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Sunday, October 13, 2013

Universal Basic Income


Universal Basic Income (sometimes called Unconditional Basic Income, Citizens Income or just Basic Income) is a proposed economic system in which all adults within the economy receive a guaranteed basic income irrespective of whether they have a job or not. It is a very interesting proposal which finds support from across the political spectrum, especially amongst socialists and libertarians.

In October 2013 a referendum was triggered in Switzerland (by a petition with 126,000 signatures) on whether to introduce a guaranteed £1,750 per month unconditional income for all adult citizens.

   
 Arguments in favour

Technology and automation: As technology and automation improve, the requirement for labour in the economy falls. However, the pace of technological advancement is retarded if the public cannot afford the outputs of advanced technology and automation. If the public have their basic human needs met, then they have more wealth to invest in consumption of the outputs, further driving technological advancement.

Wealth Redistribution: Wealth redistribution is economically beneficial because of the Marginal Propensity to Consume (poor & ordinary people spend more of their income than the wealthy). The more wealth that is spent, rather than hoarded, the faster the economy will develop.

Efficiency: Universal Basic Income is the most efficient form of wealth redistribution because there is no need for a massive and expensive bureaucracy to means-test recipients. The only checks would be whether the recipient is a citizen of the state, and whether they are classified as an adult, which would massively reduce the bureaucratic cost overheads of the welfare system.


Smaller government: The introduction of Universal Basic Income would reduce the economic burden of the welfare system through the elimination of almost all means tested benefits and associated bureaucracies.

Reduced crime: Crime rates will be reduced because the Universal Basic Income would effectively eliminate absolute poverty, and massively reduce the economic desperation that motivates a large proportion of criminal behavior such as theft (a Basic Income trial project in Namibia recorded a remarkable 42% reduction in crime).

Balanced Labour Market: The labour market has become ever more imbalanced ever since the rise of neoclassical pseudo-economic dogma, and the attacks on trade unions and labour rights. Workers would no longer be compelled to work in order to meet their basic human needs, so employers would have to offer high wages and good terms and conditions in order to attract workers. Exploitative employment practices would be curtailed and the worker would have greater freedom to pursue the employment that they choose, rather than doing awful jobs for crap wages in order to stave off absolute destitution.

Innovation and small businesses: If citizens are guaranteed a basic income to meet their basic human needs, the investment of time and wealth into the establishment of new businesses would be significantly more attractive and carry significantly less risk. The evidence from trials supports the conclusion that the introduction of such a system would increase the number of business start-ups.

Better capitalism: The resulting boom in small businesses would improve capitalism by increasing the diversity of the capitalist economy, and by increasing competition within existing markets. Increased diversity would lead to a more robust economy capable of withstanding extrogenous shocks, and more competitive markets would result in greater competition and efficiency.


Social justice: If the basic human needs of all citizens are met automatically, then the requirement on charity and state administered welfare is dramatically reduced, meaning that those with charitable intentions can assist the needy elsewhere in the world, rather than fighting to combat poverty in their own developed nations. 


Arguments against
Loss of work incentive: Opponents argue that the incentive to work would be destroyed, and that capitalism would grind to a halt without the fear of destitution driving workers to continue working. This objection is not supported by the experimental data, which shows that the vast majority of people continue to work, even if their basic human needs are met. Trials in North America showed that the only demographics to significantly reduce their working hours were new mothers (to spend time with their babies) and teenagers/young adults (who spent additional time in education). The trial in Namibia actually showed a significant increase in economic activity, due to the increase in economic demand and the establishment of new businesses.

Idleness: One of the most commonly wielded criticisms is that if a guarantee that the individual's basic human needs are met is given, then the individual will be inclined towards idleness. Not only is this concern disproved by the trials that have been carried out, it is also disproved by an appeal to "common sense". If having sufficient wealth that our basic human needs are met causes idleness, how is it possible to explain the fact that multi-billionaires like Warren Buffet or George Soros carry on working, when they have accumulated enough wealth to provide their basic human needs for ten thousand lifetimes or more? Why do actors like Keanu Reeves carry on working, when they have made more than enough money to live in comfort for the rest of their lives? Why do sportsmen carry on working even after they have become multi-millionaires? How is it possible to explain the fact that the current UK government is absolutely stuffed full of multi-millionaires? If having "enough to survive" was a disincentive to work, then all of these people would surely have retired to a life of idle luxury. The only way that this objection makes any kind of sense is if you accept the ludicrous right-wing stance that the rich are best motivated by more money, and the poor are best motivated by the threat of absolute destitution.

