The political economy of a universal basic income.
So you should read these two posts by Max Sawicky on proposals for a universal basic income, because you should read everything Max Sawicky writes. (Oh wait. Two more!) Sawicky is a guy I often agree with, but he is my mirror Spock on this issue. I think he is 180° wrong on almost every point.
To Sawicky, the push for a universal basic income is a “utopian” diversion that both deflects and undermines political support for more achievable, tried and true, forms of social insurance.
My argument against UBI is pragmatic and technical. In the context of genuine threats to the working class and those unable to work, the Universal Basic Income (UBI) discourse is sheer distraction. It uses up scarce political oxygen. It obscures the centrality of [other] priorities…which I argue make for better politics and are more technically coherent… [A basic income] isn’t going to happen, and you know it.
I don’t know that at all.
Sawicky’s view sounds reasonable, if your view of the feasible is backwards looking. But your view of what is feasible should not be backwards looking. The normalization of gay marriage and legalization of marijuana seemed utopian and politically impossible until very recently. Yet in fact those developments are happening, and their expansion is almost inevitable given the demographics of ideology. The United States’ unconditional support for Israel is treated as an eternal, structural fact of American politics, but it will disappear over the next few decades, for better or for worse. Within living memory, the United States had a strong, mass-participatory labor movement, and like many on the left, I lament its decline. But reconstruction of the labor movement that was, or importation of contemporary German-style “stakeholder” capitalism, strike me as utopian and infeasible in a forward-looking American political context. Despite that, I won’t speak against contemporary unionists, who share many of my social goals. I won’t accuse them of “us[ing] up scarce political oxygen” or forming an “attack” on the strategies I prefer for achieving our common goals, because, well, I could be wrong about the infeasibility of unionism. Our joint weakness derives from an insufficiency of activist enthusiasm in working towards our shared goals, not from a failure of monomaniacal devotion to any particular tactic. I’ll do my best to support the strengthening of labor unions, despite the fact that both on political and policy grounds I have misgivings. I will be grateful if those misgivings are ultimately proven wrong. I’d hope that those who focus their efforts on rebuilding unions return the favor — as they generally do! — and support a variety of approaches to our shared goal of building a prosperous, cohesive, middle class society.
I think that UBI — defined precisely as a periodic transfers of identical fixed dollar amounts to all citizens of the polity — is by far the most probable and politically achievable among policies that might effectively address problems of inequality, socioeconomic fragmentation, and economic stagnation. It is not uniquely good policy. If trust in government competence and probity was stronger than it is in today’s America, there are other policies I can imagine that might be as good or better. But trust in government competence and probity is not strong, and if I am honest, I think the mistrust is merited.
UBI is the least “statist”, most neoliberal means possible of addressing socioeconomic fragmentation. It distributes only abstract purchasing power; it cedes all regulation of real resources to individuals and markets. It deprives the state even of power to make decisions about to whom purchasing power should be transferred — reflective, again, of a neoliberal mistrust of the state — insisting on a dumb, simple, facially fair rule. “Libertarians” are unsurpisingly sympathetic to a UBI, at least relative to more directly state-managed alternatives. It’s easy to write that off, since self-described libertarians are politically marginal. But libertarians are an extreme manifestation of the “neoliberal imagination” that is, I think, pervasive among political elites, among mainstream “progressives” at least as much as on the political right, and especially among younger cohorts. For better and for worse, policies that actually existed in the past, that may even have worked much better than decades of revisionist propaganda acknowledge, are now entirely infeasible. We won’t address housing insecurity as we once did, by having the state build and offer subsidized homes directly. We can’t manage single-payer or public provision of health care. We are losing the fight for state-subsidized higher education, despite a record of extraordinary success, clear positive externalities, and deep logical flaws in attacks from both left and right.
We should absolutely work to alter the biases and constraints of the prevailing neoliberal imagination. But if “political feasibility” is to be our touchstone, if that is to be the dimension along which we evaluate policy choices, then past existence of a program, or its existence and success elsewhere, are not reliable guides. An effective path forward will build on the existing and near-future ideological consensus. UBI stands out precisely on this score. It is good policy on the merits. Yet it is among the most neoliberal, market-oriented, social welfare policies imaginable. It is the most feasible of the policies that are genuinely worthwhile.
Sawicky prefers that we focus on “social insurance”, which he defines as policies that “protect[] ordinary people from risks they face” but in a way that is “bloody-minded: what you get depends by some specific formula and set of rules on what you pay”. I’m down with the first part of the definition, but the second part does not belong at all. UBI is a form of social insurance, not an alternative to it. Sawicky claims that political support of social insurance derives from a connection between paying and getting, which “accords with common notions, whether we like them or not, of fairness.” This is a common view and has a conversational plausibility, but it is obviously mistaken. The political resilience of a program depends upon the degree to which its benefits are enjoyed by the politically enfranchised fraction of the polity, full stop. The connection between Medicare eligibility and payment of Medicare taxes is loose and actuarily meaningless. Yet the program is politically untouchable. America’s upwards-tilting tax expenditures, the mortgage interest and employer health insurance deductions, are resilient despite the fact that their well-enfranchised beneficiaries give nothing for the benefits they take. During the 2008 financial crisis, Americans with high savings enjoyed the benefits of Federal bank deposit guarantees, which are arranged quite explicitly as formula-driven insurance. But they were reimbursed well above the preinscribed limit of that insurance, despite the fact that for most of the decade prior to the crisis, many banks paid no insurance premia at all on depositors’ behalf. (The political constituency for FDIC has been strengthened, not diminished, by these events.) The Federal government provides flood insurance at premia that cannot cover actuarial risk. It provides agricultural price supports and farm subsidies without requiring premium payments. Commercial-insurance-like arrangements can be useful in the design of social policy, both for conferring legitimacy and allocating costs. But they are hardly the sine qua non of what is possible.
