The fight against poverty in America has led to the creation of a welfare system that consists of many different programs. Welfare programs are complicated and have not done enough to alleviate poverty. A potential solution to this is a universal or unconditional basic income (UBI). The concept of basic income is incredibly simple: the government pays all citizens a monthly cash benefit, no strings attached. What? Just giving people money! This seems radical (and in a lot of ways it is), but has received support from leftists, Silicon Valley executives, and even some conservatives. These different views each have their own reasons for supporting UBI, but clearly basic income is something that should be considered in continuing the fight against poverty.
The first support for implementing a UBI is the most logical. If you give people money, they will be less poor. Matt and Elizabeth Bruenig have a piece in the Atlantic showing that basic income can be used to cut poverty in half. Using the 2012 Census data on income and poverty, they determined that in 2012 the 46.5 million Americans in poverty were collectively only $175 billion below the poverty line. This is startlingly low.
Theoretically if we could distribute $175 billion to 46.5 million Americans appropriately, we would have no poverty. Obviously that is an oversimplification, but it does evidence that poverty can be significantly cut or even ended in America. The simplest way is giving people money through a basic income. If people are given a basic income, poverty will inherently go down. There will certainly be leakages, but the basic logic stands.
Why is a basic income a better form of welfare than America’s current welfare system? The current welfare system has a critical flaw. The Foundation for Economic Education describes this flaw called the ‘welfare trap’. This effect represents the high effective marginal tax rates faced by low-income individuals as they begin to earn income. For example, consider an unemployed worker receiving unemployment benefits. If this individual gains employment, they lose the unemployment benefits, in addition to having to pay taxes on the income from their job. They are now subject to an unpredictable job market and may lose other benefits as their income increases. If they again become unemployed then suddenly they are back where they started without the benefits. Basic income would solve this problem. If the cash payment is guaranteed, this uncertainty and cost of giving up benefits is lessened or disappears altogether. Income gained from employment would just be additional income instead of their only source of income. Overall, basic income addresses much of the uncertainty associated with both the means tested welfare state and the economy as a whole. Economic crashes often cause large unemployment amongst low-income individuals and families. This uncertainty can be soul crushing. Basic income would alleviate some of the pain associated with economic disasters.
From a more conservative perspective, UBI does not seem like something many conservatives would support. While it is true many do not, some conservatives support the idea for myriad reasons. Milton Friedman supported the idea of a negative income tax, a system where people below a certain level of income receive pay from the government. President Nixon actually proposed a basic income that passed the House of Representatives, but failed in the Senate. Why does this support exist? The Atlantic lays out a conservative case for basic income with the goals being cutting poverty, and more central to conservative thought, promote efficiency of the federal welfare program. The current welfare program is a complicated, means-tested behemoth, this government flowchart is supposed to clarify, but good luck understanding it. The idea is that by cutting all the current welfare programs and replacing them with a basic income the government would be much more efficient. In addition to the efficiency arguments, conservatives and libertarians may also support basic income due to the additional personal freedom that comes with it. Instead of having to spend welfare checks on certain things, for example food stamps on food, basic income frees people to make their own decisions. While this is not the benefit of basic income that attracts me to it, if it helps gain more support, so be it.
Technology leaders like Elon Musk have recently, vocally supported basic income. Their reasons reflect a concern about increasing automation. Musk’s company Tesla has been very open about bringing self-driving cars to both the consumer market and industrial market. If Tesla was to provide self-driving cars to a cab company like Uber, for example, suddenly cab drivers become obsolete. Even larger scale automation may be possible such as truck drivers been replaced by self-driving trucks. This automation represents millions of relatively low-skilled workers unemployed in the United States alone. This is a massive issue! Put simply, millions of people would be out of work with no real job prospects. Sure, they could be retrained, but millions of jobs in other industries are not going to suddenly become available. This is where a basic income would be of use. These structurally unemployed workers would not be left without any income; they would have a basic income. This would provide workers with something instead of nothing, and protect these workers from full consequences of their jobs becoming obsolete.
Giving people money clearly has a cost, so where would the funding come from? This topic alone could encompass another post, but in short, many places. The most logical is to raise taxes on the rich to recover the amount of basic income paid to the wealthy. An implicit benefit of taxing the rich is the effect of lowering inequality. Another possible way to pay for this expenditure is similar to what Alaska does. Alaska has created a permanent fund that invests in various projects (the mall at Tysons Corner is partially owned by the fund). The fund is currently has a market value of $57 billion and pays out a yearly dividend to its citizens. The United States could follow Alaska’s lead and create social wealth funds and fund a basic income through the returns. This is clearly massively complicated, but certainly a possible way to fund a basic income.
Since a country has never fully instituted a UBI, there are no completely sure studies of its effect, but there have been various small-scale programs. Andrew Flowers put together a pretty comprehensive history of the basic income for FiveThirtyEight. Flowers discusses the many difficulties with implementing a true, rigorous test of the effectiveness of a basic income. Despite this, historically there have been a few trial programs testing basic income. For example, from 1974 to 1979 a basic income was given to families in a small town in Manitoba, Canada. The results were lost, but then found and put together by Evelyn Forget in her paper The Town With No Poverty. Forget’s data showed positive results. For example, the high school completion rate went up, teenage pregnancy fell, and hospitalizations fell. Centrally, the income brought most residents out of poverty with only negligible negative employment effects. There have been other small studies showing encouraging results, but in a few years, more evidence should become available. Finland has recently announced a pilot program giving 2,000 citizens a basic income. Switzerland had a referendum on basic income (it did not pass). More and more countries are considering basic income as a solution to poverty. The United States has high poverty, but it is solvable. Basic income may be the solution. Creating a basic income pilot in the United States may be the first step in permanently eradicating poverty.