, Torry allowed for increased Income Tax rates of up to 3 percentage points across the board to help with this funding. Additionally, and significantly, his model maintained – where necessary – the means-tested benefits entirely removed in the Browne-Immervoll version, such that if the introduction of the UBI (which he, alongside others, label a ‘Citizen’s Basic Income’) wouldn’t be sufficient in improving the economic situation of an individual, then the means-tested benefits in place prior to the reform would be available as a form of supplementary benefit.
Given the conservative (or non-existent) fiscal expansion allowed across the modelling, which in both cases is argued as being necessary for realistic simulation, the rate of the net BI payments to be provided was significantly below the poverty line in all cases. In the Browne-Immervoll model, the UBI, for adults, would be at just 21% of poverty line level (defined as 50% of median household income) in Italy (€158), at 32% in the UK (£230), at 49% in Finland (€527), and at 50% in France (€456). The tapering of income at this level (or lower for 16 to 18 year olds) had the inevitable result of an increased rate of poverty in each scenario. This effect was especially pronounced in the UK, rising from 10% to 15%, due to the fact that the UK’s pre-UBI system relied heavily on means-testing and would have, in situations of such low income levels, provided additional benefits no longer available in the new model. Though Torry’s calculated UBI for the UK was only marginally higher for both adults (£264 per month) and young adults (£216 per month), the poverty rate under the conditions of his scheme followed the opposite trend and dropped substantially, falling from 14.84% to 11.8%. This difference – the effect of which is relatively even greater given the fact that Torry, in line with De Agostini, 2017, defined the poverty line as 60% of median household income – can largely be explained by the fact that Torry retained the very same means-tested benefits that Browne and Immervoll removed.
The analysis of potential gains and losses to income groups also reflected the difference in the methodologies used by the papers. The unwillingness in the Browne-Immervoll simulation to increase any current marginal rates of tax in order to collect revenue led to the expected result that those on lower incomes, overall, experienced larger relative losses. The very poorest – with little or no income – experienced gains, due to the universal and unconditional features of the new scheme, but the regressive nature of the flat uniform payments was not sufficiently offset by any progressive mechanisms, and thus the model delivered an overall regressive outcome. In contrast, Torry’s desire to avoid regressivity, and his willingness, therefore, to raise all the marginal tax rates, resulted in the top two highest earning deciles experiencing loses in disposable income of up to 5%, the third highest maintaining their level of disposable income, and the fourth decile down experiencing gains.
In order to understand the effect on work incentives of introducing a UBI, both papers focused on whether the reform would increase the effective tax rates on additional income, thus disincentivizing earning extra at the margins. Though this metric fell, on average, in both simulations – thus showing that there would be an increased (or, at least, not decreased) incentive to work – in the Browne-Immervoll model this was the consequence of removing the benefits associated with low-employment or unemployment, whereas in the Torry model this trend occurred in spite of keeping such benefits in place. As such, Torry’s simulation saw people getting wealthier – thus potentially moving up tax-brackets – but still managed to create a system where the financial rewards to work remained, or were even increased.
In conclusion, Browne and Immervoll determined that introducing a UBI in place of most other means-tested benefits would be costly and lead to negative social outcomes. Torry concluded, by contrast, that a UBI of similar level could be financially and politically feasible and would lead to many positive social outcomes. Given, however, that universal and uniform payments in an unequal society will, by definition, always increase regressivity if not offset by sufficiently progressive funding, the data gathered and logical conclusions derived are completely consistent with the papers’ respective methodologies. This comparative analysis shows that by adjusting a model’s predicated constraints, one can collect quantitative evidence to support different desired conclusions. On this basis, a UBI’s potential introduction does not seem to be determined by its feasibility (implementation, political likelihood, or positive economic outcome) but rather, by whether there can be consensus on what its purpose should be. That is, is UBI a mechanism for equalising wealth or a mechanism to simply provide everyone with something, no matter how small or large that payment may be?
More information at:
James Browne and Herwig Immervoll, ‘Mechanics of Replacing Benefit Systems with a Basic Income: Comparative Results from a Microsimulation Approach’, Institute of Labour Economics IZA, December 2017
A Atkinson, ‘Public Economics in Action: The Basic Income/Flat Tax Proposal’, Oxford: Clarendon Press, 1995
‘Why use EUROMOD?’, Euromod.ac.uk
Donald Hirsch, ‘Could ‘citizen’s income’ work?’, Joseph Rowntree Foundation, 2nd March 2015
Paola De Agostini, ‘EUROMOD Country Report: United Kingdom (UK)’, Euromod, February 2017
by Karl Widerquist | Feb 28, 2018 | Opinion, The Indepentarian
This essay was originally published in the USBIG NewsFlash in November 2008.
