As US presidential candidate Andrew Yang continues to outperform expectations, his signature policy proposal, the Freedom Dividend or Universal Basic Income (UBI), is receiving increased scrutiny. Some of the criticisms are well warranted, while others are misconceptions based on a flawed understanding of how basic income would operate.
The following addresses some of the primary misconceptions regarding Yang’s plan.
UBI is too expensive
The cost issue is one of the most persistent misconceptions about basic income.
A basic income system would have a built-in clawback through the tax system. In Yang’s case, a portion of the clawback comes through the opt-in system that would substitute cash-like welfare programs for the Freedom Dividend, such as food assistance. However, most of the burden of the clawback would be on the wealthiest families who would pay more in taxes than they could receive from basic income
As I have noted previously, the UBI clawback can be both direct and indirect. For example, the Affordable Care Act (ACA) requires families to pay back some or all of their healthcare subsidies at the end of the year if their yearly income exceeds a certain amount. A UBI system can similarly create a phase-out in the income tax system.
Considering Yang’s Freedom Dividend is opt-in, it is likely that many wealthy families would not opt to receive the dividend anyway.
Indirect clawback mechanisms could include Yang’s proposed Value Added Tax (VAT). The VAT is effectively a national sales tax, meaning even lower-income people would pay back a portion of their basic income depending on how much they spend their dividend on taxed goods.
Yang has said he would exclude many essential items from the VAT, though. Calculations show the VAT combined with UBI would have a net positive effect on purchasing power for low-income individuals.
Any taxes paid on the UBI would be used for the following year’s dividend, meaning much of the money is repeatedly recycled through the system. The additional amount that is redistributed to lower-income families is called the “net cost” or real cost of basic income. The net cost is the amount the government would actually redistribute every year under UBI.
Factoring the clawback, the real cost of basic income to the government would be approximately $539 billion annually, according to Georgetown Professor Karl Widerquist. This is less than 25 percent of existing entitlement spending.
UBI would have the same cost as a Negative Income Tax (NIT) when factoring the clawback, but the sticker price of the gross cost creates a false impression of a higher cost for UBI. NIT is not universal — it only provides the subsidy to those who qualify, making the cost appear lower than UBI. When I asked Yang whether he would support NIT to avoid the cost misconception, he said NIT would be a step in the right direction.
UBI would cause inflation
The inflation misconception has been around for many years, but it has become more convincingly debunked since I first wrote about it nearly three years ago.
It is essential to note that Yang’s plan is redistributing existing cash, not printing new cash. For every dollar spent, there must be a dollar taxed first, which would offset inflationary pressures.
As Karl Widerquist noted, basic income is no different than other welfare programs in terms of increasing demand for goods. Denmark has one of the most generous welfare states in the world, but they also consistently experience a low and stable inflation rate below two percent.
In the United States, food assistance, which can be freely spent like cash on most food items, has not produced inflation in food prices. On the contrary, research from the London School of Economics shows in states with higher take-up of food stamp assistance, prices have dropped and there is greater product variety relative to those areas with lower food assistance take-up. This is because suppliers respond to increased demand with more competition entering the market.
Thus, the guaranteed demand from basic income could generate higher levels of competition that brings down costs for low-income people.
In Alaska, which has a small Universal Basic Income funded by oil revenues, inflation has been lower than the U.S. average since the program started. Other research in Mexico demonstrates that directly giving cash does not produce inflation.
Since the United States is a globalized market, any short term demand spike creates an economic profit that is resolved by increased production, bringing the price down in the long-run.
In fact, the United States is experiencing unusually low levels of inflation. Contributing factors could include the Amazon.com effect, automation, immigration, and global trade. Basic income would not change these underlying factors keeping a hold on inflation.
The main area where there could be meaningful inflation in the medium term is the cost of rent because there is a fixed supply of land.
Basic income could empower more people to move and find other options. Renters would have a better bargaining position with their landlord if they had a guaranteed dividend than if they are desperately clinging to their job.