Sawicky asks that we look to successful European social democracies as models. That’s a great idea. The basic political fact is the same there as here. Policies that “protect ordinary people from the risks they face” enjoy political support because they offer valued benefits to politically enfranchised classes of “ordinary people”, rather than solely or primarily to the chronically poor. Even in Europe, benefits whose trigger is mere poverty are politically vulnerable, scapegoated and attacked. The means-tested benefits that Sawicky suggests we defend and expand are prominent mainly in “residual” or “liberal” welfare states, like that of the US, which leave as much as possible to the market and then try to “fill in gaps” with programs that are narrowly targeted and always threatened. Of the three commonly discussed types of welfare state, liberal welfare states are the least effective at addressing problems of poverty and inequality. UBI is a potential bridge, a policy whose absolute obeisance to market allocation of resources may render it feasible within liberal welfare states, but whose universality may nudge those states towards more effective social democratic institutions.
It is worth understanding the “paradox of redistribution” (Korpi and Palme, 1998):
[W]hile a targeted program “may have greater redistributive effects per unit of money spent than institutional types of programs,”other factors are likely to make institutional programs more redistributive (Korpi 1980a:304, italics in original). This rather unexpected outcome was predicted as a consequence of the type of political coalitions that different welfare state institutions tend to generate. Because marginal types of social policy programs are directed primarily at those below the poverty line, there is no rational base for a coalition between those above and those below the poverty line. In effect, the poverty line splits the working class and tends to generate coalitions between better-off workers and the middle class against the lower sections of the working class, something which can result in tax revolts and backlash against the welfare-state.
In an institutional model of social policy aimed at maintaining accustomed standards of living, however, most households directly benefit in some way. Such a model “tends to encourage coalition formation between the working class and the middle class in support for continued welfare state policies. The poor need not stand alone” (Korpi 1980a: 305; also see Rosenberry 1982).
…
Recognition of these factors helps us understand what we call the paradox of redistribution: The more we target benefits at the poor only and the more concerned we are with creating equality via equal public transfers to all, the less likely we are to reduce poverty and inequality.
This may seem to be a funny quote to pull out in support of the political viability of a universal basic income, which proposes precisely “equal public transfers to all”, but it’s important to consider the mechanism. The key insight is that, for a welfare state to thrive, it must have more than “buy in” from the poor, marginal, and vulnerable. It must have “buy up” from people higher in the income distribution, from within the politically dominant middle class. Welfare states are not solely or even primarily vehicles that transfer wealth from rich to poor. They crucially pool risks within income strata, providing services that shelter the middle class, including unemployment insurance, disability payments, pensions, family allowances, etc. An “encompassing” welfare state that provides security to the middle class and the poor via the very same programs will be better funded and more resilient than a “targeted” regime that only serves the poor. In this context, it is foolish to make equal payouts a rigid and universal requirement. The unemployment payment that will keep a waiter in his apartment won’t pay the mortgage of an architect who loses her job. In order to offer effective protection, in order to stabilize income and reduce beneficiaries’ risk, payouts from programs like unemployment insurance must vary with earnings. If not, the architect will be forced to self-insure with private savings, and will be unenthusiastic about contributing to the program or supporting it politically. Other programs, like retirement pensions and disability payments, must provide payments that covary with income for similar reasons.
But this is not true of all programs. Medicare in the US and national health care programs elsewhere offer basically the same package to all beneficiaries. We all face the same kinds of vulnerability to injury and disease, and the costs of mitigating those risks vary if anything inversely with income. We need not offer the middle class more than the poor in order to secure mainstream support for the program. The same is true of other in-kind benefits, such as schooling and child-care, at least in less stratified societies. Family cash allowances, where they exist, usually do not increase with parental incomes, and so provide more assistance to poor than rich in relative terms. But they provide meaningful assistance well into the middle class, and so are broadly popular.
Similarly, a universal basic income would offer a meaningful benefit to middle-class earners. It could not replace health-related programs, since markets do a poor job of organizing health care provision. It could not entirely replace unemployment, disability, or retirement programs, which should evolve into income-varying supplements. But it could and should replace mean-tested welfare programs like TANF and food stamps. It could and should replace regressive subsidies like the home mortgage interest deduction, because most households would gain more from a basic income than they’d lose in tax breaks. And since people well into the middle class would enjoy the benefit, even net of taxes, a universal basic income would encourage the coalitions between an enfranchised middle class and the marginalized poor that are the foundation of a social democratic welfare state.
Means-tested programs cannot provide that foundation. Means-tested programs may sometimes be the “least bad” of feasible choices, but they are almost never good policy. In addition to their political fragility, they impose steep marginal tax rates on the poor. “Poverty traps” and perverse incentives are not conservative fever dreams, but real hazards that program designers should work to avoid. Means-tested programs absurdly require the near-poor to finance transfers to people slightly worse off than they are, transfers that would be paid by the very well-off under a universal benefit. However well-intended, means-tested programs are vulnerable to “separate but equal” style problems, under which corners are cut and substandard service tolerated in ways that would be unacceptable for better enfranchised clienteles. Conditional benefits come with bureaucratic overhead that often excludes many among the populations they intend to serve, and leave individuals subject to baffling contingencies or abusive discretion. Once conditionality is accepted, eligibility formulas often grow complex, leading to demeaning requirements (“pee in the bottle”), intrusions of privacy, and uncertain support. Stigma creeps in. The best social insurance programs live up to the name “entitlement”. Terms of eligibility are easy to understand and unrelated to social class. The eligible population enjoys the benefit as automatically as possible, as a matter of right. All of this is not to say we shouldn’t support means-tested programs when the alternative to bad policy is something worse. Federalized AFDC was a better program than block-granted TANF, and both are much better than nothing at all. Medicaid should be Medicare, but in the meantime let’s expand it. I’ll gladly join hands with Sawicky in pushing to improve what we have until we can get something good. But let’s not succumb to the self-serving Manichaeanism of the “center left” which constantly demands that we surrender all contemplation of the good in favor of whatever miserable-but-slightly-less-bad is on offer in the next election. We can support and defend what we have, despite its flaws, while we work towards something much better. But we should work towards something much better.
