QE for the people: Today and Tomorrow?

Thesis: While some say that a universal basic income would create the building blocks a more resilient economy, I believe (UBI) would be detrimental,

UBI necessitate a cut on social welfare programs

Whenever a plan for a UBI is brought to the forefront of discussion, a single question remains unanswered: How does one pay for it? Indeed, politicians and think tanks alike have created three separate funding mechanisms to fund the plan. The first is a tax-funded plan, where the entirety of the plan is funded based on income tax, industry tax, a value-added tax, or a combination of all three. While morally sound arguments can be made on how these taxes can be used to make industries and the wealthy pay “their fair share”, the implementation of a tax-financed program is dubious at best. A major problem comes in the form of Congress. While polls have shown that a sizeable portion of Americans to be supportive of such a program, its support on Capitol Hill has not progressed beyond the handful of progressive outliers. The truth is, a tax-financed UBI would likely never pass through the congressional floor, as Conservatives and moderates would have to vastly change their own viewpoints or their constituents’ to align themselves with such a policy. Thus, we come to the second venue of funding- an externally financed one. The concept of an externally financed UBI is not foreign. In fact, externally funded UBIs are in implementation across the world. For example, the Alaska Permanent Fund was amended into the Alaskan Constitution shortly after the rise of the oil economy. Even today, the APF distributes $1600 annually to every Alaskan resident. Globally, externally financed UBIs are currently in place in many parts of the world. Whether it is Kenya’s GiveDirectly program, where a charity has sent out monthly payments to 20,000 families for the last 12 years or India’s pilot project, where an UBI was given out to over 6000 citizens with funding given by UNICEF, an enternally funded basic income has been proven to be successful. However, is this a sustainable funding method for the entire United States? In essence, it would not possible. While the Alaskans enjoy their $1600 a year from the sizable profits of the oil industry and Indian citizens get monthly payments from the United Nations, there is no source of revenue large enough to fund an UBI for the entirety of the United States. The US does not have a predominant industry that can be used to provide the money, nor does it have a the backing of a global entity sympathetic towards giving out cash transfers to one of the world’s richest countries.

Another paragraph here about the development of UBI through different and what it will do the citizens

Unfortunately replacing means-tested welfare with a universal basic income would make recessions worse in two ways: The first is automatic stabilizers. In times of economic downturn, automatic stabilizers both serve to ease the financial stress on poor families and stimulate aggregate demand in order to boost the economy out of recession. Fortunately, our current means-tested welfare system and the safety net serve as automatic stabilizers for the economy, and that if we cut current programs by 0.6%, economic volatility would increase by 7% (Reis). The reason for this is that our welfare programs are an economic imperative to help the economy recover from the downturn by providing wealth to the poor and allowing them to spend in the economy. However, replacing these programs with a UBI would not make up for this effect. This is because a UBI is not an automatic stabilizer for the economy because it provides everyone a payment regardless of income, and thus, the UBI is actually an economic destabilizer. The second reason a UBi would make the recession worse is a economic Because cutting welfare programs would not be enough to fund a UBI with solely former welfare spending, Paulson ’18 of UPenn Wharton finds that the US would be forced to finance it through debt spending, quantifying that a UBI would increase the debt by 81% by 2032. Problematically, in times of need, high debt limits the government’s ability to jolt the economy out of downturn. Hatzius of Goldman Sachs explains that Congress will hesitate to pass fiscal stimulus in the next downturn because of a dramatically larger debt. Even worse, high debt prevents fiscal stimulus from being effective because the private sector responds by decreasing spending and precautionarily saving in anticipation of future tax increases. Overall, Romer, professor of economics at UC Berkeley finds in a study of 24 advanced economies that countries without fiscal space respond less aggressively to recessions, citing countries such as Greece and Italy in 2008 whose high debt limited their ability to use fiscal policy well This is why she concludes that countries without fiscal space experience recessions 5 times more severe. and longer-lasting. Thus the UBI presents itself as a lose-lose solution. In past recessions, government intervention prevented the Great Recession from becoming another Great Depression, concluding that the recession would have been 3 times deeper, 2 times longer, and destroyed twice as many jobs without the stimulus. Even worse, a deep US recession would spread worldwide.