Most people will be surprised to learn that the Republican Vice-Presidential nominee and the Democratic Presidential nominee have both endorsed the basic income guarantee (BIG). In one form or another both support policies to guarantee a small government-provided income for everyone. As reported in the USBIG Newsletter earlier this year, Obama has voiced support for reducing carbon emissions with the cap-and-dividend strategy, which includes a small BIG.
Sarah Palin, like most Alaskan politicians, supports the Alaska Permanent Fund (APF). Existing rules caused the APF dividend to reach a new high of $2,069 this year. That much had nothing to do with Palin. But, whatever else you might think of her, she deserves credit for adding $1200 more to this year’s dividend (see the story above and another in issue 49). She proposed it to the legislature and pushed it through, resisting counter proposals to reduce the supplement to $1000 or $250.
Most people who learned about Palin at the Republican National Convention in August would probably be surprised to learn that such a hard-line conservative supports handing out $16,345 checks to even the poorest families. Actually, families the size of Palin’s will receive $19,416—no conditions imposed besides residency, no judgments made.
The support of politicians like Palin’s provides evidence against the belief that BIG is some kind of leftist utopian fantasy with no political viability. In the one place BIG exists it is one of the most popular government programs and it is endorsed by people across the political spectrum.
The APF has not become an issue in the campaign, and I doubt she has Palin plans to introduce a similar plan at the national level, but when the issue has come up, Palin has taken credit for it as a conservative policy. In an interview on the Fox News Network, Sean Hannity confirmed that Palin increased the Alaska dividend by $1200 this year. Hannity comment, “I have to move to Alaska. New York taxes are killing me.”
Sounding like some kind of progressive-era land reformer, Palin replied, “What we’re doing up there is returning a share of resource development dollars back to the people who own the resources. And our constitution up there mandates that as you develop resources it’s to be for the maximum benefit of the people, not the corporations, not the government, but the people of Alaska.”
Tim Graham, writing for the conservative website Newsbuster.com criticized NPR’s Terry Gross for asking questioning that implied opposition to the APF in an interview with Alaska public broadcasting host, Michael Carey. Graham writes, “Gross walked Carey through the idea that it’s not hard for Palin to be popular in Alaska when she’s handing every family a $1200 check from all the oil business. She then elbowed Carey about how that money could have been better ‘invested’ (as Obama would say) in government programs.’ Suddenly conservatives are ridiculing people they assume do not support unconditional grants.
Palin justified a tax increase on the oil companies to support higher BIG on the PBS Now program before she was nominated for vice-president. “This is a big darn deal for Alaska. That non-renewable resource, of course, is so valuable …. And of course [the oil companies] they’re fighting us every step of the way when we say, ‘Well we wanna make sure, especially as it’s being sold for a premium, that we’re receiving appropriate value.’ … The oil companies don’t own the resources. They have leases and the right to develop our resources for us. And we share a value, we’re partners there, because they do the producing for us. But we own the resources.”
It is tempting to dismiss all of this conservative praise for BIG as election year insincerity. No doubt if a democratic candidate had handed out an unconditional grant of $3,269 to every citizen of their state, many conservatives would jump on it as socialist class war. Indeed some of Obama’s tax credit proposals, which are not nearly as far reaching as the APF have received just this treatment.
Speaking at a recent rally in Virginia, McCain took issue with Obama’s refundable tax credits saying, his tax plan “is not a tax cut; it’s just another government giveaway …. I won’t let that happen to you. You’re paying enough taxes. … Obama raises taxes on seniors, hardworking families to give ‘welfare’ to those who pay none.” McCain often invokes Joe the Plumber to label such policies as “socialism.” Ruth Marcus noted that only minutes later John McCain touted his own “refundable tax credit” and that McCain vilifies Obama for wanting to reverse the Bush tax cuts McCain voted against. I have little doubt that McCain would give the APF the same treatment if his opponent rather than his running mate had expanded it.
Politicians who call themselves strait-talkers and don’t talk straight are nothing new, and they exist in all parties. But this doesn’t meant that we can dismiss all conservative support for the APF as insincere. There are limits to what people will accept even from leader of their own party. Many conservatives would not accept, for example, a leader who had proposed public funding to help rape victims obtain abortions, but they will support a leader who endorses $16,345 in no-questions-asked grants to every family of five.
The lesson here is that the APF is a model ready for export. Readers of this newsletter will know that governments in places as diverse as Alberta, Brazil, Iraq, Libya, and Mongolia have recently thought seriously about imitating the Alaska model.
