Asking the Big Basic Income Questions
It’s time to direct efforts to rigorous analytic research on UBI, so I’ve put together a list of the biggest questions I have about the idea and what it might mean for the economy and society, with the aim to be as quantitative as possible in this quest.
I’m kicking off with the list (because people love lists), but my detailed thoughts on why I’m asking these questions and how I’ll approach them are in the article below. This article will be updated as I write these pieces or as questions change, so this is a living document: Consider this my research homepage! You’ll also notice there’s a lot here, so if something strikes your eye and you have the time, give me a shout and let’s figure out a way to work on this together.
- How much will UBI reduce poverty, and how would that impact individuals and communities?
- How should UBI intersect with other poverty alleviation programs like SNAP, Section 8, or Medicaid?
3. What would UBI cost, and how can we pay for it?
4. Can we trust people to spend money on the important things?
5. Labor Dynamics Pt. 1: Bargaining Power and Wage Growth
6. Labor Dynamics Pt. 2: Labor Force Participation and ‘The Lazy People’
7. Labor Dynamics Pt. 3: What about those robots?
8. How would UBI impact GDP?
9. How will UBI impact migration patterns?
10. Do we need to worry about exploitation, like payday lenders?
11. Visionary Time: What are some of the unmeasurable effects we could see on society, and why do we deserve UBI?
Introduction
Last week, I announced that I’m dedicating my year to UBI research, and released my mission statement explaining why I’m drawn to the project. If you haven’t read it yet, please check it out here. I received a lot of support from the community of other UBI advocates, and I’m thrilled to see this level of engagement amongst us.
Now, it’s time to start the real work. Today, I’m going to list out the major questions that I intend to try to answer this year. There’s also important questions that are absent from the list, such as the best ways to turn these ideas into a political reality, but with my background, I’ll be focused on economic issues and other questions that can be modeled with hard data and experimental results. In practice, this list will be fluid, changing as I find new ideas through research or from community input, so reach out if there’s something you think should be on this list.
In general, each question will receive its own published piece, with some deserving of longer, wonky white papers (I’m debating the best forum to present those and am taking recommendations). While nearly all the questions will have some interactions with each other, and I might need to revisit my early analyses as I make progress and see impacts, I’ll still be trying to focus on one at a time. For example, poverty outcomes will intersect with inflation scenarios, but trying to solve for all answers at once leaves a mess. In this case, I’d try to solve for poverty outcomes first, and then figure out if expectations would shift downward when studying inflation separately.
Now without further ado, here are the Big Questions I’m asking:
The Big Questions
1. How much will UBI reduce poverty, and how would that impact individuals and communities?
This is conceptually one of the easier issues to study, since poverty would decrease significantly almost by definition with UBI. We also have very good data about the costs of poverty to individuals, including worse health outcomes and reduced educational opportunities. Yet with so many effects strongly correlated to poverty, this will get complex quickly, especially as the focus broadens to entire communities.
In this study, I’ll try to determine the biggest changes to expect for a variety of potential UBI implementations, and aim to create a “value” curve that will help in other analyses. How big of differences do we expect at $5k, $10k, $20k, or even $50k per year levels? Intangible benefits like community cohesiveness, happiness, and optimism can’t be modeled through a process like this, but putting hard numbers on the problem can help shape the proposal and put it in terms of typical policy benchmarks.
2. How should UBI intersect with other poverty alleviation programs like SNAP, Section 8, or Medicaid?
One of the benefits of UBI is that it is easy to administer, since there is no means testing and no (or minimal) eligibility requirements, and some have supported the idea based on the notion that it would allow governments to eliminate all other safety net programs and the bureaucracy that comes with them. However, it is not realistic that UBI can supplant all other programs while not having a significantly negative impact on some groups with greater needs or reduced ability to work.
Some programs like unemployment benefits or food stamps would seem to be clear redundancies under UBI, some groups are likely to have needs in excess of grant amounts. In particular, those with significant disabilities or ongoing medical expenses or those living in areas with high rents currently subsidized by section 8 vouchers could potentially see a net reduction in overall benefits. In proposing an alternative (or additional) safety net, it is important that the potential impacts on various groups be understood, especially for those currently receiving a level of support in excess of proposed basic income amounts.
