Some common misconceptions about basic income

No discussion about basic income (BI) without people mentioning certain doubts about the feasibility of such a system. So I’ve collected some of them here and will try to answer them.

It’s incredible expensive!

One of the main objections to basic income is “it’s much to expensive!”. In fact if we calculate the needed basic income for a country like Germany, we would arrive at around 700 billion Euros per year. That’s around the double of the yearly fiscal income of Germany. This seems impossible to pay.

But in fact it’s really simple and much less expensive. But to explain that, we need to know that basic income has not one, but two important values: The amount of the basic income itself and the “neutral income”. Most people only think about the first value, but the second one is quite important, too: The “neutral income” is the net amount of money which remains unchanged after a basic income system is in place.

To make talking about the topic a bit easier, let’s just use two numbers: We set the amount of the basic income to 800 Euros per month and the neutral income to 2500 Euros per month. Of course that’s only exemplary numbers.

Now what does this mean? Let’s consider some cases: If you earn nothing you had a previous net income of 0 Eur. After BI this amount rises to 800 Eur (per month). Now if you earned a net income of 2500 Eur before, after BI you’re net income is still 2500 Eur. That’s the effect of the “neutral income value”. If you earn more, for example a net income of 5000 Eur, you will also have around the same. People in the range from 0 to 2500 Eur net income will have more then before, but the amount decreases steadily with increasing income until it reaches 0 at 2500 Eur.

Now how much does this costs? First, with basic income, everybody gets the same amount of BI. But there are also taxes. And by reducing tax deductions or removing the tax-exempt threshold, people who earn money have to pay more taxes - but get the money directly back as basic income. Sure, the total amount of taxes is rising a lot on paper, but all those additional taxes are afterwards given back to the citizens as basic income. So even if there is now a total tax level of maybe 1000 billion euros per year on paper, people don’t give more money to the state as before, because now they get 700 billion euros back instantly. And the additional money people below the “neutral income” get comes from the same bucket from which previously social welfare was paid.

Most people would stop working!

Some maybe, but that depends on the two values above. If basic income is to high, of course many people would stop working. But basic income is meant to be “basic”, so it’s not really something to buy luxury items from. Most people simply won’t want to live with such a little amount of money, so they will continue to work.

A working BI system would be self-regulatory: The amount of the BI would depend on the amount of taxes earned. If people stop working, taxes would sink which would in turn reduce the BI. And this would increase the desire to earn extra money which would in turn up-regulate taxes and BI.

What about technological unemployment?

If technology kills more and more jobs, basic income could become important to let capitalism continue to work. If people have no money they can’t continue to buy things so in turn the economy would collapse, even if productivity has risen to higher and higher levels. BI would give people the money to let them buy things. Of course if people earn less money and still need BI, the tax system has to tax higher income more to make up for the loss at the low and. But if your company depends on people having money to buy your goods or services, giving away some of your money more to let the system continue working is a rational choice.

With basic income in place, the transition between a society in which most people work 40 hours/week to a society where most people only work a few hours per week, could be smooth and continuous. Nobody will be hurt and the economy won’t falter. But if we only start to switch to a system like BI if the economy is already in decline, it may be to late to have such a smooth transition.

I earn good and don’t want to give away money to freeloaders!

You already do. At least if you live in a first world country. Also BI is for everybody, even for you. Sure, you may earn much money now and wouldn’t profit directly from BI, but nobody can be sure, that it stays this way.

Also there is the point of social stability. Earning money and living a good live works much better in a system with high social stability than in a system with social unrest. BI may be the price you have to pay for that. And don’t worry: You still have more than most others, with BI or without it.

BI is nothing but leftism!

Ever played “Monopoly”, one of the most capitalistic games ever? The game has “basic income” as a fundamental game rule (going over “go” gives you 200$ for nothing) because it keeps the game going.

In fact BI is a concept which is very compatible with capitalism. Capitalism needs free markets and it needs market actors to work. Now it is foreseeable that in the not-so-far-future, market actors may have no money anymore. So why not simply give them some “play money” and let them play their role? People who are rich and powerful now will still be rich then and companies will still earn money and fight for market share. BI won’t change the system as much as some people seem to believe. In fact it will stabilize it by soften up the edges of the system and let the markets continue to work.

So it’s really some Neocon-scheme?

Of course not. While BI supports capitalism, it also frees people up compared with current social welfare systems. No more direct control over “who gets the money”, no more threads of removing social benefits, and a much less complicated system overall. People who really don’t want to work can do that now, too, but there’s lots of hoops they have to jump thru. With BI, if you lose your job you don’t need to supplicate for welfare. You’re much more autonomous and free, even if BI doesn’t makes you rich or gives you luxury.

Still much to risky!

Implementing BI “over night” has lots of risks. Economies are much to complex to foresee all the effects of such a change. So how can we know the best values for BI and “neutral income”? How can we determine the best changes in the tax system to make it work?

An idea is to do some kind of “soft start”: Start with low values for the BI and increase it steadily. At the same time reduce social benefits and gradually change taxation. By rolling the system in over a few years, the optimal values would become obvious. And as written before: A working BI system isn’t static, it needs some feedback loops build in to prevent economic breakdowns. But with such mechanisms in place, starting and maintaining a BI system shouldn’t be much safer than many political decisions.