The government of Finland is hoping to kick-start its stagnant economy by investing €20bn in a two-year trial, involving 100,000 people, for a system known as “universal basic income”, or UBI. Instead of the current complicated and bureaucratic system, fraught with rules, means tests and alleged opportunities to cheat the system, the government plans to simply hand out the same set weekly allowance to everyone in the programme. This enlightened idea would do away with the dreaded “welfare gap” but wouldn’t be so big as to provide a disincentive to find and keep a job.
Any job you accepted, from a short-term computing contract to taking a minimum wage job as a street cleaner, would give you extra money on top of your weekly government allowance. Big questions remain, of course – above all, whether the payment can be set in such as way as to make it both effective and affordable.
It’s hard to see how this would work without raising taxes, and those taxes would be collected from a shrinking number of people in work (because of increasing automation and robotisation). But it has the benefit both of simplicity and fairness. The semi-employed or unemployed would have sufficient money for (very) basic food and shelter, and would spend all of it because of the high marginal propensity to consume.
The Finnish government is a centre-right government, and Finland is accepting of social equality and relatively high taxation for the general good. As such the Finns tend to be good Epicureans, even if they are not aware of the fact. But suggest such an idea in the US or UK and resistance would be immediate. I personally love the idea and am very happy to pay taxes so that people worse off than I am have more pleasant lives. Unfortunately, this is not a view shared by the “robust individualists” who oppose tax wherever they find it (unless it benefits them personally, of course). It wouldn’t surprise me to discover that Prime Minister Teresa May supports “universal basic income”, but getting it off the ground would be a huge political problem for her. The United States? Probably best forget it.
There are a few issues with UBI:
The first is that the vast majority of the money would be going towards people who don’t need it. I’m all in favour of cash assistance towards the poor, but most people don’t need it, so why should they get it? These people would have to pay more in taxes only to have their money returned to them. Why not allow them simply to keep their own money?
Then there’s the inflation problem. If everyone in society suddenly has a higher disposable income, wouldn’t companies simply raise their prices to reflect this? It’s possible that competition would mitigate a least a bit of this. But even so, the value of UBI would slowly lessen over time, unless it rose with inflation like pensions. This isn’t so bad in a booming economy, but if we were to enter another recession, the government could go bankrupt from the combination of rising UBI bills and falling tax revenues.
UBI wouldn’t simplify the benefits system as much as its proponents claim. In the UK, where there are big variations in house prices, some sort of housing benefit would still be needed. Disability payments would certainly have to be kept, as would assistance for students. Child benefits or tax credits would have to be kept, unless UBI increase per dependent children. Then there are smaller payments like winter fuel allowance and free bus passes for the elderly. Scraping these in favour of UBI payments may prove unpopular, because those individual payments are already well liked.
UBI may be justified on a false premise. I’ve often disagreed with you on the extent to which automation and technology will destroy jobs. But if I’m right, and technology will lead to no long term fall in employment, then why not simply increase the generosity of out of work benefits? For instance, have it so that people who have recently found employment do not lose all of their benefits at once, but have them gradually reduced as they become more experienced.
I’m not intrinsically opposed to UBI, I’ll be watching Finland closely. Like you, I’m happy to pay higher taxes to help the poor. But I also expect my money to be spent well, and I’m not convinced a universal payment constitutes frugality, at least not yet.