JOIN USDid you ever ask your father as a five year old, “Dad, why can’t the government just print money and solve poverty?” And then your dad would say something along the lines of “that’s not how it works” or “that will only cause inflation” and you gave up because you couldn’t understand what inflation was.
Well, ‘Universal Basic Income’ is a concept, recently in vogue in the West, that has attracted considerable attention. The concept as the name suggests, is simple – every citizen would be entitled, whether or not they work, to a basic income.
The hypothesis is that most people would continue working anyway, and those who cannot work, for one reason or another, have this basic income safety net to fall back upon and therefore, do not fall into poverty.
The income would have to be enough so as to alleviate poverty – think of it as an alternative to food stamps and in-kind welfare programmes– but not so much that able-bodied people who could work choose not to.
The intuition behind it is humanitarian in nature: no matter how lazy, how stupid or how unfortunate you are, you deserve money to live on by virtue of being born a human being; an innocent enough idea that a child may have come up with it.
What is the catch? What is the side effect that your dad is going to explain to you? Why won’t it work? Well, most people would tell you that it reduces the incentive to work. Why would anyone work if they could just get money for free? And then no one would work, the economy would tank, and there would be no money to give all the people who don’t work, which is everyone. This is the hypothesis of incentives.
Incentives matter. However, there is sufficient empirical evidence that when given a negative income tax, work or work effort declines, although the actual quantum of the effect is quite small. As long as work remains a cornerstone to human life, a universal basic income is not going to affect the working population drastically.
The more elegant arguments against the universal basic income are the following. One, it is not solely an anti-poverty programme since it is not targeted at the poor per se, but at all human beings as a ‘citizen’s dividend’ and as such would cost an extraordinary sum of money to be implemented.
Two, as against the modern welfare state, the universal basic income can be spent on anything the recipient deems worthy, and while this may be a libertarian’s wet dream, it is a liberal argument against the idea.
Of course, one could not possibly do both – provide free government schools as well as a universal basic income, and therefore, there would have to be a choice, and many would prefer to give the poor what they think is in the poor person’s enlightened best interest rather than what the poor person actually wants to spend on, be it movie tickets or cigarettes. Clearly, the modern welfare state is not going to disappear soon.
An expensive call
Finally, this is expensive as hell. Consider the United States, the richest country on earth. To fund its 225 million citizens with $10,000 a year one would need to raise $2.25 trillion. What effect would raising such a tax have on the economy?
Surely, such a tax would devastate the economy however it is raised and be a huge source of inefficiency. In other words, there is no free lunch and using taxation as a tool to fund this ‘free’ lunch would impose severe penalties on the economy that would be worth an enormous amount in their own right.
Furthermore, there is a moral dimension that your inner child may not have thought of, but a conservative adult may. Why should a high-earning, highly productive person pay for this scheme that would subsidise everyone else indefinitely? Is there really merit in the government taxing people extremely highly to eliminate poverty? Is poverty only a moral issue or is high taxation also a moral issue in its own right?
On balance, the idea still has merits. It does what it says it does, and what it says it does is very simple: allow every human being a guaranteed income. However, the programme is not targeted, may not alleviate poverty and would cost the earth: three drawbacks that should be enough to kill it, at least for the present.
Therefore, I think it is a blessing that the Swiss, in their wisdom, have rejected it in the referendum. Either the idea needs to be refined before it is practicable or the society would have to get a whole lot more tolerant toward a huge increase in their tax bill.