Roosevelt Institute Report: Modeling the Macroeconomic Effects of UBI

Roosevelt Institute Report: Modeling the Macroeconomic Effects of UBI

by | Sep 10, 2017 | News

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.)

Franklin and Eleanor Roosevelt

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.

 

 

More Information:

 

Michalis Nikiforos, Marshall Steinbaum, Gennaro Zezza, “Modeling the Macroeconomic Effects of a Universal Basic Income”, The Roosevelt Institute, August 29th, 2017

Rakeen Mabud, Felicia Wong, “Starting the Conversation: The Economics of a Universal Basic Income”, The Roosevelt Institute, August 31st, 2017

“The Distribution of Household Income and Federal Taxes, 2013”, Congressional Budget Office, 2016

Ioana Marinescu, “No Strings Attached The Behavioral Effects of U.S. Unconditional Cash Transfer Programs”, The Roosevelt Institute, May 11th, 2017

 

Philippe Van Parijs and Yannick Vanderborght, “Basic income and the freedom to lead a good life”

Philippe Van Parijs and Yannick Vanderborght, “Basic income and the freedom to lead a good life”

by | Sep 9, 2017 | Research

Philippe Van Parijs and Yannick Vanderborght, authors of the new book Basic Income: A Radical Proposal for a Free Society and a Sane Economy (Harvard University Press), have contributed a chapter to the book The Good Life Beyond Growth: New Perspectives, a collection of essays published as part of Routledge’s series Studies in Ecological Economics.

Their contribution, titled “Basic income and the freedom to lead a good life,” is based on the first chapter of Basic Income, in which the authors detail the distinguishing characteristics of a basic income (e.g. universality, lack of means test, lack of work obligation, payment to individuals rather than households), providing motivation for each of these features.  

Van Parijs and Vanderborght introduce basic income as a way to address poverty and unemployment without reliance on sustained economic growth. Summarizing their position near the end of the chapter, they state:

Involuntary unemployment is a major challenge. But activation and growth, routinely offered as self-evident remedies, are both unrealistic and undesirable. An unconditional basic income offers a way of addressing this challenge without relying on an insane rush for keeping pace with labor saving technical change through the sustained growth of production and consumption.

They contend that a basic income would “mak[e] it easier for people to choose to perform less paid work at any given point in their lives” and “subsidiz[e] paid work with low immediate productivity”. Further, they claim, such lifestyle choices would result in lower material consumption in developed nations. In this way, the “freedom to lead a good life” supported by basic income would promote sustainability goals.  

 

The collection The Good Life Beyond Growth originated with a conference by the same name, which was held in May 2015 at the Friedrich Schiller University in Jena, Germany, and convened by the university’s Research Group on Post-Growth Societies. At this conference, which presented interdisciplinary perspectives on questions of “what a good human life is about, what its subjective and objective conditions are, and how it may be reframed for a post-growth society,” Van Parijs presented “Good Life and the Welfare State” with another founding member of BIEN, Claus Offe.

Van Parijs and Vanderborght’s contribution is the only chapter in The Good Life Beyond Growth to deal specifically or at length with the idea of basic income. Another contributor, the social theorist and political economist Andrew Sayer, mentions the idea, but expresses doubt that it is the best means to achieve societal well-being without growth.

Reviewed by Genevieve Shanahan

Photo CC BY 2.0 Giuseppe Milo

Cure health inequality by reducing income inequality

Cure health inequality by reducing income inequality

by | Aug 30, 2017 | Opinion

The relationship between health and social context includes a range of factors influencing overall well-being. Social status, class, lifestyle, education, and environment primarily shape these factors. Age, gender, race, and ethnicity are structural variables of equal importance to health outcomes. Health is being facilitated or inhibited by the socioeconomic, cultural, and political backgrounds, in which one is born and raised. The people that view these data points and makes correlations between socioeconomic status and backgrounds to health issues have an interesting career because they constantly have to adapt to the understanding of new societal groups and focus on why a certain group would make a certain decision, for example.

In the last few decades, we have seen growing income inequality between the poor and rich. Since the 1980’s, the United States of America has seen a shift in wealth from the middle class towards the wealthiest people and transnational companies. The top one-tenth of 1 percent owns as much as the bottom 90 percent. Firebaugh and Beck argued economic growth would automatically benefit the masses, which in hindsight seems questionable.

