The term “universal basic income” (UBI) has been showing up a lot lately. Once relegated to the realm of utopian pipe dreams, UBI has found its way into the mainstream discourse through small-scale trials of unconditional cash handouts currently taking place in countries as diverse as Finland, Kenya, and Canada, among others.
The concept behind UBI is appealing in its simplicity: Everyone should be entitled to a no-strings-attached minimum income. Those receiving this income are not required to report on their financial circumstances or on how they spend their money. They’re not required to attend job-seeker workshops or any other government initiative designed to make people “work-ready” (as is currently the norm in many welfare systems).
Free cash for doing nothing? Before dismissing such a program as the perfect recipe for disincentivizing work and encouraging laziness, consider the following:
In the developing world, providing people with a basic income has proven to be an effective method for poverty alleviation. This has led institutions such as the World Bank and the United Nations Development Programme (UNDP) to advocate for continued testing and implementation of basic income schemes.
Meanwhile, proponents in high-income countries argue that adoption of UBI is needed to protect the masses from widespread job losses currently being wrought by advances in the fields of artificial intelligence (A.I.) and automation. They claim that providing people with a basic income holds the potential to radically reduce levels of poverty and inequality in societies by solving many of the problems that plague current welfare systems.
The problem with existing welfare systems
There is mounting evidence to suggest that the conditionalities associated with claims to welfare can actually increase the time a person remains reliant on them. That’s right, forcing unemployed or underemployed people to constantly report their income, penalizing them for earning a higher income, or providing only work-based welfare can actually detract from their ability to overcome poverty.
One possible explanation for this phenomenon can be found in an emergent field of science concerned with the psychology of scarcity. Drawing from the fields of behavioral science and economics, Sendhil Mullainathan and Eldar Shafir of Harvard University have shown how scarcity can compromise an individual’s cognitive function and make them more predisposed to certain behaviors.
It’s not that poor people are inherently lazy, unmotivated, or stupid. Rather, it’s that poverty—regardless of who experiences it—causes a certain mindset. Mullainathan notes that one of scarcity’s most insidious effects is in how it enables mindsets that rarely consider long-term best interests. Coming up with answers to short-term dilemmas—such as “How will I feed my family?” or “How will I afford next week’s rent?”—demands mental precedence because failing to find a solution to such questions can pose an existential risk to someone experiencing poverty.
Addressing an individual’s fundamental financial needs has the potential to free up a large portion of mental bandwidth previously occupied by a condition of incessant poverty. In other words, removing the fear of destitution from the equation not only frees people to do work they find meaningful—it could potentially change the very way they behave.
With this in mind, we can see how jumping through bureaucratic hoops to receive welfare can tax the already stretched mental capacity of someone experiencing poverty. By attaching conditions that may be difficult to meet, unnecessary stress is placed on beneficiaries, which ultimately encourages a cycle of welfare dependency. The unconditional nature of UBI, in theory, could bypass these problems.
International aid and development
But how do we know that poor people won’t just waste the money given to them as part of UBI? To answer this question, let’s turn to the field of aid and development.
Recent research published in 2016, written by David Evans of the World Bank and Anna Popova of Stanford University, examined 19 studies from across the world where people had been given unconditional cash handouts. Contrary to popular belief, the report found that cash handouts had a significant negative effect on total expenditures on “temptation goods,” such as alcohol and tobacco. In turn, similar studies have shown how unconditional cash handouts can lead to better nutrition and health, improved school attendance, productive investments, and less risky sexual behavior among low-income families.
A brief history of nationwide basic income schemes
So, maybe unconditional cash handouts have proven to work on a small scale — but this would never be feasible at the national level… right?
Surprisingly, a form of basic income was nearly adopted on a countrywide basis in the United States as early as the 1970s. Though now unthinkable given the current domestic political environment, during the early days of the Nixon administration, poor American families were close to receiving an unconditional basic income. If passed, the legislation would have guaranteed a family of four $1,600 a year, equivalent to roughly $10,000 today when accounting for inflation.
The dogma that free money is bad solely because poor people have not worked for it still very much a part of our collective psyche. Holding onto this relic won’t do us any good given the kind of societal and technological upheaval we face.
On more than one occasion, the bill passed the White House with an overwhelming majority voting in favor, but due to disagreements between Democrats and Republicans over the scale and scope of the initiative, the policy floundered in the Senate. By 1978, Nixon’s Basic Income Bill had faded into obsolescence, but it shows that UBI has captured national agendas in the past—and can do so again.
The rise of autonomous labor
For those still unconvinced that giving people free money is a good idea, it isn’t just that UBI stands out as an appealing policy—in the face of pervasive technological disruption, it’s a policy we may have no choice but to adopt.
Developments in the use of A.I. and automation continue to unleash a whirlwind of societal change. This phenomenon is rapidly rendering human labor inert. According to some predictions, by 2030 the widespread adoption of A.I. will rupture the middle-class, and up to one-fifth of the global workforce will be replaced by robots.
Undoubtedly, however, if history has taught us anything it’s that industries that do not yet exist will produce new jobs we cannot yet imagine. Still, the rate of technological-induced job loss is staggering; people are being rendered jobless far quicker than new jobs are being created. A societal safety net must be established if we have any hope of protecting the masses from large-scale unemployment on the near horizon. Tech plutocrats like Mark Zuckerberg and Elon Musk have already warned us of this possibility.
How will we pay for it?
Evidently, the arguments in favor of UBI are manifold, but how much would such a scheme cost? Critics have argued that the price associated with nationwide rollouts of UBI would be impossible to meet, even if existing welfare budgets were reallocated, goods and services taxes (GST) were increased, and tax breaks were significantly curbed.
However, such arguments misconstrue the gross cost of UBI with the net cost. They make the mistake of assuming that the cost of UBI is equivalent to the payment given to the individual multiplied by the size of the population— and you don’t have to be a mathematician to see that, even for a small country, such a calculation would entail a hefty price tag. For a country the size of the United States, for example, estimates place this cost at over $3.4 trillion.
Unlike many other policies, however, UBI involves the government taking money in taxes and giving it back to the very same people in the form of an income. By contrast, most other welfare schemes are targeted at those who are not at the same time paying taxes to support them. UBI is unique in that the net contributors—those whose tax contributions support UBI—receive the same payment as poorer individuals who cannot contribute. For the higher earning, higher-taxed individual, UBI therefore operates as a kind of tax rebate because a segment of this person’s tax is being paid directly back to them in the form of an income.
Considering this dynamic of “taking and giving,” the real cost of UBI—the net cost—involves the amount of money the UBI transfers from one group of people to another plus the associated transaction cost. Karl Widerquist, associate professor of political philosophy at Georgetown University and co-founder of the U.S. Basic Income Guarantee Network (USBIG), estimates that if UBI were enacted in the United States, the net cost would be roughly equivalent to one-sixth of the gross cost. No doubt still a significant amount, but not in the same ballpark as figures popularly touted by politicians and economists.
An idea whose time has come
As a society, we are now more in need — but also more capable — of commencing large-scale UBI trials. The dogma that free money is bad solely because poor people have not worked for it still very much a part of our collective psyche. Holding onto this relic won’t do us any good given the kind of societal and technological upheaval we face.
Moving forward, we must continue to discuss the logic behind UBI, and we must make a concerted effort to establish state and nationwide trials of basic income schemes that will help to generate meaningful data.