Universal Basic Income – Why It Can’t Work in America

From Bloomberg: A Basic Income Is Smarter Than a Minimum Wage

The Universal Basic Income (UBI) is one those economic debate topics that will never be resolved to anyone’s satisfaction, unlike Newtonian gravity, for example, which with the exception of possible quantum gravity, has long been long settled. That’s the problem with the social sciences. Excluding fundamental concepts (comparative advantage, trade, supply vs. demand), pretty much everything else is subject to debate, whether it’s supply side vs. demand side, govt. debt vs. GDP growth, minimum wage vs. flexible wage, fair tax vs. flat tax vs. progressive tax, free trade vs. protectionism, or the best interpretation of the Laffer and Philips curves. Even studies aren’t good enough, because if you look hard enough, you’ll likely find the same number of studies that oppose your viewpoint, and it seems all studies in the social sciences are beset by methodological flaws, if not outright fabrication. The best anyone can do is present evidence, and it’s up to policy makers to choose whether or not to heed said economic these models. In the Case of Bush and Reagan, they went with supply-side (Mundell and Laffer). Obama went with demand-side (Keynes, Solow, and Krugman). Even when something seems certain (Enron’s fraud, for example) doubts can remain – was the trouble with Enron that its management didn’t tell us enough—or that analysts failed to make sense of the data it supplied?

Some try to re-frame it as an immigration issue – ‘either basic income or immigration’ – but eliminating immigration won’t magically make the basic income workable.

A prosperous country with a small citizenry, such has the UAE, could probably sustain a UBI. In 2013, the UAE’s total population was 9.2 million, of which 1.4 million are Emirati citizens and 7.8 million are expatriates. The gross domestic product of the UAE for 2013 was
$402.3 billion, with a nominal GDP per capita of $43,000. Sweden, Norway, and Luxembourg rank much higher, with a nominal GDP per capita of around $90,000. For the UAE, after excluding the guest workers, the per capita GDP surges to $285,000. The USA ranks in the middle at around $55,000 per capita. A basic income for every adult American citizen at $10,000 a year would cost $2.45 trillion annually, or about 13% of GDP. In the case of the UAE, a $10,000 a year basic income for every citizen (including children) would cost just $14 billion, or only 3.5% of GDP. A low or average GDP per capita in an otherwise very large economy implies a Pareto distribution of only a small percentage of citizens producing the bulk of economic value, which is why a UBI may work for the UAE but not America.

Some approaches to the UBI:

High-IQ basic income (a basic income only applicable to individuals of a sufficiently high IQ)

The high-IQ basic income would have the effect of only making the program applicable to only a small percent of the population (the most economically productive and or the potential to be productive), which seems more fair than giving it to everyone indiscriminately. This would dramatically lower the cost relative to GDP and guarantee the highest ROI from the program.

Mandatory birth control for low-IQ recipients of the UBI, with revocation of UBI for repeat offenders.

Credits (food, housing, gas, and electricity credits) instead of cash. the former much less susceptible to abuse, unlike cash which may be squandered on non-essentials.

A UBI is also similar to negative tax rate, which due to entitlement spending already exists for about 20-40% of the population (people who consume more in benefits than they produce in taxes):

A UBI without preconditions will only compound entitlement spending, because what is to stop people from wasting their basic income on frivolities while also drawing from existing welfare programs.

Many people may agree to work for less than the current minimum wage, and on more flexible terms, if they’re supplementing a guaranteed income, not scrambling to avoid having to beg for food.

But this is not the case. Somewhat counterintuitively, the poorest are not starving to death; in fact, they’re more likely to be obese than higher income earners:

More than forty percent of student loan borrowers are not making payments, sometimes even when they are financially capable. So that’s effectively like a ‘basic income’ as far as education is concerned. Similar patterns are observed with healthcare, with medicare, medicaid, and free emergency room treatment for millions of Americans who are uninsured and cannot afford to pay.

The assumption that a UBI, on top of existing welfare programs, will make people more compelled to work seems like a stretch.

Ultimately, given existing negative effective tax rates and the surge in entitlement spending, we’re probably much closer to something resembling a ‘basic income’ than many realize.

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