As health outcomes and life expectations closely liaise to within-country income inequality, policies should aim at finding appropriate actions to address this phenomenon. Meaning, getting basic family urgent care, in terms of medical needs cannot be compromised. Currently, in some countries, those who earn more are able to find medical treatments to treat their injuries or illnesses, whilst those who don’t have as much money are having to cope with their illness or find other treatments. For example, those who suffer from digestive problems would have to pay a significant amount to get their illness looked at, so people on lower incomes will find supplements to help them instead. The bio complete 3 supplement can deliver prominent improvements for people’s digestive systems, so people are able to treat these problems. However, not all problems can be treated with supplements. This is why changes have to be made.

Wilkinson and Pickett found health issues to be strongly correlated to income inequality within a country. To support this finding, they used two different measurement tools. The first index, applied to Western countries, was a ratio of the 20 percent top incomes in relation to the 20 percent of the bottom earners. For different states within the USA they used a second index, the Gini-index, which adopts a different methodology. Where ‘Gini = 0′ represents perfect equality (same income for everyone) and ‘Gini = 1′ is total inequality (if all income goes to one person). The outcome of these results showed that the widening income gap led to an increase of different health issues related to mental disorders, life expectancy, infant mortality, obesity and teenage births. Societal problems that correlated to income inequality included: lower levels of trust, less educational performance, more homicides, higher imprisonment rates and a lack of social mobility. Some authors found Wilkinson and Pickett’s dismissal of poverty in relation to health outcomes incorrect as they did not measure it. On the other hand, research by Beckfield and Bambra confirmed the correlation between life expectancy and health stating that the lagging welfare state in the USA led to an average loss of 3.77 quality life years in comparison to other OECD countries. The USA has an income gap of 8:1 (the average biggest earners have 8 times the wage of those at the other end of the spectrum) leading to a life expectancy of 78.7 years, which is in contrast with Japan reaching an average of 83.0 years with an income gap of 4:1. The same age dependent relation has been found in Scandinavian countries having similar income gaps as Japan.

Goda and Torres Garcia looked at the rise of global inequality and confirmed previous results by stating that within-country inequality is responsible for 70 percent of the global inequality, suggesting 30% is due to in-between country inequality.

Taking national and local figures into account for the UK, the Office for National Statistics observed a life expectancy for new-born baby boys to be 83.3 years in the Kensington and Chelsea area. Meanwhile, the life expectancy for the same cohort in Blackpool is merely 74.7 years. Nationwide, the female life expectancy is 86.6 years in Purbeck and the lowest in Glasgow City with an expectancy of 78.5 years. The authors conclude that inequality has increased over the last two decades despite improvements in these local areas.

Medical technology has improved greatly over the past two decades, with many illnesses that were fatal twenty years ago proving simple to treat now. Simple technological breakthroughs such as RFID labeling and instant messaging have meant that medical practices can be streamlined, saving time and money which can then be invested back into treating patients. With all these improvements in technology, why is there still little improvement in life expectancy in some areas? The answer lies again with income inequality, with areas that suffer from low income also suffering from lower government funding. This directly impacts the access local hospitals have to new technology, meaning they have fewer new technologies to utilise for their patients.

We may assume a strong relation between income inequality and health outcomes on a global scale as Dorling in recent research concludes there are overarching arguments. Dorling (2007) confirmed a strong relation between income inequality and negative health outcomes on a global scale after an observational study performed in 126 countries.

The academic world has provided alternatives to deal with the widening gap between poor and rich. Reformed minimum wages, living wages, basic income or a global ‘fair tax’ and redistribution are only a few austerity counter-proposals to ensure overall well-being by reaching or transcending the poverty line. Minimum wages have proven insufficient and a basic income is still globally debated. An international fair tax may even prove more challenging as this requires global political support.

Minimum wages and living wages have the same aim; raising income for the least fortunate to reduce the impact of a growing income gap. A minimum wage is defined as a minimum market valued income, imposed by law and paid by employers. A living wage is a locally liaised and negotiated pay rate that a fulltime employee needs for a household of four to reach the poverty line. For the latter, societal context is important, as living in a metropolitan area is more expensive than living in the countryside. The Basic Income Earth Network defines basic income as “a periodic cash payment unconditionally delivered to all on an individual basis, without means, test or work requirement”.

A locally implemented living wage project in the UK, facilitated by the General and Municipal Boilermakers Union in 400 councils, has proven to be successful in reducing (health) inequalities as well as being beneficial for government tax income. Awareness within the community influenced policy in a way that living wages became accepted as a benchmark for society. In this regard, a living wage clearly will contribute to individual well-being and social cohesion – both factors improve health within communities.