I do share Sawicky’s misgivings with emphasizing the capacity of a basic income to render work “optional” or enable a “post-work economy”. Market labor is optional for the affluent already, and it would be a good thing if more of us were sufficiently affluent to render it more widely optional. But securing and sustaining that affluence must precede the optionality. Soon the robots may come and offer such means, in which case a UBI will be a fine way to distribute affluence and render market labor optional for more humans than ever before. But in the meantime, we continue to live in a society that needs lots of people to work, often doing things they’d prefer not to do. Sawicky is right that workers would naturally resent it if “free riders” could comfortably shirk, living off an allowance taken out of their tax dollars. A universal basic income diminishes resentment of “people on the dole”, however, because workers get the same benefit as the shirkers. Workers choose to work because they wish to be better off than the basic income would allow. Under nearly any plausible financing arrangement, the majority of workers would retain value from the benefit rather than net-paying for the basic income of others. Our society is that unequal.
Like the excellent Ed Dolan, I favor a basic income large enough to matter but not sufficient for most people to live comfortably. The right way to understand a basic income as a matter of economics, and to frame it as a matter of politics, is this: A basic income serves to increase the ability of workers to negotiate higher wages and better working conditions. Market labor is always “optional” in a sense, but the option to refuse or quit a job is extremely costly for many people. A basic income would reduce that cost. People whose “BATNA” is starvation negotiate labor contracts from a very weak position. With a basic income somewhere between $500 and $1000 per month, it becomes possible for many workers to hold off on bad deals in order to search or haggle for a better ones. The primary economic function of a basic income in the near term would not be to replace work, but to increase the bargaining power of low income workers as a class. A basic income is the neoliberal alternative to unionization — inferior in some respects (workers remain atomized), superior in others (individuals have more control over the terms that they negotiate) — but much more feasible going forward, in my opinion.
[…] 19, 2014 by Mark Thoma Since I posted the original, it's only fair to post the response: The political economy of a universal basic income, by Steve Waldman, Interfluidity: So you should read these two posts by Max Sawicky on proposals for a universal basic income, […]
September 19th, 2014 at 7:47 am PDT
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If you structured it as a stipend paid to all adults, I definitely think that’s the case. The threshold at which people start asking for more leisure hours in lieu of more pay is going to be much higher than any realistic basic income stipend amount, so odds are that your person getting a $10,000/year stipend will still opt to work for $25,000/year (the median individual income from the 2012 SSA data I’ve seen) so they can enjoy $35,000/year in terms of consumption.
September 19th, 2014 at 8:07 am PDT
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I would appreciate clarification of the statement “…unemployment, disability, or retirement programs… should evolve into income-varying supplements…”.
September 19th, 2014 at 8:31 am PDT
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I would like some help with the math behind the statements “…people well into the middle class would enjoy the benefit, even net of taxes…” and “Under nearly any plausible financing arrangement, the majority of workers would retain value from the benefit rather than net-paying…”
U.S. National Income is about $17 trillion. If we assume a basic income of $10,000 paid to 200 million people (apprx. number of adults) that is $2 trillion. So that means total taxation equal to 12% of National Income. Now, that is the gross tax increase – what would be the *reduction* in required taxes due to the reduction and elimination of other transfer programs? Would the *net* increase in taxation allow all of the increase to be allocated to those above the middle class? If so, what would be the increase in tax rate for X% of the population above middle class?
September 19th, 2014 at 8:49 am PDT
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How does a universal basic income address an incomplete marketplace for services? How does it address the lack of economic participation of individuals in many parts of the U.S.? Where would the money for basic income come from? How does basic income address the remaining output gap which precious few wish to do anything about? This is a frustrating way to approach the vital issue of economic access.
September 19th, 2014 at 8:49 am PDT
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Money itself is not nutritious and won’t keep you warm unless you burn the bills. It is power to access a portion of natural wealth which is shrinking daily. Peak oil, peak soil, peak aquifers, peak fish, declining pollinators, increased toxicity of everything humans need…means that the average slice of that insufficient pie shrinks while 220,000 +- net additional slices are sought daily.
Distributing buying power changes the relative mix, but equally insufficient slices would mean everyone suffers and eventually dies prematurely. Nature doesn’t permit that, and we are part of nature. Population will likely reverse its growth this century via increased mortality rates. The weakest link breaks the chain, and there are many.
September 19th, 2014 at 8:51 am PDT
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One final question. I’m intrigued by the UBI alternative, but wonder about implementation. It would represent a large step function. Has anyone written about the very important topic of implementation / transition?
If UBI were implemented suddenly, it would cause major dislocations. A large percentage of the population may see a large spike in income. Would much of this increase be simply captured as a windfall by various interests? Landlords come to mind. They would certainly raise rents in response and in proportion, since supply takes years to react.
What about inter-generational considerations? Do retirees on social security also get UBI?
Is the program phased in?
September 19th, 2014 at 9:00 am PDT
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Using the quick turn around of popular preferences
For
Black civil equality
Gay marriage
Legal weed
As a basis for a quck turn around on UBI
Suggests the corporate board rooms that ultimately pull the big media strings
would view this reform much like the others
I don’t think so
If we white norte Amigos have a national ethic
It’s the job ethic
Sooooo
Tie your UBI into the life long job time registration
implicit in the social scurity systems existing retirement accounting
An EARNED social dividend
Based on life time contributions of job time
The fact we have accounts of time X wage rates
Suggests a result weighted by value of work as well as time
I suspect up to the ceiling now in place we ought to continue to reward on this same basis
Corporate amerika will love the notion
We weebles must sell our time to them to get in on the universal bonus plan
September 19th, 2014 at 9:16 am PDT
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The helicopter drop
Is the nasty name for any monetized transfer payment system
And this is intentionally debunking the process
Calling any transfer pattern
“the macro equivalent ”
of random dollar dumps from the sky
Purposefully avoids the key selling point
Uncle Returning some of the life time dollars sent in to him out of say the payroll stream
No political economist with pretensions to macro expertise ever suggests
The mythic helicopter drop won’t increase effective demand
But they surely will battle by the thousands against any automatic transfer system
Based on pay in to Uncles SSA
Installed to stabilize demand
as opposed to one that simply quater in quater out pays a fixed periodic payment
To jobblers we
September 19th, 2014 at 9:26 am PDT
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Now that health payments are headed. … albeit in a blind back and forth stagger….