In the long-run, greater purchasing power from low-income people should induce more homebuilding and open up a greater share of unoccupied housing. That said, the high cost of rent exists now in many areas and should be addressed as a separate policy issue.
Nonetheless, it is unlikely that any inflation from UBI could completely wipe out the improved purchasing power from the dividend, let alone make people worse off.
UBI would cause laziness
The problem of laziness is one of the most thoroughly debunked misconceptions about UBI. Among those who closely study cash transfers, many no longer consider labor participation an interesting research question because the results consistently show no effect. Those who have read the relevant research and are still convinced that basic income causes laziness will likely never be persuaded otherwise.
As I reported in 2016, “The Overseas Development Institute just released the largest meta-analysis of cash transfer programs ever, spanning 15 years of data and 165 studies. The main takeaway is that studies show a consistent reduction in poverty measures. Perhaps an even more important conclusion is that most evidence showed an increase in work participation after receiving the basic income.”
Many specific examples from across the developmental spectrum corroborate the conclusion that basic income would not meaningfully reduce work. In Finland’s basic income experiment, there was no negative effect on work. Iran’s generous basic income did not reduce overall work but did cause some young people to substitute their time for more schooling. In Alaska, their partial basic income did not reduce overall work. On the contrary, Alaska’s basic income increased part-time work due to the increased demand generated by a basic income.
With a permanent basic income, there is reason to believe that a healthier and more productive labor market will emerge. For example, the Finland experiment showed basic income recipients were happier and more trusting overall. Many polls indicate that individuals would use the basic income to gain additional skills, spend time with family, volunteer, and engage in freelancing.
If the poor are no longer clinging to a job for survival, they can more freely find a job where they can be the most productive. They will also have more bargaining power to demand better working environments.
Most importantly, basic income would allow greater time and mental energy to be focused on the most important job in society: caregiving. Volunteering and caregiving provide enormous economic and societal benefits that are not recorded in GDP because they are typically unpaid.
Basic income gives people the right to say no to exploitation. But the most revolutionary aspect of UBI is that it finally gives everyone the opportunity to yes to their passions.
With an article on medium, Scott Santens, long time Universal Basic Income (UBI) advocate, has explored in depth Andrew Yang’s proposal of a Freedom Dividend (FD).
The Freedom Dividend, one of the pillars of Andre Yang’s campaign for the democratic nomination for the 2020 American presidential election, is a $1,000 UBI for every American. Santen’s article discusses in detail the implications the proposal would have if introduced, and defends it against claims that it would end up increasing inequality or destroying the safety net. In Santen’s words, “The freedom dividend would be the single most progressive policy advance ever signed into law in America history”.
In order to clarify how and why the Freedom Dividend would work as a progressive measure to enhance freedom and as an instrument against poverty and inequality, Santens provides answers to two questions regarding its design:
1) Why to provide people with a choice between existing programs and the Freedom Dividend and not let people keep everything?
People would need to voluntarily opt out from some assistance programs, based on low income, whilst other contribution-based programs would continue to exist on top of the FD (health care remaining a separated issue, not connected with the FD). Santens’ article points out that this is done in order to maximize unconditionality and the incentive to work by avoiding welfare traps.
2) Wouldn’t the funding of the FD through a 10% value added tax –as proposed by Andrew Yang- make it a regressive measure, thus disproportionately disadvantaging the poor?
Even though a tax on consumption is usually considered regressive, as those with lower incomes tend to spend more of it in consumption when compared with those having higher incomes, the VAT-UBI design ends up making it a progressive instrument. That is, those on the lower part of the distribution would end up receiving more than what they lose because of the VAT, which would be rebated by the FD. Santens quotes a distributional analysis by The UBI Center, that concludes “that the bottom 10% (of the income distribution) would see their disposable incomes increased by almost 120% while the top 10% would see their disposable incomes reduced by 4%.”
Moreover, Santens says, the FD would strongly reduce poverty with “74% fewer households would have disposable incomes that fall under the federal poverty line” and impact heavily on inequality, causing a drop of 15% in the American Gini index.