Proposals for a Universal Basic Income (UBI) are slowly reaching the minds of global policymakers, but this process will take more time in achieving broader support. In developing a short-term response tackling inequality, a living wage appears to be a possible solution for developed countries yet remains a huge challenge for developing countries.

Emerging new technologies will demand economical strategies that are able to cope with less job certainty and keeping up with growing demands in healthcare.

A redistribution of capital, as proposed by Thomas Piketty in his book ‘Capital in the Twenty-First Century’, in combination with a UBI may prove to be the best strategy in the long-run to counter income-related health inequalities on a global scale. We must urge politicians to finally face transnational companies and the top one percent in order to obtain a globally acceptable taxation rate.

About the author:

Sam Brokken hails from Belgium and lives near the city of Leuven. He studied physiotherapy, sports physical therapy and manual therapy practicing these areas for years in private practices within local communities. He lectures in musculoskeletal disorders in relation to manual handling and ergonomics for healthcare service providers.
He is currently engaged in postgraduate work at the Robert Gordon University (Aberdeen – Scotland) within the MSc Public Health and Health Promotion course.

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Papers from North America Basic Income Guarantee Congress online

Papers from North America Basic Income Guarantee Congress online

by | Aug 8, 2017 | News

The 2017 North America Basic Income Guarantee (NABIG) Congress was held June 16-18 in New York. Some papers are now available online.

Event Recap

The annual NABIG Congress is jointly organized by BIEN’s North American affiliates, the U.S. Basic Income Guarantee Network (USBIG) and Basic Income Canada Network (BICN).

In 2017, the 16th NABIG Congress was held at Hunter College’s Silberman School of Social Work in New York, New York, from June 16 through 18.

The event was the largest NABIG Congress in its history, drawing over 100 attendees and featuring over 50 speakers. Keynote speakers including Frances Fox Piven (Distinguished Professor of Political Science and Sociology, CUNY Graduate Center), Andy Stern (former President of SEIU), Juliana Bidadanure (Assistant Professor of Philosophy at Stanford University), Joe Huston (Give Directly), and Chris Hughes (Facebook co-founder). Plenary sessions were also held on Welfare Rights and the basic income movement in Canada, including the guaranteed minimum income pilot soon to be launched in Ontario.

Parallel sessions covered a diverse range of context. As USBIG Chair Michael Howard describes in his summary of the congress (see the July 2017 USBIG NewsFlash), “Quite a few sessions focused on movement building, from local to global levels, including two sessions on grassroots organizing, and sessions on cultural and conversational contexts, communication, and messaging. Other topics discussed included child benefits, women, inequality and economic rents, basic income experiments from New Jersey to Africa, costs and financial aspects of basic income schemes (including blockchains), growth and degrowth, and philosophical and religious arguments for basic income.”

The 2017 NABIG Congress also featured two musical performances. Singer-songwriter Brandy Moore revisited her song “Just Because I’m Alive,” which she originally performed at the 2016 NABIG Congress in Winnipeg. Additionally, John Mize closed the conference by performing his new song “B.I.G.” with his son.

A full schedule of the event can be viewed here.

For additional perspectives on the congress from participants, see “(IDEA/Child Find)+ Basic Income = Equity” by Chioma Oruh (June 20, 2017) and “Recap: North American Basic Income Guarantee (NABIG)” by Ryan M Harrison (June 20, 2017).

 

Content Available Online

Several papers and presentations from the conference are now available in the USBIG discussion paper archives, including (as of July 2017) the following:

– Barbara Boraks: “Consensus or Discord- It’s  Our  Choice: A Values Based Framework For a Basic Income Model”

– Karen Glass: “Ontario Basic Income Pilot”

– Rachel Presser: “Why UBI Should Make the Earned Income Tax Credit Obsolete”

– Steven Pressman: “A LITTLE BIG: The Case for Child Allowances”

– Steven Pressman: “Ecology vs. the Economy: Lessons from Piketty’s Capital in the 21st Century”

– Sheila Regehr: “Dignity or Degradation: What should be the value base for building a benefit system?”

– Cameron Weber: “The Actually-Existing Welfare State in the USA and One Possible Transformation to a Basic Income”

– Karl Widerquist: “The Cost of Basic Income: Back of the Envelope Calculations”

Additional papers may be uploaded later.