Toward a single payer NON job connected system
Corporates need another equally strong source of job seeking urgency
UBI is quite obviously not that
I propose to the limited liability board room brats
A swap here
universal earned social dividend
fixed in amount and periodic in pay out
For
universal single payer health
September 19th, 2014 at 9:37 am PDT
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Sawicky is right in more ways than one. UBI does not generate any political power. Re-unionization OTW would not only supply the ability to extract the max price for labor _from the consumer_ — which in any case is the max it is possible to pay labor — but would also refill the 99%’s vacuum of political muscle, meaning financing and lobbying, equal to the 1%’s to go our 99% of the votes.
Re-unionization only way to go. Forget about toothless expedients like card check — most any union still hanging on today is subject to the race-to-the-bottom formula: e.g., good, formerly middle class supermarket jobs gutted by Walmart paying employees less to do the same work.
Only workable way to re-unionize is to adopt the labor market system perfected by the most successful union in America, the Teamsters (National Master Freight Agreement), and the most successful economy in Europe, Germany (legally mandated centralized bargaining) — along with continental Europe in general and French Canada and Argentina and Indonesia — proved successful in preventing the race-to-the-bottom since instituted in Europe post-WWII.
I saw a show on FDR last night where they mistook Social Security retirement to be more important than empowering workers to organized unions. Wrong for the same reason.
(In post war Europe, for reasons I don’t understand, centralized bargaining [a.k.a., sector wide labor agreements] was introduced by the [presumably right wing] industrialists to fend off a labor union race-to-the-top which would have sucked too much money away from re-building. Britain didn’t adopt which is why Britain fell behind according to one progressive economist.)
September 19th, 2014 at 10:44 am PDT
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Couple a UBI with a phased in lowered minimum wage and it could gain some business endorsements.
September 19th, 2014 at 10:46 am PDT
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@Denis Drew: “UBI does not generate any political power.”
You are totally correct that it does not generate the de-atomization, collective-bargaining, association power that unions do.
But money is power — not only politically, but in the power dynamic of the market. (If wealth/income is less concentrated, the market will respond by developing and providing more goods that are of value to the less wealthy, so those goods will be more available, at lower prices.) So distributing money distributes power.
September 19th, 2014 at 10:57 am PDT
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More: I’ve semi-joked that if wealth and income were, had been, even more concentrated, Apple would have found it most profitable to produce diamond-studded iPhones for $1,200 — opting for margins from the rich rather than volume from the less-rich.
I find it significant that the 6 is available in a gold-plated version.
September 19th, 2014 at 11:00 am PDT
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“the more concerned we are with creating equality via equal public transfers to all, the less likely we are to reduce poverty and inequality”
You rightly highlight “to all” in this passage. Are they mis-speaking here, contradicting their own findings?
September 19th, 2014 at 11:04 am PDT
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The problem neoliberalism and all liberalism is the tabula rasa fantasy.
The function of a minimum income as a price floor against labor exploitation is indeed sound. But many if not most poor people will not have the rational ability to manage their money. For them, a Section 8 voucher is necessary as if the state simply gave them the cash, they would spend it on drugs or alcohol. This example can be replicated across the welfare system.
There will always be inequality because humans are born unequal. The question is how do provide proper stewardship of our less able citizens that is human and dignified. What of the question of social belonging? There is much work that those of meager ability can do to make the world a beautiful livable place, but which atomized consumers don’t “demand” – gardens, landscaping, and so on.
The UBI is necessary to curb the influence of those who subsist on economic rent, but it won’t solve the social dysfunction of those with limited intellectual ability and there is a very real chance it will exacerbate problems.
September 19th, 2014 at 11:46 am PDT
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UBI + open borders = a unicorn that everyone in the world can ride to the moon!
September 19th, 2014 at 1:34 pm PDT
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Thanks for the plugs. There’s a lot here to digest. I’ll try to respond by Sunday night.
September 19th, 2014 at 1:36 pm PDT
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Another big pro of UBI over unions– it would quickly accelerate automation. Instead of empowering massive organizations who must “save their jobs,” destroying them becomes the point. So long as UBI scales with, say, productivity
September 19th, 2014 at 2:25 pm PDT
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While I expect neoliberals to find this to be the least objectionable, I still doubt they would support it. This is like healthcare – this is how to do it, and hell no we won’t. Now giving the poor the option to work or starve, that is something they could get behind.
September 19th, 2014 at 2:25 pm PDT
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Who wouldn’t jump on a deal where you’ve outsourced a non-trivial slice of your wage cost to the public fisc?
All the benefits of repealing the 13th amendment with none of the unpleasant….overtones.
September 19th, 2014 at 4:17 pm PDT
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[…] The political economy of a universal basic income Steve Waldman. You should read everything Waldman writes if you don’t already. […]
September 20th, 2014 at 3:56 am PDT
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Excellent.
September 20th, 2014 at 4:48 am PDT
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Did Denis Drew actually give Argentina as an example of a success story?
September 20th, 2014 at 7:21 am PDT
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Davis X. Machina,
May I suggest not holding policy positions based on hatreds? Yes, I know the old saying that “politics is the art of marshalling hatreds” and I know it’s sadly too true today in the U.S.
It appears you’re expressing the common left-wing hatred of “the corporations” (I agree they currently have too much political, economic, and social power), but by focusing on the possibility that some policy could lead to lower wages paid by some companies, you’re unable to consider that the policy may be very good.
First of all, it would seem to me that in order for the benefits of UBI to be shared broadly, most of the new net taxation must fall on those with very high incomes or very high wealth. Since a large majority of income to very high income people comes from ownwership of capital, then the beneficiaries of capital, including owners of corporations, will pay higher taxes to support the UBI (that may result in somewhat lower wages, in theory, for some, though those people would still see a large net increase in their income).
September 20th, 2014 at 7:29 am PDT
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Mercury writes: UBI + open borders = a unicorn that everyone in the world can ride to the moon!
UBI would face the same issues all of the social programs face, including our medical system. It does not seem to create a new problem or risk w.r.t. incentives to immigrate in order to collect government benefits. Also, though the left wouldn’t like it, a final UBI would probably include a delay in benefit collection based on duration of legal residence prior to citizenship. (However, it would be problematic for those who gain citizenship via birthright and via marriage, since UBI could create unwanted incentives there.)