Something for nothing: Another one of the most common objections is the "why should people get something for nothing" argument. This kind of attitude lies behind the irrational British obsession with welfare spending. It is estimated that the UK economy loses £120 billion a year to tax-dodging, however this issue is completely dwarfed (in terms of column inches and public opinion) when it comes to the cost of welfare, of which only £1.2 billion is claimed fraudulently. The British public are easily riled with the sense of injustice that they must work hard, whilst others have a roof over their head and food in their belly despite not having a job. The sense of injustice is a powerful emotion, and the right-wing press deliberately weave it into their anti-welfare narratives, but it in economic terms it is a meaningless objection to Universal Basic Income, because if everyone is entitled to an income that guarantees them a basic standard of living, whether they work or not, the objection that the unemployed are getting something that the employed don't no longer carries any weight at all.

Reciprosity: Another objection is that the guaranteed income is basically unconditional, and that means that there is no conditionality that the recipient must put anything back into the economy. This objection demonstrates a basic lack of economic literacy because the recipient will either spend it (creating economic demand) or save it (creating the capital reserves that the capitalist system requires in order to fund the credit economy). The only way that it would be possible for the individual to extract the wealth from the economy entirely would be through off-shoring it, but that is a problem of capital flight and tax-dodging, not a problem with the principle of unconditional income.

Welfare for the rich: Another objection is that the Universal Basic Income would result in payments to citizens that are already wealthy, and have no trouble meeting their basic human needs. In my view, this is a particularly short-sighted objection for two reasons. Firstly, because making the payment conditional on wealth and income would necessitate a large bureaucracy in order to means test everyone, which would undermine one of the main benefits (efficiency); and secondly, because if the wealthy and powerful (generally high-tax payers) are excluded, they are likely to oppose the scheme because they are paying for it, but getting nothing back. If guaranteeing the basic human needs of the majority in the most efficient way possible must come at the price of giving the already wealthy "a bit extra" too, then so be it. To hopelessly compromise the whole concept of a universal benefit out of a desire to make sure that the rich don't get a share of it would be to throw the baby out with the bathwater so to speak.


Inflation: Of all of the regularly stated objections, the only one that carries any significant economic weight is the threat of inflation. It should be fairly easy to understand how this might happen. Take rent for example: If the idle rentier class is aware that their tenants are in receipt of a monthly payment designed to meet their basic human needs, it is clearly in their financial self-interest to then massively increase the rental charge so that it takes the entire amount (and probably a bit more for good measure). An example of this kind of rent seeking behavior can be seen in the UK childcare sector after the introduction of Child Tax Credits. The childcare providers knew that working families were getting a payment from the government to cover the cost of childcare, so they raised the cost of childcare so much that the UK now has the most expensive childcare in the developed world (33% of family income, as compared to the OECD average of just 13%) meaning that the Child Tax Credit allowance is nowhere near enough to cover the inflated cost of childcare. If Universal Basic Income is introduced, then it must be done with a package of anti-inflationary measures (such as rent caps) or the value of the payment will soon be eroded away through the rent seeking behavior of the idle rentier class.


 Disclaimer

I've outlined some of the arguments for and against Universal Basic Income. The problem is that most of the arguments in favour are backed by empirical evidence and sound economic reasoning, but most of the commonly raised arguments against don't make any sense at all from an economic perspective, are contradicted by the evidence, and amount to little more than opinion. This means that it is absolutely impossible to construct a "balanced" article without giving the completely false impression that the arguments against are somehow equal to the arguments in favour, when aside from the valid concerns over inflation, they are transparently not.