UBI would fill the holes in the existing safety net, a “welfare mess” that leaves many people behind, and which design is far too complex, inhumane and not efficient, as Santens explores in depth in his article.
“Is it progressive to not support the greatest reduction of poverty and inequality — and greatest increase in freedom and dignity — ever proposed in American history, because you insist upon preserving paternalistically neoliberal conditionality?”
Chapo Trap House is known for bringing an irreverent, jokey style to US left discussion.
Andrew Yang’s interview with Virgil Texas on the podcast Chapo Trap House helps to answer a lot of questions that keep coming up as his candidacy is debated. After a little while Virgil brings up concerns that one often encounters in debate around basic income.
Full disclosure: I interviewed Andrew Yang a year ago and plan to vote for him. Most of my political training and viewpoint is left-wing. I have fond feelings and understanding for many friends who plan to vote for Bernie Sanders or Elizabeth Warren.
Yang avoids ideological language. He has embraced the slogan Scott Santens often uses of “Not right, not left, but forward.” That is not a slogan for me. I recognize that basic income is a policy that could be attached to any ideological program. I’ve written about that. I would call Yang’s Freedom Dividend a left policy proposal precisely because it re-allocates wealth from the rich to the poor. Yang is proving that basic income (and a diagnosis of “disintegration”) can get the attention of non-voters and even Trump voters.
My goal here is to do a little bit of translating and clarify a couple of points that I have seen raised on cable news and in left magazines. One hears these same points from political newcomers in online Yang discussion pages. Millions of people are thinking about a basic income for the first time. I am sticking to three points that Yang raises in this interview and that I have seen him make elsewhere.
(1) The Value Added Tax. I asked Andrew Yang about the VAT because I was not quite sure it was the best way to go. When you find out why he wants it, you can be better assured that he is ready to take on the one percent.
Yang’s reason for using the VAT to raise about a third of the Freedom Dividend is that it would capture a lot of the revenue that companies like Amazon and Google are making without having to pay tax. Even more important, Yang makes it clear that he will keep looking at ways to make sure these giants of the new economy pay their fair share. In the UK where VAT has been implemented for a long time, the VAT returns process has been claimed to be a confusing process (https://www.rosspartners.co.uk/vat-return-services-london/) However if VAT is implemented with strong easy to understand legislation, issues like these would be less of a problem and potentially bring more companies on board to the VAT system. Yang stressed in this interview that we should “Go where the money is.”
Chapo’s Virgil is not certain about the VAT for the same reason progressives often oppose sales taxes. Yang is clear that “in a vacuum” this would not be a progressive tax. With the dividend, it moves money from the wealthy to everyone else. Yang makes it clear that he also believes in funding the dividend through a carbon tax and a financial transactions tax as well. He would also like to see an increase in marginal taxation of income and wealth.
We should support various, multiple taxes in order to support everyday government and a basic income guarantee. There is less incentive for the wealthy to dodge a tax if there are different kinds in play. The VAT is featured in most of the social democracies that we on the left point to as evidence that good policies can improve social outcomes.
It should be clear now that Yang is NOT the “Silicon Valley candidate”. Everyone who is getting a free ride will end up paying into the dividend and into Medicare for All). That is the goal here. The VAT is a means to that end. A lot of workers in Silicon Valley might share his concern about automation but that is very different from calling him the candidate “of Silicon Valley”. You can bet that Yang is Peter Thiel’s worst nightmare. Yang cites the fact that so many tech companies are untaxed right now as a reason to bring something else into the party. If a VAT doesn’t work, he will try something else.
When it comes to taxing the wealthy, Yang goes further than any of his opponents. Moderates would just repeal previous past tax cuts. Without the dividend, other left candidates run the risk of backlash as people wonder if these new policies really include them.
(2) The size of the dividend. Will $1,000 a month do the work we want it to do? Virgil makes two very different points. First, he points out that there were many periods of his life when even one tenth of this amount per month would have been extremely helpful. Second, he gives cases in which this amount would not help much. Yang’s particular proposal does not give a share until one reaches 18 years old. (I would prefer they be included. I can tell you that, every day, I encounter strong opinions on both sides of this issue.)