Some might be tempted to think that the APF isn’t a true BIG and it isn’t motivated to help the poor. Not so: Jay Hammond, the Republican governor of Alaska who created the APF, came all the way to Washington, DC to speak at the U.S. Basic Income Guarantee Network conference in 2004. He told me that his intention was to create a BIG to help everyone—most especially the disadvantaged. If he had his way the APF fund would now be producing dividends 4 to 8 times the current individual level of $2,069.
Others might dismiss the Alaska model saying that it is a unique case because Alaska has so much oil wealth. Again, not so: Alaska ranks only sixth in U.S. states in terms of per capita GDP, with an average income just over $43,000 in 2006, more than $15,000 per year less than number-one Delaware, and only $6,000 per year ahead of the national average. Any other state or the federal government can afford to do what Alaska has done.
Alaska has oil wealth; other states have mining, fishing, hydroelectric, or real estate wealth. Governments give away resources to corporations all the time. The U.S. government recently gave away a large chunk of the broadcast spectrum to HDTV broadcasters at no charge. Offshore oil drilling will soon be expanded on three coasts. Everyone who emits green house gases and other pollutants into the atmosphere takes something we all value and—so far—pays nothing.
What was different about the Alaskan situation was that Jay Hammond was there to take advantage of the opportunity. With the Alaska model in place, it will be just a little easier for next person at the next opportunity.
-Karl Widerquist, Reading, UK, October 23, 2008
For the Newsbusters article go to:
https://newsbusters.org/blogs/tim-graham/2008/10/19/snobby-airs-nprs-terry-gross-goes-after-palins-extreme-religious-views
For the Hannity Interview go to:
https://www.foxnews.com/story/0,2933,424346,00.html
For the Now program report go to:
https://www.pbs.org/now/shows/347/index.html
[The quoted exchange occurs about 18 to 20 minutes into a 25-minute report titled “Alaska: The Senator and the Oil Man.”] (Thanks to Paul A. Martin)
For U.S. GDP figures by state go to:
https://www.ssti.org/Digest/Tables/062007t.htm
Ruth Marcus’s editorial on McCain is online at:
https://www.realclearpolitics.com/articles/2008/10/mccains_campaign_is_both_unciv.html
by Claire Bott | Feb 25, 2018 | News
Alaska’s provision of regular, unconditional income to its inhabitants has had no overall effect on employment, a recent study has found.
The Permanent Fund Dividend (PFD), provided by the Alaskan government to all citizens who apply for it, currently stands at approximately $2000 per person per year. The authors of the study have indicated that, although this seems a small amount, the fact that it is applied regardless of age means that a two-parent family with two children could claim $8000 per year, which is considerably more substantial.
The study was carried out by Associate Professor Damon Jones of the University of Chicago’s Harris School of Public Policy, and Assistant Professor Ioana Marinescu of the University of Pennsylvania School of Social Policy and Practice. Jones is a Faculty Research Fellow at the National Bureau of Economic Research, while Marinescu has had her research published in a number of peer-reviewed journals.
Claims have previously been made that the provision of a universal basic income such as the PFD would tend to discourage participation in the workforce. However, the studies which seemed to support this have been based on situations where the money provided was given only to a small group of people. Jones and Marinescu posited that, in a situation where unconditional funds are provided to a large population, effects on employment could differ.
The study did in fact find that there was no overall decrease either in employment or in overall hours worked. The authors suggest that one reason for this could be that the PFD recipients, in spending their additional funds, are indirectly increasing the need for extra employees to provide goods and services to them.
The only significant change found by the study was a 17% increase in part-time work. Given that a greater percentage of women than men appeared to be taking up part-time work, it is possible that this change may have been, at least in part, the result of women using the extra funds to provide childcare, without which they would have been unable to remain part of the workforce.
The study was reported in a number of news outlets, including the New Yorker.
Alaska’s Permanent Fund originated in the 1970s, with a sudden influx of money due to revenue from newly exploited Alaskan oil reserves. Following concerns that a corresponding increase in government spending could be unsustainable should the amount of oil revenue decrease, the Permanent Fund was established, receiving 25% of “all mineral lease rentals, royalties, royalty sale proceeds, federal mineral revenue sharing payments and bonuses received by the State”, according to the wording of the relevant amendment to the Alaskan constitution.
The Permanent Fund Dividend was first provided in 1982, when it was only a few hundred dollars per person. It has since increased at an approximate rate of $500 per decade.
Edited by: Dawn Howard