Politics

The concept of Universal Basic Income is compatible with several political ideologies, especially socialism and libertarianism. I would also argue that it is also compatible with most forms of free-market capitalism (apart from the extremely rabid variety that opposes any kind of welfare intervention whatever).

Socialism

Perhaps the most famous left-wing advocate of universal income was the British philosopher and social critic Bertrand Russell, who wrote in 1918 that "those who choose not to work should receive a bare livelihood, and be left completely free" and that under such a system "The dread of unemployment and loss of livelihood would no longer haunt men like a nightmare".*

Other left-wing advocates for the Universal Basic Income include James Meade, who argues that it represents the only way by which full employment can be regained, and the Belgian philosopher and economist Phillippe van Parijs, who founded the European Basic Income Network in 1987.


Libertarianism 

Libertarianism can crudely be divided into two schools, and advocates of the Universal Basic Income can be found in both of them.

Left-libertarianism
One of the early left-libertarian advocates of Universal Basic Income was the American economist Henry George. He proposed a progressive tax system where tax would be levied upon land and under which every citizen would receive a basic income called a "citizens' dividend". The benefit of such a Land Value Tax system is that tax is levied upon wealth, and not upon consumption or income.

In recent years the Green Party of the United States
has proposed a universal income for all adults regardless of health, employment, or marital status, in order to minimize government bureaucracy and intrusiveness into people's lives.

Right-libertarianism

Many Conservatives might be inclined to oppose Universal Basic Income because they have been conditioned to hate the welfare state, but many of the ideologues of the neoclassical ideology that the Conservative thinker implicitly supports are advocates of forms of Universal Basic Income. These advocates include Friedrich Hayek, Milton Friedman and Gary Johnson (the Libertarian party candidate in the 2012 US Presidential election).

Right-libertarians often propose a form of conditional Basic Income called Negative Income Tax, where people earning below a certain income threshold receive supplemental payment from the government instead of paying taxes to it.

Free Market Capitalism

One might assume that the concept of universal welfare is completely at odds with free-market capitalism, but it isn't. Universal Basic Income would increase the competitivity of the market by freeing people from concerns over their basic human needs, and giving them the liberty to start their own businesses. A rise in the number of small businesses would increase market competition and promote greater efficiency.

If the free-market capitalist believes in any form of welfare at all, then the logical form to support would be the form that involves the least government interference and the smallest amount of costly bureaucracy, which would quite clearly take the form of some kind of universal income, rather than a bureaucratically administered means-tested benefit.


Conclusion

Universal Basic Income is a very interesting idea. I hope that the Swiss referendum results in the first implementation of such a scheme, so that we can learn more about the benefits and pitfalls. It is clear that the underlying principle of a universal bureaucracy-free welfare system has a great deal of appeal to people from either side of the political spectrum, given that it has supporters from either extreme (from Bertrand Russell to Fredrich Hayek) and many in between.

Many of the critics rely on economically illiterate objections such as the "something for nothing" complaint or faux concerns about "idleness". By raising such ludicrous concerns that the poor and ordinary would cease work at the very instant their basic human needs are met (whilst ignoring the fact that the rich continue to work despite their basic human needs being met many times over), the opponent is essentially admitting that their view of capitalism relies upon exploitation of the fear of destitution, rather than the willing participation of the workers.

Another thing that this kind of "something for nothing" objection reveals is the absurd idea that the only way in which it is possible to contribute to society is through paid labour. The idea that the individual is incapable of contributing anything at all to society apart from through submission to capitalist exploitation. This stance is ludicrous nonsense, not only because the individual would contribute to the economy every time they spent or saved their Universal Basic Income, but also because non-remunerated activities such as bringing up children, caring for elderly or disabled relatives, volunteering for charities or investing time in unpaid endeavours such as education, writing or the arts are all clearly contributions to society, it's just that they are much less easily monetised by the "cost of everything, value of nothing" brigade, so they are dismissed as worthless "non-contributions".


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* - Bertrand Russell "Proposed Roads to Freedom; Socialism Anarchism and Syndicalism" 1918 (I strongly recommend people take a look at this)



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