September 20th, 2014 at 7:33 am PDT
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At the end of the day, I just find the motivating philosophy behind the UBI objectionable. The nation’s output is generated by the work of its people. I just can’t see why we should accept the idea that an able-bodied individual is entitled to some share of that output with no formal balancing requirement to contribute something back to the combined national work effort. To me, that kind of measure sends a terrible message about the basis of social obligation and is a further step in the disintegration of national solidarity. I know philosophical principles have to be weighed against practicalities, but we do have to think about the weigh policies impact people’s self understandings and moral outlooks.
And economically, the UBI seems to me to move in the wrong direction. The economic argument for it is based on the idea that socioeconomic progress depends only on some amorphous lump of demand, and that we can eliminate stagnation if we just move the demand blob around and give it a smoother distribution. That might help, but I think it is terribly inadequate to the challenges of our time.
US government consuption and gross investment has fallen from over 18% in 1953 to a little over 8% now. This is a key factor in explaining our persitent sluggishness and stagnation. There is simply no basis for thinking that private sector enterprise has ever been capable of generating adequate employment opportunities on its own, no matter how the purchasing power blob is distributed over the population.
By “adequate”, I don’t just mean adequate to employ everyone who happens to wants a job, but adequate to generate the kind of growth and progress we actually need. Our country – and the developed world in general – are stagnating. We have a long list of 21st century challenges to meet that are not being well enough or quickly enough. We are wasting our resources on consumerist ephemera and leaving other resources unemployed altogether. The most important of these resources is people. We need more people working not fewer. And we need to move many people into different kinds of work.
Also sustained unemployment leads to a long-term deterioration of workplace skills. We’re destroying our human capital, and this will not improve under UBI. We also have a political breakdown in the Unitd States. Part of that breakdown is due to the fact that we have destroyed the social contract and fomented class animosity among the middle class, the working poor and the unemployed. This has led to a crisis-level collapse of national solidarity, solidarity without which a democracy can’t function. That’s why approval of Congressional approval is at a persitant all-time low. Animosity toward Congress is a reflection of animosity toward our fellow citizens. We need to build teamwork, and the way you do that is by organizing work around large national and global goals and projects.
Look at the history of the great twentieth century technologies – radio, television, aviation, computers, telecommunications, for example. Almost all of them were developed with very strong government financial support and research programs. In most cases, military needs and funding played a large role. The myth of laissez faire America innovating its way to wealth and technologically advanced prosperity on the strength of freedom and a few good entrepreneurial ideas is just that – a myth. Progress was driven in the 20th century by assertive nation-states determined to develop and modernize themeselves, and implementing strategic plans to do so. That’s where we should be going. Europe needs to do the same thing. It is a crime against humanity and the future that with such a huge array of challenges in front of us – challenges calling for transformational overhauls in the ways we generate and distribute energy, the ways we transport ourselves from place to place, the way we house ourselves and network our housing, the ways we educate ourselves throughout the human lifetime, the ways we organize and allocate the delivery of health care, and even the ways in which we deliberate and aggregate the results of deliberation into political decisions – we have allowed a generation of our most energetic people to wallow in unemployment. Let’s get busy and put people to work.
We need a larger public sector role: more strategic economic planning; more public financing of large transformative projects; more public sector employment. UBI goes in exactly the wrong direction.
September 20th, 2014 at 8:24 am PDT
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Re In addition to their political fragility, [means-tested] programs impose steep marginal tax rates on the poor. … Means-tested programs absurdly require the near-poor to finance transfers to people slightly worse off than they are.
This blog did not discuss the “pay for” issues in depth, but you can make the “pay for” as progressive as you like. For example, given our current slack economy, a $250 billion means-tested BIG program could be “paid for” with deficit spending, with no additional taxes required.
As long as we are playing god, we could also get rid of the FICA tax and get rid of the income tax below say the median income.
A universal BIG might cost around $2.5 trillion, which would require substantial new tax revenues to “right size” the budget deficit. No discussion of a UBI is complete without explaining how you are going to pay for the program. If paid for with regressive taxation, then a UBI might actually worsen inequality.
I get what Waldman is saying about political support — universal benefits like Social Security have more political support than means-tested benefits. But that hasn’t stopped the oligarchs from attacking SS & Medicare. Cuts have already been made and we can expect more cuts in the future. Likewise there have been cuts to pensions and health care in the EU. So universality is no guarantee of political sustainability in an oligarchy.
To me, a means-tested BIG makes more economic sense than a UBI. It may be that a UBI is more politically viable, but right now I don’t see the oligarchs supporting either program — except possibly to replace the existing weak safety net with a starvation level UBI as a cost saving measure.
We don’t know what is politically sustainable in a real democracy with a progressive tax system because we in America have never had a real democracy. I think it is premature to talk about political sustainability of a given program until we first replace our oligarchy with a real democracy. Just my 2 cents.
September 20th, 2014 at 9:03 am PDT
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I have some thoughts here: http://slackwire.blogspot.com/2014/09/why-not-just-mail-out-checks.html
Seems like we should distinguish the “universal” and “income pieces. There are two dimensions here that vary independently. The state can provide some public good directly, or can mail out checks; and in either case, it can do so for everyone equally or on a means-tested basis. I think your arguments here against means-testing are very strong. But that doesn’t settle the question of whether more or less provision through markets is desirable.
September 20th, 2014 at 10:50 am PDT
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Pretty much. “X is better than Y, but Y is more achievable so everyone should shut up about X” isn’t even an argument. It’s a nonsequitur posing as hard-nosed realpolitik.
September 20th, 2014 at 12:50 pm PDT
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I suggest here a different issue, which I also raised on Max’s blog.
If you wish to ease the burdens of the poor/ill/aged, you must give them money you are NOT giving to everybody else. It has to be a redistribution of some kind. Otherwise, after some period of stimulus, we will surely find that inflation has eaten away the UBI benefit such that it buys nothing or next to nothing. And one’s real share of economic output will be money-UBI.
Because such aid has to be redistribution, the body politic will have a finite tolerance for it, and insist on controlling its magnitude and purposes. If simple cash grants were really what people wanted to give the poor they would have replaced specific (in-kind) grants long ago.
People in general (as well noted above and elsewhere) don’t want to see money handed out to “the poor” for nothing without cause. And hence will always be much happier seeing money to support a truly disabled person rather than flat cash for people who “just can’t get out of bed” Never mind whether such grants would actually encourage lazyness, they clearly create ire in the politic.
