Universal Basic Income
The idea of the universal basic income (UBI) is not particularly new, although it has gained popularity in very recent years, with former Democratic presidential candidate and entrepreneur Andrew Yang as well as Mark Zuckerberg and Bill Gates notably advocating for the policy. These business leaders proposed UBI specifically in response to the growing danger of significant job losses due to automation, but over the last two weeks, a certain virus has shown itself to be a much greater immediate threat to people’s jobs. The coronavirus (COVID-19) has already caused tremendously more unemployment over a much shorter period of time than anyone could have anticipated under normal circumstances, and this has led to calls for direct stimulus payments to all Americans to help offset these losses. On Thursday, March 26, 2020, the Senate passed a historic $2 trillion deal in an attempt to mitigate the effects of the recession that began in early March. Included in this bill is a plan to pay each American adult up to $1,200 and each child up to $500, depending on the income of the household (Emma, Scholtes, 2020). Although these payments are only one-offs, they come directly from the government and have no restrictions about what they can be used for, and thus it is easy to see how they are similar to UBI. So in this time of financial and health crisis for the American people, it is worth analyzing the merits of UBI to determine whether it can effectively be used as an aid for large swaths of people who suddenly lose their jobs, and also whether it is a beneficial plan for the economy in normal times.
In a country where an ideal UBI is implemented, every adult resident would repeatedly receive the same fixed amount of money from the federal government. Recipients could spend this money on anything they want, unlike nearly every other social welfare program in the United States. Other key aspects of this system are that the money keeps coming at consistent intervals, such as once a month or once a year, and that the fixed amount is given to every single adult regardless of their income. One example is Yang’s “Freedom Dividend”, his signature policy proposal while running for President in 2020, in which he advocated for $1,000 per month. Most experts agree that anything less than $500 per month will essentially be useless and not worth the cost.
Thus, UBI would undoubtedly be expensive. For example, giving all adults in the United States $10,000 a year ($833 per month) would cost $3 trillion per year, or 75% of the entire federal budget (Greenstein, 2020). Methods of securing funding for UBI suggested by economic experts have ranged anywhere from eliminating most welfare programs (Social Security, Medicare, food stamps, etc.) to instituting a Value Added Tax where goods and services are taxed at every stage of their development. Implementing large changes such as this is essentially impossible to do during a situation such as the coronavirus crisis we are facing now. So there are essentially two questions here. First, in “normal” circumstances, should the federal government enact UBI, and if so, how should they pay for it? And second, in times of crisis, are direct stimulus payments an effective tool for combating a recession and large surges in unemployment?
It is easier to tackle both questions by initially discussing the pros and cons of implementing UBI in the long term. Similar to those who advocate for raising the minimum wage, proponents of UBI argue that everyone in the United States is entitled to a basic standard of living. By providing each citizen with a fixed income, the federal government is essentially ensuring that its people can meet basic needs. And once people have the funds to meet their basic needs, many fewer Americans will struggle to survive. In addition, they are not desperate for a job and a source of income, they are free to reject unsafe or exploitative working conditions, giving workers increased leverage and bargaining power (Yang, 2020).
Additionally, results of studies in developing countries do not support a common objection to UBI: fixed cash transfer programs do not decrease the number of hours that people work (Banerjee et al, 2016). Experiments with the negative income tax (essentially the same as UBI but only for low-income people) in the United States from 1968 to 1980 also presented little evidence for a reduction in labor participation or work hours (Widerquist, 2005). Thus, workers would likely just add UBI payments to their income instead of quitting their jobs and replacing their income with the government’s checks. And as people obtain more money, they tend to spend that money, boosting the overall economy in the process. A study from the Roosevelt Institute, a liberal think tank, projects that after 8 years, a $1,000 per month per adult scenario would result in the United States’ GDP being 12.56% higher than it would be if no UBI was implemented. The GDP in just a $500 per month plan would still be 6.50% higher than the baseline forecast (Nikiforos et al, 2017).
