Friday, September 19, 2014

Why a Basic or Guaranteed Income Is Basically Guaranteed to Be Unfeasible and Undesirable

For those of you who didn't know, Europe is wrapping up what is called Basic Income Week. The premise behind this advocacy is to promote the policy of basic income (alternativey the universal basic income, or UBI), which is the system of [unconditionally] providing everyone with a regular sum of money that citizens could survive on. An alternative of a basic income is the guaranteed minimum income (GMI), which is a means-tested form of income, i.e., you need to meet certain eligibility requirements to receive the money. A variant of basic income that has libertarian and conservative support is in the form of the negative income tax (NIT), which was created by Milton Friedman. The United States tried implementing a pared version of the negative income tax that we have come to know as the Earned Income Tax Credit (EITC). Other countries have various cash transfer programs that are meant to have a similar effect to that which has already been mentioned. Do any variants of the argument for a minimum income have merit, or is this simply another instance of the government having good intentions, but having lousy results?

Let's start off with what I like about the idea. One is that UBI or GMI are direct cash transfers, which means that bureaucracy and administrative costs are less than under current welfare programs. Do we really need 79 means-tested welfare programs? Consolidate it into one program. We don't need excess and duplicative bureaucracy. Considering how much pension expenditures are driving up state and federal budgets, this is something worth considering. The other aspect that makes GMI an improvement over the status quo is that it is less paternalistic. Yes, the government is still redistributing money, but at least it is not telling you whether you should spend that money on food, health care, rent, or child care. The idea of letting the individual choose how to spend money rather than the government dictate it through various welfare programs has libertarian appeal.

It sounds nice on paper. How do we deal with it, though, when we actually start implementing it? Should everyone receive this minimum income? Are there conditions in which one's minimum could be revoked? Committing a felony comes to mind as an example. So does making stupid and poor life decisions for which others should not be held financially responsible. Also, how big should we make this basic income? What is defined as "basic?" Food, clothing, and shelter? Should it be adjusted with cost of living? Will this basic income be based on the number of members in a given household, or should it be allocated on a person-by-person basis? Even if we were to cap the NIT at the federal poverty line [of $11.7K], it would still cost $600B per annum, begging the question "From where will we get the money?"

Much like with unemployment insurance, there is also the question of how it affects labor markets. There have been few studies done in places like Canada, the United States, and Uganda, but the data are so sparse that they render the current studies inconclusive. Even with what we do have, there is a small effect on disincentivizing work, but even that effect was minimal. Conversely, with a decreasing labor force participation rate, perhaps we don't want policy that discourages work. Furthermore, I still do have a concern about how idleness can affect well-being (e.g., what happens when people win the lottery or come by a sizeable inheritance?). Retired individuals would use the off-time wisely, and I am sure there are non-elderly individuals who could, as well. However, for the vast majority of working-age individuals, work brings a sense of purpose and focus, something which could go by the wayside if basic income has statistically significant deleterious effects on the labor markets.

Also, what do we do about current welfare programs? When laissez faire economists such as Milton Friedman or Charles Murray suggest implementing a negative income tax, they see that being accomplished while simultaneously dismantling welfare programs. If a NIT is merely going to supplement the current welfare programs, then I am decidedly against it. Replacing welfare programs like SNAP or TANF with an NIT is a prerequisite to achieving fiscal efficiency. Otherwise, you're just creating a more aggrandized, bloated welfare state. Much like I brought up with the EITC, you need to also address the double-digit rate of fraud that currently exists. If you can decrease fraud and change the in-kind transfers to direct cash transfers, I would be more amenable to a basic income. However, as current political feasibility stands, especially with rent-seeking, I currently cannot support such a policy at this time. Even if it were politically feasible and you made such modifications as a work requirement or cashifying current programs, it doesn't directly address one of the primary issues in today's labor market. Since labor markets are demanding more high-skilled labor than in the past, what we should be focusing on is education and vocational public policy to provide low-skilled labor with more marketable skills. By finding a way to provide relevant skills to various workers, we would do a better job of addressing the issue instead of exacerbating the income inequality that the Left gripes about so often.

5-13-2015 Addendum: The Cato Institute recently published a nice pro/con guide on the guaranteed income.

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