This piece will intersect with poverty outcomes and overall costs, and aims to catalog and evaluate the current support systems in the U.S., identifying which programs will likely remain necessary under a UBI system to prevent a backslide in poverty outcomes.
3. What would UBI cost, and how can we pay for it?
In this article, I’ll explore how much UBI would cost in different implementations, and throw out ideas for how to pay for it. We know it’s going to be expensive, but there are a lot of ways to fill that gap, and I’ll examine a handful of different tax plans.
I’ll also review the work of Peter Barnes, who champions the idea of a public dividend, whereby profits derived from investments in public infrastructure or other commonly-owned assets are paid directly to the people. You can determine these common assets broadly, defining things like the value of the internet or the functioning of the economy as common assets that derive their value from the participation of the people. Define this broadly enough, and you’ve come back around to general taxation powers, but models like the Alaska Permanent Fund show an example of this idea working in practice.
Personally, I think the biggest value of this idea could be in reframing UBI as a profit share owned by all citizens, rather than a ‘giveaway to freeloaders.’ The communication strategy is nearly as important as the ideas! The public doesn’t call stockholders ‘freeloaders’ when they receive a dividend; why should we call citizens that when they share in common success enabled by their investment of human capital?
4. Can we trust people to spend money on the important things?
(Yes.)
This question tends to dishearten me, as it seems to be asked in bad faith. It conveys a patronizing perspective towards the poor, implying that they’re victims of their own bad choices and lack of discipline, and fails to acknowledge the harsh and structurally entrenched circumstances that come with the cycle of poverty. Still, that perspective often comes from a lack of understanding and not of malice, and it’s a question that will continue to get asked.
In this piece, I’ll summarize the available literature from direct payment studies and other cash transfer programs, both in the US and abroad, in order to lend as much empirical backing as possible to the argument that people are best equipped to identify their own needs, and are responsible in meeting them when given the resources to do so. Taking this point further, I’ll investigate the efficiencies we could see from individual decision-making, avoiding the potential deadweight loss of situations where more pressing needs may not be met because of pre-allocated program spending.
5. Labor Dynamics Pt. 1: Bargaining Power and Wage Growth
Aside from direct poverty reduction effects, this is the part of UBI that gets me the most excited. I like markets. I tend to believe that efficient markets tend to do a good job of allocating resources. But, markets are also vulnerable to imperfect information, market power, and externalities (costs that are borne by a party external to the transaction). Our current labor system is subject to a number of these forces, leading the market to settle at sub-optimal outcomes viewed from the perspective of society as a whole.
Ideally, equilibrium wages are achieved simply by having an employer and employee agree on a rate. But lacking a strong social safety net, low-wage workers can face a desperate situation. On average, the bottom quintile of earners has a significantly negative savings rate, with the difference made up through government assistance and increasing debt. Facing these circumstances, workers lose their bargaining power since they’re forced to accept whatever is being offered (especially in areas that have persisted at less-than-full employment). In addition, such low wages have externality costs borne by society. When workers are not paid subsistence wages, society must provide that support, subsidizing the wages of these employees while corporations maintain significant profits.
This study will investigate the effects that a UBI would have on wage-setting dynamics, working to test the hypothesis that workers with a stronger safety net will be in a better bargaining position, driving up low-level wages. Wages should increase by market power, rather than via direct controls like the minimum wage, and labor can be more efficiently allocated to productive uses. This will interact strongly with parts 2 and 3 of this question, and together, this represents one of the most complex and rigorous analyses I plan to undertake.
6. Labor Dynamics Pt. 2: Labor Force Participation and ‘The Lazy People’
Aside from “how much would it cost,” the question I get asked most often when talking about UBI is “wouldn’t everyone just stop working?” It’s a fair concern, since UBI does provide incentives in the direction of working less, and some people may choose to opt out of the labor force. The limited history of past UBI-style experiments doesn’t give us conclusive answers, but some experiments have actually shown increased work hours (mainly due to improved health). Still, some pullback is likely expected from a broad program.