Moreover, UBI is often billed as a significant improvement over current social welfare programs. Many of them implicitly discourage their recipients from finding a job because after someone starts earning more than a certain amount, they are cut off from receiving the benefits of the programs. UBI does not have this problem, as the paychecks are completely unconditional. Also, the multitudes of forms, waiting periods, and other bureaucratic challenges that come with current programs would be eliminated. Just 27% of Americans without a job received unemployment benefits in 2016, partially because of how complicated it is to navigate the application process (Thomson-DeVeaux, 2020), demonstrating how ineffective the federal government can be when it comes to providing benefits. With a fixed $1,000-per-month payment plan, there would be no restrictions or requirements other than being older than 18 and living in the United States. This would drastically streamline the process of transferring money from the government to the people, reducing the need for complicated forms asking about complex details of individuals’ financial situations.
A fundamental aspect of UBI, but one which is often questioned, is the principle of giving everyone the money, as opposed to only the ones who need it most. Firstly, the bureaucratic obstacles described above (and the stigma associated with receiving money from the government) immediately would come into play if the government tried to institute restrictions. And secondly, many experts regard UBI as a kind of protection against insecurity. People can lose their jobs at any instant, as shown by the coronavirus pandemic, which has wreaked havoc on the economy. The number of unemployment claims filed in the week starting March 15th skyrocketed to 3.3 million, almost five times the previous record for most claims in a week since 1967, and almost twelve times as many as the week of March 8th (Paine, 2020). Not even close to all of the people who lost their jobs were earning low salaries and already on welfare, so unless a middle-class worker was willing to sort through the complex paperwork, massive waiting lines, and overwhelmed government websites to receive unemployment insurance, they would not receive any benefits under the current system. For many of these people, UBI could have been a lifesaver in this time of crisis. But without any sort of financial assistance, those who just lost their jobs could fall into a state of insecurity by losing their homes or being forced to borrow money at high interest rates (Nettle, 2018). That is a critical reason why UBI is extended to everybody: because drastic negative changes can come suddenly, potentially leaving millions of people without sources of income.
The reasoning presented above shows how in both normal times and times of crisis, UBI can act as a safety net for unemployed Americans, operate more efficiently than most current social welfare programs, and help to stimulate the economy.
The most prominent objection to UBI is not a philosophical or moral issue, but rather a practical one. The most commonly proposed UBI plan, $1,000 per month, would be very, very expensive (somewhere around $3 trillion, as mentioned above). While a seemingly logical solution is to eliminate existing welfare programs because they are serving the same purpose, this likely would not actually work. Systems like Social Security and food stamps, while complex, are serving targeted needs and devoting larger amounts of money to smaller numbers of people. Spreading the money around will probably mean that the neediest people are not receiving all the assistance that they require. Another proposed method of funding UBI is changing the tax structure, but it is highly unlikely that an income tax increase of any kind could pay for the plan because keeping most existing welfare programs in addition to an extremely costly UBI plan would almost double the federal budget. A significant proportion of Americans would put more into the program than they get out of it under this system, meaning there would likely be resistance to the plan from these people in addition to the normal resistance to tax increases. What Andrew Yang advocated for was a Value Added Tax (VAT) at 10% for non-essential goods and services, which essentially means taxing these items at each stage of their production. VAT is already implemented in every European country at an average of 20%. In this case, the tax would only be for non-essential items, so not including clothes or food. He projects that an individual would have to spend $120,000 on taxed items before the increases in prices associated with higher taxes cancels out their UBI money, and thus the tax would not be especially harmful to consumers (Yang, 2020). Yang estimates that the revenue gained from the VAT in addition to the GDP gains mentioned earlier will be roughly enough to pay for UBI. This appears to be the most practical way of funding UBI, but has not gained much traction among other researchers, possibly because it is somewhat complex, not something that has previously been done in the United States, and considered a regressive tax by some.
