POLITICAL OPINIONS#55: UNIVERSAL BASIC INCOME- PROS AND CONS

INTRODUCTION:

When it comes to government-funded entitlement program there is much controversy and contention engulfing the topic. All you have to do is extrapolate the debate in regards to Universal Health Care to get a purview into the depth of discord. Similar to Universal Health Care there is a plenitude of horizontal arguments competing for substantiating veracity. Even with the diversity of economic, social, and moral considerations; most people will capitulate to our proclivity fall within one of the two dichotomous perspectives. Pro-Universal Basic Income or Anti-Universal Basic Income. The true misfortune is that with all the gears and components comprising the structure of the issue, a linear for or against argument may not be the best approach. Especially when the nuance that needs to be addressed when debating the validity of Universal Basic Income is so intricate. However, I comprehend how easy it is to surrender to our own philosophical and political biases without evaluating all the facts and joining one of the two diametrically opposing camps.

 

While our tendencies to pick one side over the other without ample analysis of the issue based on our own predispositions, we may need to overcome this fallacy of thought. Particularly when this logical fallacy is applied to Universal Basic Income. This topic becoming a serious contender for political debate is right on the horizon. Democratic presidential candidate Andrew Yang has incorporated implementing Universal Basic Income as a key pillar of his presidential campaign. Beyond Mr. Yang bringing this topic to the front door of the American political scene, other countries are have implemented UBI policies. Even if we were to completely negate the rising prevalence of Universal Basic Income in American politics, the increasing numbers of people suffering from job displacement due to certain occupations being outmoded. In the ashes of a manufacturing empire that are now known as the Rust Belt, it is critical to find solutions for the myriad of obsolete jobs. The economic and philosophical cost to the region has been dismally compounded by and correlated with the ravages of the opioid epidemic. As much as the potential benefits of Universal Basic Income can be speculated, personally I am incredulous of  UBI as a policy. While it sounds like a good policy, is it effective in the long run? No one really has any hard data with any range of historical depth to corroborate that it is an effective policy.  Without any hard evidence, how do we know that it is any more effective than putting a band-aid on cancer? My reservations extend beyond the lack of applicable results, by nature I distrust the government to effectively implement  Universal Basic Income in a manner to curtail abuse and be applied in a fiscally responsible manner.

 

WHAT IS UNIVERSAL BASIC INCOME:

Before we get deep into the arguments supporting and countering the validity of Universal Basic Income, we should have an operational definition for it. It can be best defined as a regularly scheduled distribution of money that is unconditionally provided to all citizens by the government [1].  Generally, it is provided under the pretense that it will help assist with providing supplemental assistance for satisfying the costs of living.  It should be noted that this is in reference to assisting with basic essentials such as food, clothing, and shelter versus luxury expenses. There are five key attributes that define an implemented Universal basics income policy [1].

  1. Periodic: it is paid at regular intervals (for example every month), not as a one-off grant.
  2. Cash payment: it is paid in an appropriate medium of exchange, allowing those who receive it to decide what they spend it on. It is not, therefore, paid either in kind (such as food or services) or in vouchers dedicated to a specific use.
  3. Individual: it is paid on an individual basis—and not, for instance, to households.
  4. Universal: it is paid to all, without a means test.
  5. Unconditional: it is paid without a requirement to work or to demonstrate willingness-to-work.

[1].

As is evident from the list of crucial identifying attributes, there are key defining characteristics that distinguish UBI from other forms of monetary government assistance. The most notable would probably be the absence of any sort of conditions such as being under a certain income bracket or employment requirements.

 

ANDREW YANG’S PLAN:

Certainly not by happenstance, democratic presidential candidate Andrew Yang has quite a bit of information regarding Universal Basic income on his campaign website for the 2020 election. While I learned of Mr. Yang’s efforts to support this issue from pursuing the internet, his appearance on the Waking Up podcast hosted by Sam Harris really solidified him as a serious champion of this policy. At least in my mind.

[3].

 

However, let’s examine some of the reasons why an individual such as Mr. Yang might actually be pushing Universal Basic Income as a reasonable solution to work displacement.  Especially when you consider the number of jobs that have been outsourced abroad or have automated. Most experts tend to believe that this is a trend that will not be stifled any time soon. However, some experts would tend to assert that the displaced jobs will be filled by comparable positions, it is most likely too early to tell [4].