The biggest question for me isn’t how much the LFP might drop, but what those people might be leaving the labor force to do. If people stop working to spend their day watching TV, that’s probably a negative. But it’s a misconception that UBI is ‘paying people to do nothing’. Instead, we’re paying people to free them from the drudgery of directionless jobs, allowing them to aim higher. If people leave their jobs to pursue other projects, explore starting companies, develop their communities, volunteer, raise their children, or spend time on other activities that constitute productive, but unpaid work, then we’re likely to see many positive societal effects in addition to potential economic benefits from better educational opportunities and health outcomes.
This piece will focus on the potential positive and negative effects of labor force shifts, and estimate the economic and societal impacts from those, keeping one eye towards Bobby Kennedy’s wise words about the limitation of GDP and the value of our society.
7. Labor Dynamics Pt. 3: What about those robots?
I tend to downplay the future of automation narrative, not because I don’t think it’s something to be concerned about, but because I think that UBI is something we need in the world that we already live in. That said, it is also likely that automation will erode more of the foundations of the labor market, even as overall economic productivity increases. Self-driving cars and trucks is the example cited most frequently as the harbinger of the new wave of joblessness, and not without cause (approximately 3.5 million jobs are in truck driving, with approximately 8 million more directly dependent on the industry).
In my first economics classes in high school, we learned that productivity increases were a great thing: we can make the same amount of stuff with fewer people, freeing up more of the economy to produce elsewhere. What they didn’t tend to emphasize as much was the disruption — the ‘creative destruction’ that resulted from upending industries. We want to encourage innovation that lets productivity increase; this is the biggest driver of the improvement in human welfare over the centuries. But it matters how that’s done. If we can cut the cost of trucking in half, other areas of the economy will flourish. But if this is accomplished by eliminating the jobs of millions and funneling the salaries that drivers used to earn into the hands of a very few, we’ve prioritized a narrow measure of economic health (overall output/costs) over the well-being of our citizens and our communities, furthering the frustration that has generated a backlash of anti-establishment political populism.
This piece will focus on the trade-offs of providing sufficient rewards to innovation against the human costs incurred by the system, and investigate the extent to which UBI can protect individuals and communities against disruption. Further, I’ll attempt to calculate the extent that the overall economy can improve as we all share in the rewards of growth, but the heftiest part of that falls to the next question…
8. How would UBI impact GDP?
A loaded question, in many ways predicated on the notion that we’re measuring the correct thing with GDP in the first place, but those concerns are best left for another piece. In order to win the support from a broader set of viewpoints, it’s important to investigate the broader economic effects under a UBI scenario from a traditional economic perspective, including projections for overall GDP, inflation, and other key indicators. My early hypothesis is that the additional consumption increases generated by the transfer of wealth from marginal savers to marginal spenders will be significant enough to grow the economy, but interactions will be complex.
I expect this to be the most complicated analytic piece of my work this year, and it will interact strongly with many other questions listed here, while also heavily depend on a set of assumptions that may be difficult to fully justify given the lack of information we have on market responses to a broad direct payment system. In effect, some of what we’ll be doing is guessing, but in as rigorous a way as possible.
I’ll be attempting to build a simple (I use the word ‘simple’ very loosely here) model of the overall economy, estimating the interactions that I expect to influence changes under various UBI systems. Because of the uncertainty about system responses under a broadly new policy schema, I will be very clear about the assumptions used to create this model, and further, provide a wide set of estimated outcomes using variances around all assumptions made.
All of this is easier said than done, but the goal is to get a basic framework up-and-running so that the model can be refined and re-estimated as we gain more information on key relationships through UBI experimental results or additional academic work. Several of the main relationships that the model will utilize are:
a. Increases in consumption from income redistribution
b. Possible inflation from increased consumption expenditures (regional impacts on housing costs are of particular concern)
c. Impact of higher taxes on income/business growth
d. Impact of potentially higher wages and/or lower labor force participation on business growth
e. Impact of social safety net on entrepreneurial expansion
There’s also going to be significant value generated in metrics not well-measured by the economy (e.g. rise in unpaid work like child care), but those will be discussed at length in other pieces, while this will focus on traditional economic measurement. Because of the interactions between this question and nearly every other, this is likely to be the last completed, and will be written as a more formal white paper and academic model, though I’ll be producing smaller pieces on Medium related to this as the work progresses.
