Universal Basic Income is Not a Crazy Idea

Universal Basic Income (UBI) was mentioned at the end of my 3 December 2022 post on the subject of urban youth unemployment. I suggested that UBI might be one of the policy measures adopted in the future to ensure that young men and women entering the labor force engage in socially constructive activities when long-term jobs with benefits are not available in sufficient numbers.

You may have the same adverse reaction that I had when I first came across a reference to UBI: it’s extremely utopian. Then I started exploring the concept and quickly discovered one mistake I was making. The “universal” in UBI is not about providing the same basic income to everybody in the world. That is seriously utopian. It is about providing a fixed monthly income to every adult in a national economy.

One reason why you won’t see UBI adopted in the USA anytime soon is that we are a high-income country with a large population. It’s too big a leap for now. What you may see within the next 20 years is a small country adopting UBI. The first mover won’t necessarily be a low-income country with a small population; it could be a high-income country like one of the Scandinavian countries that are open to social innovation.

A starting point for any discussion of UBI is that while it is not a new concept. For this post, I’m drawing on a solid piece of reporting published in the weekly Washington Post Magazine on Sunday 24 October 2022: https://www.washingtonpost.com/magazine/2022/10/24/universal-basic-income/

According to reporter Megan Greenwell, one of the earliest advocates of a guaranteed income was Thomas Paine, in his 1776 pamphlet” Common Sense”. In 1967, the Reverend Martin Luther King in his book “Where Do We Go From Here” suggested that “the solution to poverty is to abolish it directly by a now widely discussed measure: the guaranteed income”.

An important variation on this concept began to be implemented globally in the late-1990s in the form of “conditional cash transfer programs”. These are government-funded poverty alleviation programs that, for example, provide a monthly cash grant to mothers who send their children to school (instead of keeping them home to do work that generates income). The most famous large-scale (millions of recipients) and continuing programs are in countries like India, Indonesia, and Mexico.

Smaller scale conditional cash transfer programs have been launched in high-income countries including the USA, mostly as pilot projects. One of these was launched in 2007 in New York City by Mayor Mike Bloomberg. It was called “Opportunity NYC” and it was conditioned on parents getting their children examined by a doctor, completing job-training courses, and similar tasks.

Now local communities around the world are experimenting with unconditional cash transfer projects and social scientists are studying the impacts. The largest project of this kind, which can be seen as a test of UBI, is mid-way through a 12-year operation in Kenya, providing about 5,000 people in 300 villages $22 per month for a decade. It is being evaluated by an international team that includes Nobel laureate Abhijit Banerjee who co-authored a working paper in 2019 describing the many positive effects on household well-being found in unconditional cash transfer programs in low-income countries.

Current UBI experiments in the USA are underway in Baltimore MD ($1,000 a month to 200 recipients), St. Louis MO, and Atlanta GA.

The largest UBI/guaranteed income experiment in the USA today is found in the city of Compton CA (population 95,000). What is special about this program is that it’s not about proof of concept. It is about fine-tuning the parameters. During the 2-year trial involving 800 households, separate groups will receive different monthly payment amounts (between $300 and $600) and different payment frequencies. The results will be assessed rigorously to see how the different amounts and frequencies affect household well-being.

Washington DC had a recently-concluded 2-year trial funded by Bread for the City and three other non-profit partners called “Thrive East of the City”. It provided $5,500 per month to nearly 600 families in the poorest Wards of the District of Columbia.1

The most important take-away from this overview is that virtually every study of UBI/guaranteed income experiments, in the USA and in other countries, has found positive impacts. Recipients have been healthier, better employed, less indebted, etc. Worrisome levels of misuse have not been found.

The strongest objection to UBI from the very beginning, everywhere, is that it will be a disincentive to work and encourage drug addiction and endless frivolities. None of the evaluations so far have validated this objection, however.

The other strong objection to UBI in the USA is that we cannot afford it. It would cost $3.1 trillion to provide $1,000 per month to every adult in the USA. That’s half of the federal budget in 2021. It should be understood, of course, that a substantial number of costly social welfare programs could be terminated when UBI is implemented.

The crucial policy question is how UBI would affect the US economy--or any other national economy--at the macroeconomic level: inflation, saving and investment, and labor force participation. It makes sense to be skeptical about UBI at this scale, but it is not an argument against undertaking increasingly large experiments.

The US Congress clearly has no interest in UBI or anything like it. This was demonstrated forcefully in President Biden’s expansion of the Child Tax Credit. He was able to get the amount raised from $2,000 to $3,600 per year at the beginning of his term, but his proposal to extend the credit at the higher amount could not pass the Senate in the crucial funding bill at the end of 2021. Studies have shown that child poverty dropped dramatically during the year the credit was increased and dropped just as dramatically when the credit reverted to the $2,000 level.

You may have heard Andrew Yang pledge to develop a UBI program during the presidential election campaign in 2019. This pledge may have discouraged more voters than it attracted, but it has helped to raise consciousness in the USA.

A final thought is that the arrival of Central Bank Digital Currencies (CBDC) could make a nationwide UBI program much easier to implement.One of my next posts will be about CBDC.

[1] A Washington Post story in January 2023: https://www.washingtonpost.com/dc-md-va/2023/01/03/bread-for-the-city-thrive/ The Bread for the City description of this program: https://breadforthecity.org/blog/thrive-east-of-the-river-and-guaranteed-income-final-results/