 

Presidential candidate Andrew Yang’s campaign website claims that a third of all Americans will lose their jobs to automation in one form or another within the next 12 years [2].  Yang’s website also presents the statistics that the current labor participation rate is at 62.5 percent and that one out of five “working aged men” are currently out of work [2]. While this numbers might be to some extent concerning and it is obvious that regardless of whether automation further exacerbates this issue or not, the displaced workers still need a means of obtaining currency.  For the out of work coal miner in West Virginia, Universal Basic Income would be able to provide them with a means of being able to purchase food, clothing and other essentials.  Yang also explains due to the fact that people are having their basic needs met they can pursue a less-dangerous and more meaningful task. Going back to school taking care of family members etc [2].

 

While Andrew Yang has some of the broad benefits well defined, how does he plan on implementing this policy?  As is evident from the operational definition in the section above, there is a certain criterion that needs to be met to be considered Universal Basic Income.   A presentation of the core parameters would certainly be advantageous. Well, Yang does provide this information on the website. The parameters set on his campaign platform would entail that every U.S. Citizen ages 18 to 64 years old would be entitled to a $1000.00 check monthly. Regardless of employment status or other contingencies.  One notably stipulation is that U.S. Citizens 65 years old and older would not be eligible and would still continue to collect social security [2].  One point to exemplify is that the amount that Yang, as allocated, is clearly meant to be supplemental entitlement versus a free lunch.  I can state for the record I cannot live off of $1,000.00 a month and I am not particularly extravagant with my expenses. I would surmise that would be the case for the majority of Americans. While I am intrinsically skeptical of UBI as a policy, I can applaud Yang for not getting too extreme in regards to the amount of the monthly entitlement. However, the economic feasibility is still murky in my mind.

 

So far Yang has done a noteworthy job of presenting the finer mechanics of his implementation plan for Universal Basic Income. However, he has not addressed the most agonizing aspect of the whole policy.  Which is, how are we going to pay for it?  It is common knowledge that the United States is drowning in an exorbitant amount of debt. We are talking about trillions of dollars worth of debt.  We cannot implement such a pervasively large entitlement plan without sufficient funding. While compassion for and wanting to improve the lives of less fortunate Americans is a laudable goal, it needs to be realistic. Fiscally this country has already been crippled by nearly twenty years of warfare in abstractly defined theaters of combat and other poorly execute social and corporate welfare policies.  Well, Yang is purposing that we utilize a “VAT (Value-add tax) on goods and services produced by companies” which is considered a fair tax that is difficult for larger operations to hide [2]. Yang is looking to apply this 10 percent tax to fund this venture into UBI. Below are some of the other considerations Yang’s platform has for funding UBI:

1.  Current spending.  We currently spend between $500 and $600 billion a year on welfare programs, food stamps, disability and the like.  This reduces the cost of Universal Basic Income because people already receiving benefits would have a choice but would be ineligible to receive the full $1,000 in addition to current benefits.

2.  A VAT.  Our economy is now incredibly vast at $19 trillion, up $4 trillion in the last 10 years alone.  A VAT at half the European level would generate $800 billion in new revenue.  A VAT will become more and more important as technology improves because you cannot collect income tax from robots or software.

3.  New revenue.  Putting money into the hands of American consumers would grow the economy.  The Roosevelt Institute projected that the economy would grow by approximately $2.5 trillion and create 4.6 million new jobs.  This would generate approximately $500 – 600 billion in new revenue from economic growth and activity.

4.  We currently spend over one trillion dollars on health care, incarceration, homelessness services and the like.  We would save $100 – 200 billion as people would take better care of themselves and avoid the emergency room, jail, and the street and would generally be more functional.  Universal Basic Income would pay for itself by helping people avoid our institutions, which is when our costs shoot up.  Some studies have shown that $1 to a poor parent will result in as much as $7 in cost-savings and economic growth.”

[2].