9. How will UBI impact migration patterns?
A UBI could potentially revitalize places of the country that have seen significant job erosion, enabling residents to stay in their communities despite a lack of formal jobs, and some places could even see net migration reverse as people aim to take advantage of a low cost of living.
The opposite is also possible: people with a stronger guaranteed safety net might feel liberated to leave their towns in search of better opportunities, with basic incomes effectively working as a subsidy supporting migration to already-booming (and increasingly expensive) areas like Austin, the Bay Area, or New York.
Off the cuff, I’d wager for the first option, but it’s also hard to say without a basis to rigorously test these assumptions. This project will evaluate the ratio of wages to cost of living in cities around the country both before and after various UBI implementations, attempting to test incentives to move based on historic data, especially for instances where big changes in wages have spurred migration.
10. Do we need to worry about exploitation, like payday lenders?
At this point in my research, I think this question should take a backseat to more pressing concerns about overall system viability and expected economic impacts, but this was also the first question that came to my mind when I heard about UBI, and I think it’s worth at least a cursory look to make sure we’re not blind to some systematic risks.
Overall, the positive impact of UBI on poverty outcomes should be pretty straightforward, but do we risk financial exploitation of the poor when they own a guaranteed income stream? The payday loan industry, where borrowers take out very short-term loans on very high rates of interest, has had adverse impacts in impoverished communities in the last several years, leading to a comprehensive set of reforms proposed by the CFPB, but which have not incorporated into federal law due to intense lobbying pressure from the payday industry. With the CFPB targeted for ‘reform’ under a Trump presidency, these efforts expect to continue to face headwinds.
Conceptually, having guaranteed basic income should free many borrowers of the need to turn to predatory lenders to make rent, car, or utility payments, but the temptations to link loans to these guaranteed payments will be too great for an industry not known for strong ethical practices. While thinking about exploitation of UBI is sort of a ‘nice problem to have’ (since it implies we’ve successfully implemented UBI), it warrants investigating the best way to combine lending regulations with UBI implementations to prevent the most blatant abuses. This piece will address a few of the most obvious concerns, and propose basic policy structures intended to address these risks.
11. Visionary Time: What are some of the unmeasurable effects we could see on society, and why do we deserve UBI?
One of the tricky parts of UBI is that much of what it aims to provide to our society is not well measured by our current value systems. If I was reviewing a policy proposal blindly, where all I knew was that the impact on GDP was neutral and the impact on Labor Force Participation was negative, I’d probably say it wasn’t that great of an idea. The moral and/or ethical arguments for ensuring a basic standard of living are strong, but the standard economic toolkit isn’t well suited to measure the value generated . To estimate the effects of a UBI more broadly, we must set our sights on measuring well-being, looking to the work done by the Beyond GDP movement or the UN’s Happiness and Human Development reports.
The best outcome from my work would be to prove that even within the traditional economic value systems UBI would have positive results, but I won’t be surprised if those judgments are hard to pass, and that we have some ambiguity in the final results. The bigger questions will be outside of these systems, measuring the well-being of our people, the beauty of our creations, and the ability of our society to inspire. Optimism about the future is one of the biggest drivers of success, and it’s something that’s missing for huge swaths of the population right now.
Finally, I’d like to fight the misconception that UBI is paying citizens to do nothing. The grandness of the UBI idea is exactly the opposite: we want to pay citizens to liberate them from the drudgery and pessimism that they face today so they may reach higher, create more, and forge the great renaissance of the 21st century. We want the future to look back on our generation with awe as the one that had the vision to propel society forward, and who turned ‘Post-Work’ from a terrifying vision of long-term unemployment to the description of our golden age.
