UBI: A Bad Idea?

UBI: A Bad Idea?

Michael W. Howard

According to Daron Acemoglu, universal basic income (UBI) is “a flawed idea, not least because it would be prohibitively expensive unless accompanied by deep cuts to the rest of the safety net.” A UBI of $1000 a month would be, he says, about $4 trillion. But that’s the gross cost, not the net cost, which, depending on details of the tax scheme to fund it, could be one sixth of the gross cost.

“Sacrificing all other social programs for the sake of a UBI is a terrible idea.” Agreed. Only the most conservative UBI programs argue for this. So this is hitting a straw man. He imagines this would happen because “because all the tax revenue has gone to sending monthly checks to every citizen, millionaires and billionaires included.” But this is another variation of misunderstanding how the scheme works. Millionaires and billionaires would get it, but they would also be paying much more into the scheme than they get out of it.

Oddly, he goes on to favor a negative income tax (NIT) as a “more sensible policy”: “Rather than giving everyone $1,000 per month, a guaranteed-income program would offer transfers only to individuals whose monthly income is below $1,000, thereby coming in at a mere fraction of a UBI’s cost.” Here again, there is a failure to distinguish gross cost from net cost. In fact, the cost of a  NIT can be roughly the same as the net cost of a UBI.  Acemoglu thinks that the alleged advantage of a UBI is its popularity. It’s unclear which version of a guaranteed minimum income would be more popular, but other arguments he ignores include the uptake rate, likely to be greater for UBI, lower overhead costs, since a UBI does not require means testing, and regular payments when people need them, rather than at the end of the year (although a NIT could be designed to allow advance payments). He is simply wrong that programs that are available only to targeted groups, like food for the hungry, are more popular than universal benefits. What Americans disdainfully call “welfare” is very unpopular beyond the relatively small group of targeted recipients, but Social Security,  a near universal benefit, and Medicare, are very popular.

He is probably right that much of the enthusiasm for UBI is due to exaggerated worries about the disappearance of jobs, as opposed to restructuring of work. But when he says

“rather than build a system where a large fraction of the population receives handouts, we should be adopting measures to encourage the creation of “middle-class” jobs with good pay, while strengthening our ailing social safety net. UBI does none of this,” he fails to observe how a UBI can do precisely this. A UBI can provide an economic base on which one can acquire more training, start a business, take a career-building internship, or bargain from a stronger position for better pay and working conditions. A UBI alone won’t do all this, but it can complement other policies, such as labor law reform facilitating union organizing.

Acemoglu’s preferred alternative is “universal health care, more generous unemployment benefits, better-designed retraining programs, and an expanded earned income tax credit (EITC).”  UBI is not intended to take the place of most of these, although it would allow some reduction of unemployment benefits (which, combined with UBI, could be designed for a net increase). The debate over retraining needs to take a good look at the performance of these. How successful have they been? The EITC is a successful policy. But UBI has a crucial advantage. It also encourages work, since workers do not lose it when they take a job, and most will want more than a poverty level income. But more importantly, UBI empowers the worker to bargain for higher wages, whereas the EITC empowers the employer to set wages as low as possible, and workers must accept in order to be eligible for the EITC. A higher minimum wage could correct for this, but employers work around this by hiring people as “independent contractors”, and individual workers as well as unions are disempowered as a result. Moreover, a UBI can be combined with a higher minimum wage.  What Acemoglu completely ignores are all the care workers in households, outside the wage economy, who do not need a job. They need economic security, and recognition of their important work.

Acemoglu characterizes UBI as “handouts to defuse discontent and mollify the masses, rather than providing them with economic opportunities and political agency,” and “crumbs to keep people at home, distracted, and otherwise pacified.” But he ignores the kinds of opportunities (already mentioned) which UBI affords. If at least some recipients are enabled to choose a mix of more leisure and less labor, this will give them the time to become politically engaged. It is not so clear how an EITC, which subordinates workers to employers on the latter’s terms, does a better job of empowering workers politically. We need not argue entirely in the ether. Minimum income experiments around the world show substantial evidence of the economic opportunity and liberating aspects of an unconditional income. People do not get locked into passivity. From Manitoba to Namibia and India, they take control and invest in their lives.

His characterization of UBI as helicopter money from above, rather than as a response to political demands is premature. The idea is just getting traction politically. Let’s see if it becomes a popular demand when people have had a chance to participate in the debate.