Universal Basic Income

I’m aware the topics I’ve been posting on have been very wonkish and policy-orientated recently. I’ll do something less serious next time, but I thought I’d give my take on an increasingly popular idea amongst economics. Also be warned, the post is necessarily lengthy. 

Perhaps the most glaring contradiction of present-day ‘late’ capitalism is the co-existence of immense wealth and serious deprivation. On the one hand, an increasing number of people are millionaires, or at least enjoy a life of luxury unimaginable to people living just 30 years ago. By contrast, there is a persistent (and in some countries increasing) number of people for whom life is a daily struggle. These people are often referred to as the ‘precariat.’ They live paycheck to paycheck, have no savings or assets, and often cannot guarantee how or when they will make enough money to afford necessities. If they are employed, they work long and irregular hours, and enjoy little job security. This contradiction is most obvious in the cities, which is partly why left wing parties tend to do best in urban areas. But even in the countryside, there is an enormous gulf between the life of an estate owner and a farm labourer, for instance.

In Europe, this contradiction has persisted despite the existence of everything traditional social democrats have advocated: universal healthcare, state pensions, workers’ rights, paid leave, unemployment benefits, child tax credits etc. Take for instance, France, where state spending is well over 50% of GDP. It doesn’t take long once you emerge from Paris’ Gare du Nord to discover that the French socialist model has largely failed, and in fact there are enormous numbers of poor Frenchmen. America is somewhat different to Europe due to the less comprehensive nature of its social insurance system. But even in Democrat-controlled states, where taxation and spending levels are at European levels, a large proportion of the population is extremely poor.

If the old healthcare and social security systems have failed despite large amounts of money being poured into them, then a bold experiment is needed: Universal Basic Income (UBI). The idea is that everyone is paid a certain amount by the government. This would vary somewhat depending on whether an individual has children or is retired, but the payment should be large enough to cover your basic living costs. Thus, at least in theory, no one should be living in poverty. UBI has additional benefits. It abolishes large bureaucracies needed to means-test a wide variety of programmes. It is simple and transparent. It eliminates the possibility of welfare fraud. It would encourage people to innovate and take risks, knowing that there is a safety net below which they cannot fall.

For some dystopian economists, automation will result in permanently lower levels of employment, particularly amongst the unskilled working class. To prevent civil unrest from breaking out, UBI would give those displaced by automation and other technologies a way to survive while they retrain and readjust to the new economy. I’m personally not as pessimistic about automation and technology as these economists. But the fact is that areas affected most by deindustrialisation have not recovered well. In the US, the Rust Belt voted strongly for Donald Trump, and most post-industrial areas in Britain voted strongly for Brexit. Perhaps UBI is a fair means of addressing the disillusionment many people in these areas face. If a more free market policy programme is pursued, many regions will permanently turn against the governing party, even if the country as a whole is supportive. Margaret Thatcher and the Conservatives are still hated in large parts of the UK, even as she left office almost 30 years ago. UBI is based on the principle that no one should be left behind. Even in an largely prosperous economy, any kind of poverty is inexcusable.

The main objection to UBI is its cost. Giving everyone, including the wealthy, a large sum of money each would be enormously expensive. UBI advocates argues this cost would be reduced by a smaller bureaucracy and the elimination of all other benefits and most tax deductions. But even then, it wouldn’t come cheap. Taxes would have to rise to cover the cost, which would eliminate the benefits of it for everyone but the poor. The rich would vehemently opposed to it, since they would lose far more than they would gain. This leads to another objection, that it would be a welfare programme for the rich. UBI advocates argue that most people would see their lives improve as a result of having their basic living costs covered. But the fact is that most people pay more in taxes than they currently receive in direct welfare payments from the government. If UBI is intended to benefit the better-off, a more efficient way to do so would be to lower taxes. UBI certainly isn’t a redistributive as means-tested programmes, or indeed a negative income tax

UBI also doesn’t take into account regional variations in wages and living costs, particularly in terms of housing. If UBI is the same everywhere, recipients in high-cost areas may end up worse off than the existing system, where payments like housing benefit have increased in recent years. If UBI takes into account regional cost of living differences, then perhaps it would reinforce existing regional inequality by paying people in already richer regions more.

My personal objection to UBI is that it abdicates the responsibility employers have to pay their employees decent wages. Under some UBI proposals, the minimum wage would be abolished, since the government is already guaranteeing people a decent standard of living. Even if the minimum wage was maintained, employers could get away with paying their workers relatively little, knowing that UBI will cover the rest. The solution to poverty is to make employers pay their workers properly, not have the government subsidise poverty wages. I also fear it would lead to inflation, since retailers who serve the low-paid would raise their prices, knowing their customers are receiving more money. Even if anti-inflationary measures like rent controls, there would be no way to ensure that the overall cost of living does not rise substantially.

Overall UBI is a very interesting idea. I’m certainly open-minded as to what the results of UBI experiments tell us. I don’t believe it would lead to a dramatic fall in employment, as some conservatives warn. The very poor and most students would definitely be better off under UBI, regardless of whether it’s best for the country as a whole. But its costs, the lack of redistribution and the threat of inflation prevent me from endorsing it right now. Nor would UBI bring us any closer to solving the housing crisis- the cause of so much poverty across much of the world. UBI currently represents a dramatic expansion of the size of government, without addressing the fundamental causes of poverty the programme seeks to address.





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