September 20th, 2014 at 2:21 pm PDT
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I read a lot of interesting articles here. Probably you spend a lot of time writing, i know how to save you a lot of work,
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September 21st, 2014 at 3:30 am PDT
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[…] Randy Waldman of the interfluidity blog pulls me back into Universal Basic Income (UBI) land. I appreciate the compliments, but let’s get to the […]
September 21st, 2014 at 3:15 pm PDT
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SRW,
Terrific piece with traction on left and right.
Parables of the “talents” in the New Testament (Matthew 25:14-30; Luke 19:12-28 are a powerful confirmation of the need for an economy to provide for workers along a broad spectrum.
An added bonus to your plan is that it would cost JP Morgan.
http://www.bloomberg.com/video/57038578-jpmorgan-s-paton-discusses-u-s-food-stamp-use.html
September 21st, 2014 at 5:04 pm PDT
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OT, I’m guessing a UBI between $500 – $1,000/month would cost somewhere between $2 and $4 trillion. I’m ball parking US GDP at around $16 trillion annually.
Would be a terrific experiment to see where (if any) you get any sustained demand-pull inflation (too many dollars chasing too few goods.). Food, housing, vehicle sales, all those markets have lots of slack among low-income households. If automation, other productivity improvements eliminate most of the demand-pull inflation, is that sufficient cause to call it a success and stick with it?
Upper income earners are going to save this money, or pay off debts. I’d be anxious to see if there’s any demand-pull inflation from them.
OT, take sex workers as just one example of a group of workers who this would really help. This monthly check could help them be more selective about clients.
A lot of this money will go to debt collectors and casinos. Nothing you can do about that, but both are powerful political allies.
September 21st, 2014 at 7:50 pm PDT
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[…] From Steve Waldman at Interfluidity: […]
September 21st, 2014 at 8:23 pm PDT
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Dan Kerwick @27
”
At the end of the day, I just find the motivating philosophy behind the UBI objectionable. The nation’s output is generated by the work of its people. I just can’t see why we should accept the idea that an able-bodied individual is entitled to some share of that output with no formal balancing requirement to contribute something back to the combined national work effort. To me, that kind of measure sends a terrible message about the basis of social obligation and is a further step in the disintegration of national solidarity. I know philosophical principles have to be weighed against practicalities, but we do have to think about the weigh policies impact people’s self understandings and moral outlooks.”
I think this is wrong headed. It feeds back to accepting a philosophical position that the national capital belongs not to a nation of individuals but to particular individuals (if you like the Libertarian view). I like to call this not a basic income, but a national dividend. There is no guarantee that individuals (particularly in the future) will be able to earn a living alone from selling their labour. But the capitalist system that they as citizen’s implicitly support through their consent to a set of laws and customs can only reasonable continue to receive their support, if it can be seen to be supporting their own individual existance. If you like this is the rent that the winners pay to support the continuance of the system that they successfully exploit.
The mistake you make is in this sentence :
” The nation’s output is generated by the work of its people.”
Not only!
September 22nd, 2014 at 2:28 am PDT
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Guaranteed employment, with a substantial minimum wage, where government will subsidise the wages on a sliding scale (i.e. if the employer puts up more, the government subsidy decreases by less than that) seems to be a better idea than a UBI.
September 22nd, 2014 at 7:14 am PDT
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At the end of the day, I just find the motivating philosophy behind the UBI objectionable. The nation’s output is generated by the work of its people. I just can’t see why we should accept the idea that an able-bodied individual is entitled to some share of that output with no formal balancing requirement to contribute something back to the combined national work effort.
Should all 16 year olds be required to work? How about 14 year olds? 19-year olds? Full time college students?
Should parents who wish to support their children be prohibited from doing so?
Should 65 year olds be required to work, if they are physically capable of doing so? How about 75 year olds? 85 year olds?
Should someone who wishes to retire early and live off their private savings or pension be permitted to do so?
Should anyone be permitted to live off their savings or investment income?
Should people be allowed to take leave from work when they have young children or other family members who need full time care?
If one spouse wishes to stay home full time with children (or for some other reason), should the other spouse be prohibited from supporting them?
If someone can’t find a job that fits their skills and circumstances, how long are they permitted to look for a better one?
If someone wants to pursue some currently unremunerative activity in the hopes of eventual success — say writing or performance of some kind — how long should they be permitted to do so?
And if someone who you think should be working is not doing so, what should happen to them? Should they be shot? Jailed? Kicked out of their homes and denied food and medical care? Or just viewed with disapproval?
The thing about Dan Kervick’s statement I quoted above is that he doesn’t mean it. What Dan actually means is that he approves of claims on the social product based on property ownership, or on family ties, or on membership in some approved class of nonworkers like retirees, students, perhaps homemakers. He says: No one should have a claim on society except through labor. But what he really means is: No one should have a lcaim on society except through property.
September 22nd, 2014 at 7:40 am PDT
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A close reading of this essay suggests that some part of the cost of the proposed UBI would be defrayed by elimination of the mortgage tax deduction. Further cuts in tax expenditure are also contemplated, briefly; this would result in a reduction of the economic distortion inherent in the current tax system, which is desirable.
September 22nd, 2014 at 8:52 am PDT
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I’ve had a go discussing the idea of a UBI (I like the term “citizen’s dividend” more though) with very right wing types in the context of discussions about what might happen if robots replace the need for human workers. Just as Steve R Waldman says, in my experience, right wing types have been VERY much more receptive to the UBI idea than to more micro-managed state provisions.
I wonder whether the real barrier to the UBI is actually the self interest of the state bureaucracy. A sad reality is that many peoples’ careers depend on their being enough broken, helpless, downtrodden poverty victims. The UBI empowers all the people, enables them to sort themselves out by themselves and bypass the welfare bureaucracy. Prisons might end up needing to close etc etc.
