Will Basic Income be Good for the Economy?
And what does ‘good for the economy’ actually mean, anyway?
We often hear people talking about what is or isn’t ‘good for the economy,’ without them being explicit about what that phrase actually means. What they’re usually referring to is merely whether something is good or bad for the GDP statistics that politicians and people in the media tend to obsess about.
The real economy, however, is not some abstract statistical concept. The real economy is the lives and interactions of millions upon millions of real people. Thus, the health of the economy is largely about the health and well-being of the people who live in it.
If people are doing well and we’re not destroying the environment, then we might reasonably conclude that the economy is doing well. And if people are doing badly — if their standard of living is falling — and we’re destroying the environment, then that basically means the economy is heading in the wrong direction, regardless of what official GDP statistics say. Economic growth, measured by rising GDP, is not the same as economic success. And we would be wise to always keep that in mind during any discussion about what is or isn’t ‘good for the economy.’
So, whether or not Basic Income will boost GDP is not the most important issue. Much more importantly, there are many reasons to believe Basic Income will be good for people, so it is reasonable to say it will be good for the economy.
But could Basic Income provide an ‘economic stimulus,’ if we decided that was what we wanted?
When an economy is in recession or experiencing sluggish growth, people often urge the government to provide some sort of stimulus to boost economic activity, boost economic growth, boost business profits and help get people back to work. In such circumstances, the government may cut taxes and increase spending as a way to try to boost demand and help accelerate the economy. Such a policy may be referred to as an ‘expansionist fiscal policy.’
We should bear in mind that there are doubts about how successful such stimulus measures are, but people do sometimes ask if Basic Income could provide this sort of economic stimulus.
It is important to appreciate that Basic Income isn’t primarily designed as a measure to provide a short-term stimulus, such as we might want to use to get us out of a recession, as it would be paid to people throughout the economic cycle and not just in times of recession.
It is entirely feasible, however, that the government could increase Basic Income payments, during a recession — perhaps only temporarily — in order to help increase demand and boost the economy.
Whether that would be the best option or not will depend on the circumstances. The government will have to evaluate that option quantitatively, using their latest computer-based model of the economy and all the up-to-date variables applicable at the time and in the specific economy in question. There’s no fixed answer. In some circumstances, the computer model will suggest that raising Basic Income might be the most effective way of boosting aggregate demand. At other times, other options may be predicted to produce better results. But raising Basic Income in times of recession is definitely a possibility.
It might also be that, by providing people with greater financial security at all times, a Basic Income system could make recessions less likely to happen in the first place — and less severe when we do have them.
Could Basic Income also boost GDP in the long-term?
It could. Basic Income would support people to be able to make better long-term career choices and to be able to take up educational and training opportunities. In this way, it could lead to greater productivity and increased production. The workforce may become better-educated and better-trained and people may be better motivated by being able to move to careers that really interest them.
Furthermore, Basic Income can improve work incentives by alleviating the poverty trap. Unlike with means-tested welfare payments, people won’t have their Basic Income payments reduced when they work more hours and earn more income. So they’ll no longer be disincentivised to find work or increase their working hours.
And Basic Income can boost enterprise by providing support for the self-employed. It could lead to the development of all sorts of interesting new goods and services — which may boost demand and boost GDP.
On the other hand, there are other mechanisms through which Basic Income might have the opposite effect. With a Basic Income to support them, some people will choose to work fewer hours or retire earlier. They may decide that they’d like to do other things with their lives, other than simply producing and consuming ever more ‘things.’ And this may depress the GDP statistics.
What will be the overall effect? The honest answer, I’m afraid, is that we don’t know. There are a lot of interacting factors in play. And we have rather limited data to work with, because no true Basic Income system has yet been implemented on a large scale. Even with more data, however, the overall effect in the long term would be beyond the capabilities of even the most sophisticated computer models to be able to reliably predict.
Ultimately, however, it may not especially matter. Not all economic activity is positive and beneficial. And we should certainly stop to question whether it’s actually in our interests to be continually striving for ever more and more economic activity and ever higher GDP.
In the long term, it is very possible that we might, on average, benefit from producing less and having more time for leisure, social, intellectual and cultural activities. Basic Income will potentially be an enabler of such change. And if these changes make us healthier and happier, Basic Income could quite reasonably be regarded as a huge economic success, even if it doesn’t boost our GDP statistics.