On August 29, 2017, the Roosevelt Institute released a report where researchers Michalis Nikiforos, Marshall Steinbaum, Gennaro Zezza model the macroeconomic effects of implementing Basic Income. (Marshall Steinbaum is a Research Director and a Fellow at the Roosevelt Institute. Michalis Nikiforos and Gennaro Zezza are both associated with the Levy Institute.)
The Roosevelt Institute, following the legacy of Franklin and Eleanor Roosevelt, presents itself as re-imagining “America as it should be: a place where hard work is rewarded, everyone participates, and everyone enjoys a fair share of our collective prosperity”, and as building a “new economic and political system: one built by the many for the good of all”.
The report presented by the Roosevelt Institute evaluates three different variations of Basic Income, $1000 a month to all adults, $500 a month to all adults, and a $250 a month child allowance. The researchers also analyzed two different types of funding, increasing the federal debt and increasing taxes on households. The model is designed considering an eight year time period and Basic Income is progressively introduced throughout that period.
From their models of the three scenarios, the researchers conclude that, if funded by increasing the federal debt, each Basic Income policy would have a result of economic growth, the $250 child allowance would increase the GDP by 0.79%, while the $1,000 per adult would increase the GDP by 12.56%. When the Basic Income is financed by household taxes, the model forecasts no effect on the economy if the program was simply giving “ with one hand what it takes away with the other”. However, if the model is adapted using what the researchers call a “distributional model”, it forecasts a beneficial effect on economic growth. As the researchers describe it, “the distributional model incorporates the idea that an extra dollar in the hands of lower income households leads to higher spending. In other words, the households that pay more in taxes than they receive in cash assistance have a low propensity to consume, and those that receive more in assistance than they pay in taxes have a high propensity to consume.” The general idea is that lower income brackets tend to spend everything they earn, therefore consuming more, and higher income brackets tend to save part of their earnings, therefore, consuming less in relation to their potential as consumers. Therefore, if you take from the rich to give to the poor, the money will be flowing more than when it is simply accumulated by the few, and in this way, the economy will grow. The researchers (and this is the official position of the Roosevelt Institute as well) assume that our economy is “not currently operating near potential output” and this is so partly because of current gaping inequality, which is “one of the main reasons why the US economy faces the prospect of secular stagnation”.
Besides assuming that the economy could be preforming better, the model used also incorporates two microeconomic assumptions: “(1) unconditional cash transfers do not reduce household labor supply; and (2) increasing government revenue by increasing taxes levied on households does not change household behavior.” These assumptions have been promptly criticized in the media. However, the researchers themselves are aware that the assumptions are contentious, and have thus sought to establish them with evidence. They base assumption (1) on a survey of experiments done by Ionana Marinescu in a paper entitled “No Strings Attached: The Behavioral Effects of U.S. Unconditional Tax Transfer Programs” that estimates the microeconomic behavioral impact, using several experimental designs, results in labor supply remaining unchanged. Regarding assumption (2), the idea that increasing taxes does not change household behavior, the researchers assume that since the tax increase is progressive, the most affected households are the higher income brackets who tend to save and “hoard” money, so to speak, so they would save less but not change their consuming behavior in a drastic way. In order to justify this assumption, they use data from the Congressional Budget Office.
The report concludes that the researchers’ aim is not to have the final word on how to model the macroeconomic impacts of Basic Income but, instead, simply to have applied a valid model, which has done a reasonably good job of explaining macroeconomic effects so far, and used it to predict the effects of three Basic Income variations; on this model, the introduction of a Basic Income with a distributional component would mostly result in economic growth.
Pictured: Kenyan village to receive GiveDirectly’s guaranteed basic income Source: Nichole Sibecki for NPR
GiveDirectly offers to give every adult in a Kenyan village a guaranteed basic income of 27,258 Kenyan Shillings- or 264 US dollars- per year for the next 12 years without any conditions. Providing unconditional cash transfers directly to people has proven to increase economic outcomes and psychological well-being.
GiveDirectly, a US-based nonprofit, is challenging the traditional structure of international aid by shifting the power dynamics between donors and people who receive aid. In our current structure, donors decide what people receive since most aid provided by governments, nonprofits and individuals is given as an in-kind donation. Instead, the purpose of GiveDirectly’s donation structure is to trust the expertise of people experiencing poverty to choose how best to spend the money. GiveDirectly will be measuring the long-term outcomes.