September 22nd, 2014 at 2:16 pm PDT
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I have formulated a polity based on UBI and public resource taxation (land, money)
http://wealthoflabour.wordpress.com/2014/07/25/a-wealth-of-labour-manifesto-2/
September 23rd, 2014 at 3:53 am PDT
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In reply to Dan and supporting JW Mason, consider a primitive society and the “real” (as against the classical Liberal/Libertarian fantasy) basis of “natural” rights (think about the way a Chimpanzee might the world). Property, for a social animal, to the extent that it exists, exists because of the ability of the group to defend resources. This defence is a joint effort, and the result of the joint effort is joint property, that will shared on the basis of social interaction within the group. Humans started the same way. But not everybody was a good hunter, not everybody could or would work the land. But their claim on some part of those joint group resources, none the less remains (especially if, as non-farmers they are releasing more resources for others).
There is a commons, and it is valuable, and shouldn’t be privatised for free.
Sure I think that migrants, would need to complete some sort of qualifying hurdle before they would have an entitlement.
But your idea about everything being the result of work, I think is Marxist influenced bunk. Knowledge counts, resources count, culture counts, organisation counts.
September 23rd, 2014 at 6:12 am PDT
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And my big plus for a national dividend (and yes I prefer that term as well) is that it gives everybody a stake in the “general good”. Instead of the general good being seen as a competing interest.
September 23rd, 2014 at 6:18 am PDT
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As others have asked, where would the money come from?
I am in favour of basic income, but the idea of paying, say 90+% of it to people who don’t need it, and then taxing it back in some way seems inefficient to me. My suggestion is therefore that basic income be made conditional on agreeing to perform some small amount of community service work if requested, in order to deter the better off from claiming basic income. For example, in the UK, where the job seeker’s allowance is £72.40 per week and the minimum wage £6.31 per hour, receiving basic income could be made conditional on standing ready to do eleven hours per week of community service (eg litter picking, shopping for the house-bound etc) at the minimum wage if called. That is not much of a compromise of the universal principle for I would envisage would be a large reduction in round-tripping – I cannot imagine that many even moderately-paid full-time workers would risk being called to do eleven hours extra work at the minimum wage (and if they did for public service reasons, good luck to them).
September 24th, 2014 at 4:03 am PDT
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Tim,
“(Federal) Taxes for Revenue Are Obsolete”
http://www.huffingtonpost.com/warren-mosler/taxes-for-revenue-are-obs_b_542134.html
Wall Street’s already figured this out: “Bank Of America Dumps $75 Trillion In Derivatives On U.S. Taxpayers With Federal Approval”
http://seekingalpha.com/article/301260-bank-of-america-dumps-75-trillion-in-derivatives-on-u-s-taxpayers-with-federal-approval
To put $75 trillion in perspective, US GDP in 2012 was around $16.5 trillion. We blew a lot more than the $6 trillion they’re claiming in Iraq and Afghanistan. Social Security’s Trust Fund is around $2.3 trillion. Bank of America is just one Wall Street bank. They all have derivative exposure. I’ve seen estimates of $700 trillion, but I don’t think anyone knows.
For more on this follow the Modern Monetary Theory hashtag, #MMT . I especially recommend @wbmosler .
September 24th, 2014 at 7:52 am PDT
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Tim Young
“I am in favour of basic income, but the idea of paying, say 90+% of it to people who don’t need it, and then taxing it back in some way seems inefficient to me.”
Ever heard of computers? They make simple repetitive things cheaper than complicated conditional things. More than that, almost costless.
September 24th, 2014 at 7:53 am PDT
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SRW,
Another great part of your proposal, if it ever got passed, it’s got a great built-in feed-back loop. The geniuses in the White House’s “Information and Regulatory Affairs Office,” would have a tough time explaining to average Americans, why they didn’t get their check.
September 24th, 2014 at 7:59 am PDT
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@John Casper, MMT is vacuous. Yes, if you assume that the state can just fund itself by borrowing base money from the central bank (in most countries it cannot, except in emergencies), the state does not need to tax to raise revenue. But MMT does say that bond issuance or taxation is appropriate to take back base money to prevent inflation. So, assuming that you have the same inflation target, you just end up in the same place as the present system, except that you tell different, and in my view unrealistic, stories of how you got there. MMT disciples often arrogantly claim that MMT uniquely describes how the money system “really” works, but as far as I know, none of its leading lights have ever actually participated in money creation in a central or commercial bank – Mosler was a hedge fund manager. I really wish MMT devotees would stop wasting everyone’s time with their red herrings.
September 24th, 2014 at 11:09 am PDT
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@reason, it is not so much the administrative cost of the round tripping as the need for a whole new tax structure. You are not going to get exactly what you pay to high earners (let alone the low-income wealthy who also do not need basic income) because their marginal income tax rate is not 100%, so you are going to have to raise marginal tax rates and reduce allowances to pay for UBI, which may or may not be desirable. I would favour a mildly conditional BI, funded by a small – at least initially – land value tax.
September 24th, 2014 at 11:20 am PDT
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Tim,
Since you’re concerned about demand-pull inflation, I’d appreciate your response to the link I left in the previous comment, about the $75 trillion in risk that Bank of American “socialized” onto the U.S. taxpayers. Where’s the demand-pull inflation from that?
I don’t know, but I’d say the Art market’s a pretty good guess.
“Record Auction Price for Barnett Newman, $43.8 Million, Is Set at Sotheby’s”
http://www.nytimes.com/2013/05/15/arts/design/record-auction-price-for-barnett-newman-at-sothebys.html?_r=0
You wrote: “MMT is vacuous.”
No. It may be incorrect, incomplete, or wrong, but it’s not “vacuous.”
“Demand Leakage” also isn’t “vacuous.”
http://www.huffingtonpost.com/warren-mosler/demand-leakages-the-800lb_b_1646916.html
You wrote: “Yes, if you assume that the state can just fund itself by borrowing base money from the central bank (in most countries it cannot, except in emergencies), the state does not need to tax to raise revenue.
Yep.
You wrote: But MMT does say that bond issuance or taxation is appropriate to take back base money to prevent inflation.
Exactly, to manage DEMAND-PULL inflation, when other remedies such as productivity increases/automation, innovation, substitution don’t work.
You wrote: “So, assuming that you have the same inflation target, you just end up in the same place as the present system, except that you tell different, and in my view unrealistic, stories of how you got there.