Yang wants to point out that a single mother would get her dividend and know that the kid is getting the dividend in the future. He did not say that this was something that many voters can’t get their heads around. Millions of Americans think that low-income people have kids in order to get welfare. That simply never happens.
This is a very interesting line of discussion we are now seeing. I will summarize it:
You need more than X a month to survive/do well.
This plan offers less than X as a dividend.
Therefore, we should reject this plan.
The problem with this line of argument is that we are left without any dividend at all. If $1,000 a month is not enough, then zero is much worse. Very few people are arguing for zero basic income, but that is where we are now. Virgil Texas does not reach this conclusion. It is a very friendly interview. But we do run into this a lot. What should we do if we think this amount proposed is not enough?
Andrew Yang is very clear that his goal is a dividend that, combined with Medicare for All, would abolish poverty. This is why he is not talking about gutting current support systems. Everyone who gets support of any kind will have the option of keeping it or going with the Freedom Dividend. He reiterates that when he says “go where the money is”, he knows that low-income people aren’t who he’s talking about. He commits in this interview to tinkering to make sure that this dividend is sufficient, given the expenses that are out there, as well as any price changes in play due to the VAT or carbon tax.
People who say that an extra $1,000 a month is not enough to matter have not seen what low-income people are already doing with what they have. There are many, many communities that are politically invisible. Nothing will increase their ability to develop the stuff of good living-restaurants, shops, studios, dance schools, gyms, etc.-than a dividend. Yang also points out that many people do not get valued by our market at all who should be. Here he includes home-makers and those who care for the elderly in their family.
Some people are worried that this dividend will not matter because of the taxes in play. Sure, it would be bad to get a check and then lose it all to taxation. We only need to be aware of how much more commerce, pollution, and financial transactions are the property of the top ten percent and top one percent of US society. Again, Yang is committed to making sure that the dividend is enough to accomplish the goal of a secure share for all.
Once any amount is secured, we can call to raise it.
(3) Capitalism and “entrepreneurship”. Early in the interview, we hear that the word “entrepreneur” includes a lot more people for Yang than is typically the case. Starting a family or taking care of elderly relatives is included. He also includes creative work, citing the many studies showing that “creatives” improve quality of life and are an economic engine. This is all part of his quest to improve our measurements of economic progress. The Gross Domestic Product and the Stock Market keep improving, even while life expectancy is going down for the first time in the US since the Yellow Fever Epidemic.
This meme is “not my style” but we are seeing conversations like this blossom once people get on board the idea of a dividend for all.
This can be a translation issue for the left. Yang’s “capitalism” and “entrepreneurship” just aren’t the sorts described in our business schools and on television. I tried to address some of these translation issue in an earlier piece for Basic Income News. My main goal there was to get us to think of caregivers and organizers alongside business start-ups. The word “capitalism” puts an image in my mind of someone taking a portion of everyone else’s wealth. I think of Wall Street. Andrew Yang is thinking about markets. To understand him when he says “human capitalism”, think about Main Street in a “nice town”. He wants a lot of that everywhere. This is one reason he wants to improve our measurements of economic well-being. If we can develop better ways of tracking well-being, then an increase in creative and political organizing power (as well as consumer, labour, and negotiating power) will appear in those new measurements. Interestingly, Bernie Sanders and Elizabeth Warren often point to images of Main Street. We shouldn’t let the right own this imagery. They offer nothing to promote actual markets.
The comments on Chapo Trap House’s twitter page include a lot of positive reaction but they can run pretty bad. There is a lot of projection. A lot of people just did not listen to the interview but commented nonetheless. The idea that Yang’s Freedom Dividend is a “neo-liberal trojan horse” should be rendered completely absurd for anyone who listened to this interview. Yet, I have seen this phrase used by credentialed opinion-makers. I do not link here because I want to leave room for them to change.