According to the first part in an NPR series on emerging aid models to redress global poverty, GiveDirectly will provide every adult in a village in Kenya a guaranteed basic income of 2,271.50 Kenyan shillings per month, or 22 US dollars for the next 12 years. Typically, adults live on less than 206.50 Kenyan Shillings per day, or 2 US dollars. For two-parent households, this donation boosts their monthly income by 50 percent. The money is wired to a bank account connected to each villager’s phone. Some families have used this additional income to better support household nutrition and education outcomes for children. The US-based nonprofit plans to expand the guaranteed income to 200 villages in Fall 2017 and assess the long-term impacts by comparing the outcomes with 100 villages that do not receive the payments.
Already, a study published in the Quarterly Journal of Economics discovered how, in Kenya, unconditional cash transfers (UCTs) have a significant impact on economic outcomes and psychological well-being in communities. UCTs contribute to local economic development by increasing consumption rates. They also improve social and emotional development in communities that heavily rely on social networks for supports and services that may otherwise be inaccessible.
Research from Canada’s Mowat Centre also shows that providing money with no strings attached can help support social entrepreneurs that may be experiencing financial hardship to get their ventures off the ground. For example, one Kenyan family that is a beneficiary of GiveDirectly’s donation, is focused on investing in an entrepreneurial venture to grow a forest of eucalyptus trees and sell the fuel from the plants. Profits from the family’s venture would be used to fund high school tuition for four children as an investment in breaking the intergenerational cycle of poverty.
In contrast to GiveDirectly’s aid model, Zambia’s government is choosing to filter who receives aid and under what conditions. Originally, a government program gave families in a rural west Zambian village 164, 628.31 Zambian Kwacha, or 18 US dollars, every other month for the past five years. The program proved to be successful: families used this additional support to invest in creating multiple business ventures to multiply their capital. To help aid these business ventures, the usage of related software can make this a lot easier, and with advancements in technology, businesses are able to conduct remotely accessing Sage software services so they are always on point with what they require. The government has therefore decided to scale up the program to increase the population receiving this cash aid. Simultaneously, the government has decided to limit the cash transfer to exclude people such as those who initially received the money in the pilot program: two-parent households, people who are employed, and people who are able-bodied. Instead, Zambia will provide aid only to single-parent households, people with disabilities, seniors, and people who are unable to work. This limitation on providing aid based on who is deemed eligible is what GiveDirectly is challenging.
GiveDirectly’s guaranteed income in Kenya is increasing access for all with the goal of improving health outcomes and building towards financial security. It can be particularly valuable for people with disabilities who often experience job discrimination and barriers to financial self-sufficiency. For them, this monthly influx of cash provides a foundation for independence. People with disabilities often struggle to afford medication and rely on financial support from other family members to sustain themselves. This additional monthly income will help to mitigate the costs of medication and basic necessities for everyone.
Grassroots savings clubs in low-income communities are another asset to consider when measuring the long-term impacts of GiveDirectly’s guaranteed income. Some people do not have access to banks or struggle to save money when it is easily accessible from an electronic savings account. Savings clubs are typically groups of 10-15 community members who collectively pool their resources each month. The total amount is then provided to a different individual from the savings club to look after for a month. This community-based savings account relies on faith in the community members to manage the money for everyone else. Some villagers have noted how critical this social bonding is to allow them to maintain their savings since they know the community is depending on them to effectively manage their budget. Researchers have found in case studies around the world, from Bangladesh to Central/South America and West Africa, that savings club serve as a common element of the economic infrastructure in low-income neighborhoods.
Giving cash directly to children and families, with no strings attached is being shown to improve the quality of life in a number of communities, particularly in boosting economic, health, and education outcomes. As more organizations begin measuring the long-term impacts of unconditional cash transfers and basic incomes, we will continue to gain evidence on whether these are viable solutions to deeply entrenched social issues like global poverty.
The greatest challenge of this generation is managing both environmental sustainability and a growing human population. Climate change and income inequality are making this an increasingly difficult prospect.
The Sufficiency4Sustainability Network (S4SN) is working on analyzing the intersection of these issues and the solutions that can address them.
S4SN is led by Peter Knight, a former lead economist at the World Bank. The network of researchers analyzes different policies and how they may interact with ecological and economic trends. Knight recently joined the UBI Podcast to discuss his work with S4SN.
“We’re exploring how changing values and policies might result in lower resource use by the relatively well-off, while raising the consumption of the poor to a level sufficient to meet their basic human needs on a planet with limited resources and moving toward a population of 11 billion by the end of the century,” Knight said.
The network is interested in researching Universal Basic Income (UBI), and it is included as one of the main research topics of S4SN.
“It seems to me that Universal Basic Income is right on this issue of what are the technological trends that’s going to make this important for not only economic sustainability but social, political, and ecological sustainability,” he said.
UBI is of interest to Knight because he thinks it may be an important solution to address the upcoming dramatic shifts in employment due to technology.