 

While it is all well and good  Yang has done a better job of thinking through the logistical issues of implementing such a widespread entitlement program than the likes of Bernie Sanders, there are still other considerations to be addressed. This would seem to be a relatively conspicuous example, does UBI actually work?  A question that any sane taxpaying voter should be allowed to indulge when confronting a presidential candidate. Even if Yang’s means of funding this program are sound, if it is ineffective we are merely squandering taxpayer dollars for a failed pipe dream. Yang believes that he does have some hard evidence for the effective nature of UBI. However, I will be the first to point out that while there may be some that confirm the positive effect of UBI, there isn’t an abundance of longitudinal data. The few countries that have implemented such policies are still in the infant stages of noticing the impact. If there was a country that had 30 plus years of data that has been proven to be able to be replicated, I would be more apt to accept Yang’s claims of effectiveness. The website claims that there are over 461 research papers since 1998 proving the effectiveness of UBI and that it does reduce poverty without people overwhelmingly using the money for destructive means such as drugs and alcohol [2].   The lack of data presented on Yang’s website is compensated by the link provided to the studies substantiating the impact of UBI. For further reading please see below:

https://basicincome.org/research/ [5]

 

COMMON ARGUMENTS AGAINST UNIVERSAL BASIC INCOME:

 

While it may seem as if am biased towards Universal Basic Income based on the bountiful amount of positive aspects provided above, nothing can be further from the truth. I am very skeptical of UBI as an effective policy, however, I am attempting to approach in an impartial manner. However, my incredulity in regards to the positive ramifications of this policy cannot be stymied by the angle presented on Mr. Yang’s campaign website.  I feel in order to intellectually honest we must also investigate the drawbacks and potential follies of Universal Basic Income as well. Much like another entity whether conceptual or material, nothing is necessarily a complete fallacy. Most well-intentioned ideas tend to exist on a spectrum of validity with vary degrees of correctness. However, the inverse is also true, regardless of the intentions, there has to be some degree of shortcomings.

 

The well-established think tank  Foundation For Economic Education is well known for propagating and defending the virtues of fiscal conservatism. Certainly, a source that I personally find to be reliable when it comes to commentary on economic policy. FEE published an article back in September 2017 addressing the three commonly verified issues concerning  UBI, in the article The Top Three Arguments Against Universal Basic Income.  The article cites a study conducted by the Roosevelt Institute demonstrating how  Universal Basic Income if implemented, is projected to expand the U.S. economy by $2.5 trillion dollars (by 2025) [6]. While this appears to be a  tremendous incentive to pursue implementation, it is merely speculation. Speculation that glosses right over any potential detriments. The first issue the article references is the overall expense of implementing such a policy. With the current operating social entitlement programs in the United States, there are barriers such as income per a household that limit the pool of recipients.  However, under a UBI policy, everyone would receive money regardless of finical circumstances [6]. It may end up being a more costly program than the current section 8 and Snap programs currently being utilized.  However, the study by the Roosevelt Institute proposes funding by either deficit spending or higher taxes, neither being an economically viable solution [6].

 

The second consideration posed in the article is the ineffective nature of government handouts. This argument is derived from the psychological principle that we lack appreciation for what we do not work for.  While this may sound like a bit of a cliche that is overused by conservatives consider some of the welfare reforms enacted by the Clinton administration.  By placing a work necessity contingency to incentivize recipients to find employment, Clinton actually increased the employment rate [6].

 

The third core argument against imposing a UBI retributive policy is that wouldn’t relinquish the welfare state. There has not been much discourse on the steps and phases for the abolishment of contemporary programs such as SNAP, WIC, etc [6]. From the standpoint of political shrewdness, it would be completely rational for the topic to be circumvented. For social entitlements such as  Social Security to be revoked, it would engender a vitriolic and visceral response from the voting public [6]. The aptitude that UBI will be a replacement program in the light of public outcry and lack of a transition plan is minuscule. It will merely be added on as other gear in the costly and monstrous U.S. welfare platform.

 

As for an emotional appeal and moralistic considerations of Universal Basic Income Andrew Yang’s argument excels. However, it lacks caution when it comes to fiscal feasibility and practical implementation.  While I am personally sympathetic to individuals who have lost jobs to automation and outsourcing, we cannot do it at the expense of the rest of the country. I certainly can comprehend the lukewarm and often regurgitated axiom of “The rich need to pay their fair share”, which is equally as haggard and sickening of a cliche as you can imagine. Almost comparable to the assumptions of the archaic  “Trickle-Down Effect”. While Yang believes that adding a 10 percent Value-add tax on goods and services will fill in the gap enough to fund this program, I personally have a few concerns. For one, I have to side with the FEE in regards to the detriment of supporting this policy through higher taxes. There are a plethora of others who would agree. According to the Tax Policy Center that “… high marginal tax rates…” discourages commerce, investments, and business growth [7].  From the stance of pure logic, this makes sense from the superficial level. What drives business is the cycle of consumers purchasing goods and services and companies producing. If consumer confidence is slighted by new taxes imposed, they will stop buying which will put production into a tailspin. Which would stunt economic growth versus affirming the assumptions of UBI proponents.