 

Photo: Mingling after Plenary (credit: Basic Income Guarantee Minnesota)

Reviewed by Russell Ingram

IRELAND: Social Justice Ireland Endorses EU-wide Basic Income System

IRELAND: Social Justice Ireland Endorses EU-wide Basic Income System

by | Aug 2, 2017 | News

Comments to European Economic and Social Committee (EESC) consultation on the Future of Europe in Dublin, Ireland, June 7, 2017

Social Justice Ireland, an independent Irish think tank and justice advocacy organization, has endorsed proposals for the introduction of an EU-wide basic income system. Speaking at an EESC event held in Dublin on June 7th, Dr Seán Healy, Director of Social Justice Ireland, identified two key areas eroding confidence in the EU:

“1.1. Failure to address the ongoing vulnerability of many EU citizens.

1.2. Failure of the European Commission to protect small countries against its larger, stronger members.”

Addressing the first point, Dr Healy referred to recommendations made in May 2017 by a UN expert group meeting on “Strategies for Eradicating Poverty to Achieve Sustainable Development for All”:

“The social welfare systems in developed countries are no longer fit for purpose. There should be an adjustment of the paradigm including promotion, and openness to study new ideas around a new social contract that is more appropriate for the 21st century. This may entail moving towards a universal basic income system, supporting a living wage rather than a minimum wage, recognizing all work (not just paid employment) as meaningful, and ensuring that all government decisions are subjected to a poverty-proofing process. While the centrality of employment and decent jobs to eradicate poverty is well recognized, employment growth has not been sufficient to absorb the growing labour force, particularly in those countries and regions with large youth populations. Further, there has been a divergence between productivity and wages growth, as well as growing employment insecurity and casualization in all countries.”

In his speaking notes, Dr Healy agreed with the UN expert group’s analysis and recommendations, adding that the EU has consistently ignored these issues. According to Dr Healy, none of the five options provided in the EU White Paper on the Future of Europe address these points, going on to note that:

“An alternative option is required that will protect the vulnerable and move towards a future that effectively addresses poverty, unemployment, inequality and exclusion. The EU needs to become, and be seen to become, a caring Union.”

In the context of Irish politics, universal basic income (UBI) has been endorsed by some of the main political parties. The Green Party has long been in favour of the establishment of a basic income, while Fianna Fáil—the country’s second largest party—has talked about the idea for many years. Fianna Fáil’s spokesperson on social protection, Willie O’Dea, has called for radical reforms of the welfare system. The veteran politician and basic income advocate has said that, if Fianna Fáil were in office, a government-established commission would report on the idea within six months. Writing about UBI in a news article in January of this year, he said:

“While the broad concept of UBI has been around for a while, the challenges facing us today – particularly the changing and often precarious nature of work, not least the threat to jobs posed by automation and short-term contracts – make it a realistic and workable response.

“UBI would replace virtually every non-pension welfare payment except disability and housing benefits. Scrapping the myriad complex and often contradictory welfare codes would mean the end of welfare administration and expensive means-testing, an end to pointless and unproductive Intreo/job-centre interviews and hated sanctions. The biggest long-term saving, however, would stem from ending the poverty trap disincentives built into the current system, where taking a job can leave you financially worse off.”

The current government, which was formed following the appointment of Leo Varadkar as Taoiseach (prime minister) in June 2017, comprises the largest Irish political party, Fine Gael, and several independents, and is propped up by Fianna Fáil – Fine Gael’s historic rival – in a confidence and supply agreement. Fine Gael have been critical of Fianna Fáil’s basic income proposals and they do not currently have any proposals for the introduction of UBI. The Irish budget for 2018 will likely bring about increases to existing social welfare payments without any of the radical reforms proposed by rival parties.

 

References and further reading

Dr Seán Healy, Comments to the EESC Consultation on the Future of Europe, Social Justice Ireland, June 2017, <https://www.socialjustice.ie/sites/default/files/attach/publication/4855/2017-06-07-jointeventforeesc-seanhealyspeakingnotes.pdf>

Expert Group Meeting, “Strategies for Eradicating Poverty to Achieve Sustainable Development for All”, United Nations Headquarters, 8-11 May 2017, <https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2017/04/report-egm-poverty2017.pdf>

Willie O’Dea, “Basic incomes for all would end the welfare poverty trap and give people greater control of their lives”, Independent.ie, 19 January 2017, <https://www.independent.ie/opinion/comment/basic-incomes-for-all-would-end-the-welfare-poverty-trap-and-give-people-greater-control-of-their-lives-35379503.html>

European Commission, “White Paper on the Future of Europe”, European Commission, March 2017, <https://ec.europa.eu/commission/sites/beta-political/files/white_paper_on_the_future_of_europe_en.pdf>

 

Reviewed by Genevieve Shanahan

Photo: Irish flag, CC BY-SA 2.0 by jcdcv