Universal Basic Income

Universal Basic Income, in the 2020 election, this topic became front and center thanks to Andrew Yang, who ran for the Democratic presidential nonresident

The Yang Argument

Andrew Yang proposed universal basic income as a stop-gap measure for the coming employment apocalypse. As we all know, more and more work is becoming automated. Unlike the last industrial revolution, which shifted workers from agricultural jobs to industrial jobs in the cities and created more jobs than it destroyed, the so-called fourth industrial revolution will likely not create as many jobs as it destroys. Many jobs will be gone, and they aren’t returning. This is particularly true as self-driving trucks and cars begin to come online (if they ever do, that’s another thing). Driving represents millions of workers and is one of the few pathways to the middle class for those who do not have a college degree. I have stated that one of the chief problems with the modern economy is that the industries creating jobs do not create jobs for non-college-educated people. They have created highly technical jobs that require further training that many workers don’t have and can’t afford to get. Yang proposed universal basic income to transition our economy from an economy primarily based on deriving income from labour. UBI seems to be the universal problem solver for many societal issues, especially income inequality.

He also noted that many people do work that is not compensated. He used his wife as an example. She stays home full-time to care for their children, one of whom has a particular need, and her work is uncompensated by society. Under a UBI system, she would receive government money regardless; therefore, her career would begin to be compensated. This would give families facing childcare concerns greater flexibility. How many families would be willing to let one parent stay home with small children if they were still bringing some money?

What is UBI?

Universal basic income also became more popular because of the pandemic. The discussion was already well underway, but the pandemic forced governments to stabilize their economies that were upset due to the virus.

In a rare instance of fiscal generosity, the government sent thousands of dollars per household of stimulus checks. Other countries went one step further and kept the payments going. Spain and Canada paid people consistently throughout the pandemic, with the Spanish paying out just over one thousand euros and Canada paying $2,000 Canadian dollars monthly. These two countries have experimented on what a universal basic income might look like.

Universal Basic Income is pretty simple: every adult in the US would get some amount….$2,000 under the Yang plan every month, with no strings attached and no questions asked. When Yang was running for President, he proposed eliminating almost all welfare programs to pay for this. Instead of using the money for specific purposes in governmental paternalism, this would allow adults to use the government largesse however they wanted. Since it's universal, it would provide a cushion below which no one would fall.

While this would allow people some essential money to live on, proponents of UBI say that it is high enough to help people but low enough that there would still be an incentive to work because living on $24,000 a year isn’t that fun. On the bright side, low-wage workers would have more money for rent and other expenses and the middle class would have fresh income to invest in their children, buy property, or not live paycheck to paycheck. Regarding wealth, I suppose they would likely support such a check because this would be universal.

For married couples, this would be pretty profitable; a team would get $4,000 a month or around $48,000 a year. It’s not entirely clear if the money would be taxable. Possibly, that money could be tax-free.

Although universal basic income seems like a brand-new and entirely esoteric concept, it isn’t. The federal government already operates a universal basic income program. In fact, after Medicare, it is the most extensive government spending program. Savvy listeners will already know where I’m going with this: Social Security.

Social Security, the granddaddy of universal basic income programs, was started during the New Deal for older people. Before Social Security, people often purchased what was called old-age insurance. The insurance policy would pay out during old age when people could not work. One had to have the means to pay on an insurance policy for decades before using it. For those who were too poor to afford the insurance or who lost their policies due to the Great Depression, old age could be a time of starvation and reduced living circumstances due to the loss of income from being unable to work.

Norway’s Oil Dividend Alaska's oil dividend

Some existing examples besides social security already exist. For instance, Alaska distributes royalties from oil drilling to its residents. The payments can soar as high as $6,000 yearly when oil prices are high and dip to $ 2,000 when oil is cheap. Norway has a similar scheme: they put oil revenues into a sovereign wealth fund and use the money to help people, often with direct cash payments. Norway’s system is less universal; they use it to fund various social programs.

In Iran, when they phased out the subsidies on essential items like food and fuel in 2011, the government began cash transfers to people instead. Despite that being the prevalent attitude, the program did not reduce the labour market, and it is the only universal and national program at this time.

People with low incomes will always be with you

There are some quite negative assumptions we have about poverty in this country. Poverty is often viewed as a moral failing. If you’re poor, you must be the wrong person. This judgmental attitude has deep roots in religion. Protestantism and the work ethic it spawned held that god blessed good people with material resources. Evil people were not so blessed with resources; therefore, if you were poor, god was withholding his blessing, and you had done something wrong. This attitude is evident today in our attitudes toward existing welfare programs and the hesitancy to expand those programs.

In 1980, as Ronald Reagan was running for President, he promoted the idea of the “welfare queen,” or a person who was gaming the system to get the most out of it while not doing any work or trying to get back into position. This story was based on a woman who spent more of her time conning men into marrying her for their pensions than she did, exploiting the welfare system created by LBJ under The Great Society. However, this myth about welfare recipients took hold in the national consciousness and welfare-to-work programs blossomed in states and eventually at the national level in 1995 when Bill Clinton signed welfare reform, which encouraged those programs.

Pilot programs

Some pilot programs for a universal basic income have already begun. One of them is right here on the West Coast in Stockton, California. Using money from private donors and in conjunction with city resources, the city of Stockton gave $500 a month to 125 randomly selected residents who lived below the median income for the town. A study afterwards concluded that it improved job prospects, reduced debt, and improved mental and physical health. Other tests are conducted in Tacoma, Washington, Finland, and Canada.

In 1974, the province of Manitoba, in conjunction with the university, began a UBI program for the residents of Dauphine, Manitoba. They would give them money without strings attached if anyone were below a certain threshold. The new capital was a boom to the small town described as “100 miles too far from anywhere.” People started businesses and took their children to the dentist, and there was an 8.5% reduction in hospitalizations. When the experiment ended in 1979 due to rising costs and a fall in the price of oil, the town rolled up shop in short order. Only a year later, many residents had left for economically better pastures.

What about inflation?

One of the biggest questions that people ask about UBI is about inflation. Won’t all this extra money in the economy cause price inflation? The theory goes that landlords will charge more when they know people have the UBI to pay. Others fear that more money in the economy will keep inflation higher, meaning spending power will decrease over time. Sadly, this question will not likely be answered until more extensive experiments are started, especially national ones. However, Andrew Yang would eliminate all welfare programs instead of giving people money. Theoretically, no new money would enter the economy under this system. However, a system where every adult, no matter what received a check from the government would inject new money into the system, especially for those already working. This money would likely flow into assets for the upper middle class, pushing higher asset prices. We’ve already seen what can happen with that. On the poorer end, it would circulate into the economy and generate economic growth, which could cause inflation. For the Middle class, it would push some people into a higher tax bracket, which would have a deflationary effect, although not enough to counteract the inflation effect from the other two.

Final Thoughts

I'm still not a fan of UBI as such. I think there is a great deal of dignity in work. People need something to do, somewhere to be, and something to accomplish. However, I think some social support for the bottom end of the market, gradually tapered off as their income rises, is a good idea. Welfare programs are often means-tested and have so many requirements piled on that getting into and staying in a program is practically a part-time job. Perhaps just giving people money is a solution, but only if it helps them improve their lives. Some people will be out of the workforce forever. People with disabilities deserve a dignified life and often don't get one—the same applies to senior citizens. One thing is clear: we have a wealth inequality problem, and it deserves a competent solution.

Universal Basic Income