Do you mean that the current cost-push inflation we’ve got from an over-reliance on fossil fuels is someone’s plan for a “target?” In a post 9/11 world in order to survive, we need decentralized energy generation from renewable sources such as solar, wind, biomass…. That’s reality.
I’m concerned about stuff we can run out of. How does the US fairly allocate potable water, clean air, safe food, sustainable energy, land, certain metals and minerals?
You wrote: “MMT disciples often arrogantly claim that MMT uniquely describes how the money system “really” works, but as far as I know, none of its leading lights have ever actually participated in money creation in a central or commercial bank – Mosler was a hedge fund manager.
Even if your statements were accurate, they would carry zero weight with me. I’m sorry you’ve never heard of Beardsley Ruml. He was chairman of the NY Federal Reserve Bank from ’41 – ’47.
http://en.wikipedia.org/wiki/Beardsley_Ruml
As far as I know, long before he was a hedge fund manager, Mosler got his start at a Savings&Loan.
You wrote: “I really wish MMT devotees would stop wasting everyone’s time with their red herrings.”
Since you just explained how well it works in “emergencies,” I wouldn’t get your hopes up. Remember all those cars we sold to pay off the debt from World War II? Nope, neither does anyone else.
I agree with the need to tax the elites (prison also sounds like a good idea for some of them), and a land value tax. Unfortunately, I think it’s a “red herring. The elites will use their control of the media and both parties to sell the idea that they’re being taxed. At the same time, they’ll create a dozen new loopholes so it doesn’t happen. IMHO in the near term the much more politically achieveable goal is bringing back the holiday on the federal payroll tax and increasing federal spending on health care, infrastructure, and education. I think a federal job guarantee
will come before UBI, but I think raising UBI as an option accelerates adoption of a jg.
September 24th, 2014 at 11:07 pm PDT
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To my mind a crucial difference between a citizens’ dividend versus means tested welfare benefits or a job guarantee is the implicit “who’s the boss” issue. A well functioning state with law and order allows people and property to productively flourish (its pretty much impossible to set up a successful corporation in a “failed state”). Under a citizens’ dividend system, citizens hold the government and each other to account to ensure a productive economy that ensures a sustained citizens’ dividend just as shareholders or partners of a business would. Everyone is pulling in the same direction. The citizens’ dividend is not something paid to people because someone else thinks they need to be helped out. It is paid to them as their due for being part of a nation that has organised itself in a productive fashion.
September 25th, 2014 at 12:18 am PDT
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@John Casper, I can read no more than the headline of your linked article without registering, but I think it is completely irrelevant to the present discussion on UBI or even to its sidetrack into MMT. What BoA wish to do sounds dodgy to me, but they could do the same under a gold standard. If the derivatives book generates losses, which are unlikely to be anywhere near its gross value, that need not necessarily be handled by money creation. Depending on the size of any loss, it could be paid for by FDIC taxes on banks, or taxes on the general population. In fact, it should be, because that creates a more direct link between government bailouts and costs than printing money to sweep it under the carpet.
September 25th, 2014 at 3:48 am PDT
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@Tim
According to wiki, http://en.wikipedia.org/wiki/Gold_reserve#World_gold_holdings
the total value of all gold ever mined is a little north of $8 trillion.
Why you think Bank of America should be allowed to “socialize” one penny of shareholder risk onto FDIC insurance?
I thought FDIC insurance was to protect bank deposits?
YOU raised the issue of “funding” UBI. That’s why I brought up the “funding” Obama gave Bank of America for its derivative risk. Now you claim that’s irrelevant. Please, explain that.
September 25th, 2014 at 4:19 am PDT
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@John Casper, Did I say that BoA should be allowed to socialise its risk? No; I said that that was “dodgy”. There might, however, be a case to go lightly on BoA if they did the authorities (then under Bush) a favour during the crisis by taking over ML to prevent it going bankrupt. In fact, IIRC, BoA shareholders were not very happy about it.
Anyway, how is the total value of gold relevant? Think about stocks and flows.
Please check your prejudices at the door before you participate in such discussions.
September 25th, 2014 at 6:42 am PDT
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Tim Young
I’m not against it being phased in.
September 25th, 2014 at 7:40 am PDT
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Becky Hargrove
“How does a universal basic income address an incomplete marketplace for services? How does it address the lack of economic participation of individuals in many parts of the U.S.? Where would the money for basic income come from? How does basic income address the remaining output gap which precious few wish to do anything about?”
Actually, it does a great deal to solve each of those problems.
1. Because it provides a positive wedge between wages and income it allows marginal services to be provided at lower cost (it eventually makes a minimum wage redundant). It also provides a basic living insurance that should encourage more entrepeneurship (a bankrupcy reform and student loan reform would help as well).
2. The greatest structural impact of the policy would be regional as it would provide a flow of funds into depressed regions.
3. General taxation (mostly from phasing out deductions, but also perhaps from broad based taxes). The logic of a CBI implies a lower threshhold for tax and higher general taxation levels. But this is doable. The US has unusually low levels of taxation. The net effect though will not be deflationary, but will be redistributional.
September 25th, 2014 at 7:48 am PDT
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To extend my post @57 in response to Becky Hargrove, I should point out that points 1 and 3 partly answer her point about the output gap, in particular I think that greater redistribution (particularly to lower parts of the income distribution) will be net stimulative because of higher monetary velocity, and that local firms will start up to take advantage of that extra high velocity money.
September 25th, 2014 at 7:53 am PDT
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Eryximachus @16
I agree with almost everything you say, but think it is rather orthogonal to this debate. My only comment is that to the extent that UBI is cheaper to administrate than a more tightly conditional scheme, it will free resources for paternalistic interventions that can also be and be seen to be less punitive.
September 25th, 2014 at 8:18 am PDT
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Eryximachus@16 check out http://opinionator.blogs.nytimes.com/2014/01/18/what-happens-when-the-poor-receive-a-stipend/
The conclusion of that “natural experiment” was that much of the social mess that makes you fear that a UBI would get spent on drugs actually gets sorted out just by having a secure source of income. People start behaving in a positive manner.
September 25th, 2014 at 2:21 pm PDT
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[…] Sawicky offers a response to the post he inspired on the political economy of a universal basic income. See also a related post by Josh […]
September 26th, 2014 at 6:33 am PDT
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