This sums it up. Creator unknown. “M4A” means “Medicare for All”
Once we win a basic income guarantee, I hope that more people engage in social critique and I hope that solidarity, class analysis and Marxist critiques of alienation and exploitation are important parts of this. The dividend will increase the number of people who can participate in that new debate. And that participation is already starting, as put by a contributor on Facebook:
“One of the great things about this is if you imagine a town, you imagine a community, everyone’s getting $1,000 a month, how many more co-ops are going to be in that town? How many more artists? How man creatives? How many people are volunteering at their local nonprofit? How many more people are going to be civically engaged? How many people are going to join their friend’s book club because they’re not worried about starving to death? You can produce so many immense benefits by spreading the economic buying power. And yes, it would result happily in more people ending up owners of different enterprises.”
The US left needs to embrace basic income. Interviews just like this one brings us closer to making that happen. Those who stick to other candidates can still make it clear that they support a basic income. They can also support Rashida Tlaib’s “Lift Plus Act” which would issue a $3,000 / year grant to all. This measure would reduce the number of people in poverty in the US by forty-five percent. Who can say “no” to that?
Jason Burke Murphy teaches Ethics and Philosophy at Elms College in Massachusetts, USA. He worked as Head Organizer for Arkansas ACORN. He served on the Organizing Committee for the Youth Section of Democratic Socialists of America. He also served on the National Committee for the Green Party USA. He now serves on the National Committee for the US Basic Income Guarantee Network.
Democratic presidential hopeful Andrew Yang spoke at the Political Soapbox on Saturday, August 11th, 2018, during the Iowa State Fair in Des Moines.
Andrew Yang, a democrat running for president, former entrepreneur and CEO, and author of “The War on Normal People”, addressed the crowd at the Political Soapbox explaining his program.
He stated that one problem he identified lies in the fact that you need to move from places like Iowa in order to be able to find better career opportunities but, he said, there should be something better to do for young people rather than to move to Wall Street to make a lot of money for themselves. Ideally, after graduating from college, people would find a job, or build businesses, in the communities in which they are born and raised. An undergraduate should be able to volunteer, and make a living wage or better in his state, but nationwide people are required to move in order to pursue working opportunities.
This is the reason why he founded Venture for America in 2011, a non-profit with the aim of providing funds to top graduates and allowed them to take part in promising start-ups in developing cities around the U.S. But then he realized that this was not enough. There was a structural problem in the job market, and funding Venture for America alone was like “pouring water in a bathtub with a hole”.
The point is, in Andrew Yang’s opinion, technology will make human labor less essential.
He uses the example of some of the most common jobs in America – retail and sales, truck driving, and food prep. Automation is going to hit them all, with self-driving trucks already being tested in the field, moving in strict formation in order to optimize costs – a driving arrangement called platooning – and that expected savings from automation will be in the order of $168 billion per year in the freight industry.
Call centers will not be spared from automation, automated kiosks at McDonald’s will soon be more widespread, and 30% of malls will disappear in the next four years, due to Amazon gaining more and more of the market. The transformation will make many jobs obsolete, while stripping value from the many and concentrating it into the hands of a few.
Automation, if not dealt with appropriately, comes at a great cost, and people need to act together as a society to counteract the potential disruption brought by A.I.
In order to do so, Andrew Yang presents the three pillars of his campaign:
1)A $1,000 freedom dividend for each adult (which is a form of Universal Basic Income). Value is being hoovered up by the richest people, with the recent $1.5 trillion tax cut being spread unevenly, as only 6% went to workers. The time of trickle-down economics should come to an end, he says, and it should be substituted with trickle-up economics; money should move the other way around, from families and communities up. The economy is up to $19 trillion dollars, with an increase of $4 trillion in just the last ten years, and the Freedom Dividend is something feasible, he maintains.
2)Medicare for all, as healthcare costs are the number one cause of bankruptcy. People should be able to worry only about getting better, not about how to pay for it.
3)A new American Scorecard, which is a way to measure things differently than GDP does. This would include new indicators including well-being, mental and physical health, not only economic figures. This would also have an instrument which could account positively for motherhood work and parenting, and not for national defense expenses.