Regardless, politicians and voters will likely be resistant to a change of this magnitude without evidence of its effectiveness, and that brings up another issue. There have not been any robust studies of UBI’s effects in the United States. Experiments involving quasi-UBI programs have been conducted in developing countries with mixed results, but ideally, the government could look at results from pilot programs in the US before expanding it to the entire nation. Small trials with UBI are being conducted in two cities in California, Oakland and Stockton, and Canada at the moment, and one has been proposed for Chicago, but they are too early in their development to draw any conclusions. The negative income tax experiments mentioned earlier are useful for seeing what would happen to the labor force, but they are not really the same as UBI experiments because the payments were not truly universal. And it is unclear what researchers are even looking for in the results of their experiments because there is a paradox of sorts involving labor participation. It may seem like labor participation increasing would constitute a success, because existing welfare programs discourage recipients from looking for work and people would have an opportunity to pursue occupations that would have been unrealistic for them otherwise. However, a major rationale for implementing UBI is essentially to transition from a society where everybody needs to work to one where they have been displaced and do not need to work (Hoynes, Rothstein, 2019). Therefore, shouldn’t UBI result in people working less? It is also difficult to measure the overall economic growth of the small communities where the experiments are being conducted or detect whether changes are directly related to the payments. A clear next step in UBI research is for researchers to determine what exactly they are looking for, so the federal government can base their decision off the conclusions drawn from previous experiments.
So to answer the more difficult of the two proposed questions, it does not seem that UBI should be enacted by the federal government, at least not yet. While providing each citizen with a flat, recurring paycheck sounds like a great idea to ensure every American can fulfill their basic needs, the limitations seem to outweigh the benefits. There is so much money involved in financing the system that until there is conclusive research in favor of UBI as opposed to theoretical ideas about what it could do, the government is better off sticking to the existing social welfare programs.
Furthermore, the direct payments laid out in Congress’ bill are not enough by themselves to significantly impact the economy in response to coronavirus. One reason for this is that because individuals who earn very low incomes do not file tax returns, the payments might not reach them, even though they are the ones who need them the most. In addition, according to Amelia Thomson-DeVeaux, a writer for the statistical analysis website FiveThirtyEight, the consensus among economic experts is that bolstering the unemployment insurance programs is much more important than giving out cash (Thomson-DeVeaux, 2020). And the Senate realized this as well, designating $600 per week on top of state unemployment benefits for up to four months for every unemployed American (Emma, Scholtes, 2020). Helping to make the unemployment programs more efficient would also be a huge step in the right direction. Additionally, the long-term benefits that pay out over several months, such as unemployment insurance, will be more useful than the direct one-time cash payments in the March 26th stimulus package that will likely be spent very quickly. Knowing this, it is hard to say that the direct payments are by themselves an effective tool for recovering from the recession because they were designed to be used in conjunction with unemployment benefits. Simply giving out payments one time is not the ideal way to financially respond to the coronavirus outbreak, but when combined with more specifically targeted benefits, this strategy can still help. And in the future, recurring payments to every American (e.g. UBI) could potentially eliminate the need for such a large stimulus package to be passed in the first place.
If this further research is successful, this issue can be revisited. But until then, UBI has not been proven to be a practical use of the federal government’s money in normal times and would not do enough to bring the country out of a recession during the current crisis. Thus, the government should not enact universal basic income soon.
Banerjee, Abhijit, et al. "Debunking the Stereotype of the Lazy Welfare Recipient: Evidence from Cash Transfer Programs." MIT Economics, Sept. 2016, economics.mit.edu/files/12488. Accessed 23 Mar. 2020.
Emma, Caitlin, and Jennifer Scholtes. "Here's what's in the $2 trillion stimulus package — and what's next." Politico, 25 Mar. 2020, www.politico.com/news/2020/03/25/whats-in-stimulus-package-coronavirus-149282. Accessed 26 Mar. 2020.
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