 

UNLIKELY SUPPORTERS OF UBI:

This section of the article is not so much about presenting arguments for or against Universal Basic Income. I am intending for this section as an addendum to the topic that presents some stimulating food for thought. Stereotypically we would not predict or assume that proponents of fiscal conservatism would support Universal Basic Income. During Andrew Yang’s appearance on the Waking Up, he mentions in passing how  F.A Hayek and Milton Friedman both supported UBI. I was immoderately skeptical that either man would support such a policy considering they were prominent Austrian economists. The Austrian School of Economics at its core espouses the virtues of Laissez-Faire trade and market liberalism, in other words, limited governmental authority in policy [8]. So the question which is as foreboding and lingering as a thinly veiled apparition is why would individuals who have been steadfast in nonintervention fiscal policy support UBI?  Yang’s claims appeared to be pandering towards advocates of fiscal conservatives and Libertarians, both audiences that are vehemently opposed to governmental encroachment in economic policy. To my surprise, after some quick research apparently, Yang was right, contrary to my prior assumptions both did support UBI as a valid concept.

The Atlantic article The Conservative Case for Guaranteed Basic Income references Hayek and Friedman’s support for UBI in passing. The article itself is fixated on deriving an appeal to conservatives for UBI on the basis it would curtail current welfare spending. Please note that we have already pointed out some of the faulty aspects with this argument in the previous section above. The article mentions how Hayek “endorsed” UBI before the concept was a mainstage political talking point [9]. However, the article goes a little further into Friedman’s account for the policy’s veracity.  It was detailed that “… Friedman advocated a minimum guaranteed income via a “negative income tax”.  [9].   There may be a few of you who are questioning precisely what a Negative Income Tax is.  The genesis of this concept can be traced back to  Friedman’s 1962 book Capitalism and Freedom [10].  How NIT works is it sidesteps the bureaucratic red-tape, it is “….based on the amount by which their incomes exceeded the threshold for tax liability, NIT beneficiaries would receive payments (“negative taxes”) …” [10].

 

Personally, I really revere Milton Friedman as an economist, however, I am still apprehensive about U.S. implementation of UBI.  However, there does seem to be a real deficit of real longitudinal data that corresponds to long durations of research and reproducible results. The fact that Finland, who has run the largest UBI active test in any European country cut the two-year trial short to focus on Social Security reform it noteworthy [11]. Noteworthy in the sense that it should be a glaringly conspicuous red flag, that UBI is not something to haphazardly implement. Considering the larger recipient pool and the different culture in the United States, even if UBI works in the Nordic countries, how can we be sure that those results can be extrapolated to the U.S.? What we would risk by doing so would be either further comprising our economy through deepening the dark trillion dollars plus chasm what is our deficit.  The other alternative being we increase taxes and let’s be forthright here, few Americans want that.  I certainly understand the social consequences and moral imperative to assist displaced workers.  I am not willing to put my faith and confidence in UBI, however, maybe it might be effective. All I know at this point I am very skeptical.

 

 

 

 

FOOT NOTES:

[1]. https://basicincome.org/basic-income/

[2]. https://www.yang2020.com/what-is-ubi/

[3]. https://www.youtube.com/watch?v=qhjlPyxNu_M

[4]. http://www.dpaonthenet.net/article/155867/Research-shows-that-automation-will-create-as-many-jobs-as-it-displaces.aspx

[5]. https://basicincome.org/research/

[6]. https://fee.org/articles/the-top-three-arguments-against-a-universal-basic-income/

[7]. https://www.taxpolicycenter.org/briefing-book/how-do-taxes-affect-economy-long-run

[8]. http://lexicon.ft.com/Term?term=Austrian-economics

[9]. https://www.theatlantic.com/politics/archive/2014/08/why-arent-reformicons-pushing-a-guaranteed-basic-income/375600/

[10]. http://www.econlib.org/library/Enc1/NegativeIncomeTax.html

[11]. https://www.bbc.com/news/world-europe-43866700

Advertisements

Author: invertedlogicblog

In pursuit of liberty, philosophical thought, and Austrian Economics.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.