“I think the exponential rates of change involved in Artificial Intelligence and all those technologies that are related to Moore’s Law and their speed and cost of computation, jobs are going to be destroyed faster than they can be replaced, so UBI is a method of separating work and paid remuneration from enough to live on,” Knight said.
While Artificial Intelligence has the potential to help solve many of the problems facing humanity, Knight said, the problems it creates means that it must be coupled with a UBI.
“Exponential technologies including artificial intelligence offer potential substitutes for the limited resources, provide cleaner energy, and reduce the need for physical labor. But they also tend to concentrate income and wealth, so UBI is necessary to provide economic, social, and political sustainability,” Knight said.
For Knight, it is important to consider that the sacrifices made for environmental sustainability should not be made by the poorest among in society.
“You just can’t tell people that are starving, ‘look you’ve got to cut back your consumption. If you want their support for broader changes, you need to both change values and provide enough income to live for people who are increasingly not just manual labor, agricultural labor, industrial, but increasingly the white-collar professions are going to be displaced,” Knight said.
Ping Xu, the leader of Basic Income in Taiwan, interviewed Hawaii representative Chris Lee about Basic Income in July. In the interview, Representative Chris Lee talks about the need for discussing Basic Income as a solution outside the traditional government safety net programs. Lee says that discussion of Basic Income goes beyond party politics in Hawaii, Basic Income, he says is rather “a question of humanity and what our future is going to look like.”
Representative Chris Lee first encountered the concept of Basic Income on the Reddit Basic Income group, and since then has been interested in the topic. According to Representative Lee, the state of Hawaii needs to think about Basic Income with some urgency for reasons related to its economy, which is mostly based in the service industry. Hawaii’s flourishing tourist market and its physical isolation combined make the state’s cost of living much higher than what the local residents are able to afford. Lee mentions several situations, from homelessness, to people who are not able to retire, to younger residents who have to live with their parents for much longer than would be desirable, and yet others who have to leave the state and move away from their families. Basic Income would be a way to guarantee that the local economy could benefit and work for everyone and that Hawaii natives and others can live in the state while being able to pursue their dreams and their passions, and that no one is left behind.
Hawaii, being a service based economy, could be hit hard with the new wave of automation that is focusing on innovation applicable to the retail industry. This however can be seen as an opportunity to change the nature of work for Hawaii’s residents. Representative Lee argues that the millennials look for meaningful work that is more than just a paycheck. According to Lee, 51% of all millennials don’t believe in capitalism as is right now. Millennials would like to redefine the american dream. The american dream is “no longer to seek out the best job that pays the most, but it is rather to find the job that provides the best meaning and quality of life.” Basic Income is “a mechanism that empowers people to have that opportunity in the face of a changing economy.” Furthermore, with the innovations in automation, traditional safety nets such as welfare, food stamps, and housing assistance, can make government expenses skyrocket in the near future. Basic Income could be a policy that is cheaper to implement in the long run. For all these reason, Representative Chris Lee is supporting Basic Income in Hawaii and was able to pass legislation that will create a working group to officially look at Basic Income as a solution, looking for a better future in the state of Hawaii.
The section on basic income consists of three short articles:
“Basic income: An idea whose time has come?” by Troy Henderson (PhD Candidate in Political Economy at the University of Sydney)
“Basic income: Political economic considerations” by Frank Stilwell (Professor Emeritus in Political Economy at the University of Sydney)
“Basic income or job guarantee: What is to be done?” by Neale Towart (Unions New South Wales).
Henderson provides an overview of the idea of basic income, and then addresses four concerns facing its implementation in Australia: cost, cultural opposition to giving “handouts” to the poor and unemployed, lack of agreement between left-wing and right-wing proponents of basic income programs, and lack of mass social support.
Stilwell briefly articulates five political economic reasons in favor of basic income: sharing the nation’s abundant wealth, quelling anxiety about the future of work and technological unemployment, reducing inequality, simplifying the social safety net, and increasing individual freedom. He weighs these advantages against two main concerns: “could the nation afford to pay a BI?” and “would a BI have a big cost in terms of national output because people might decide not to work?” Stilwell offers tentative support for basic income, but only if combined with a strengthening of public health services, education, housing, transportation, and utilities.
Towart argues in favor of a job guarantee as a way to harness the potential of automation to free people from unfulfilling toil while ensuring well-paid employment in “work that we need done to create a fairer, sustainable society.” He raises concerns that a basic income would act as a subsidy for low wages and fail to empower workers to the extent of a well-designed job guarantee.
Reviewed by Russell Ingram
Photo (Lake Clifton, Western Australia) CC BY NC-ND 2.0 inefekt69
