A Universal Basic Income Stipend for Americans: Is It Time?

There are at least three general categories of arguments in favor of a Universal Basic Income (UBI), a basic income grant, or a negative income tax. Yes, I know, those three are not fully interchangeable. But the distinctions are less important for present purposes than the similarities.

One set of arguments is based on the idea that we’re paying them already, so let’s just give them the cash. P.J. O’Rourke famously made this claim (Weekly Standard, January 30, 2012) when he wrote:

The federal government has some 50 different “poverty programs.” Nearly half a trillion dollars is spent on them each year. That’s about $11,000 per man, woman, and child under the poverty line, enough to lift each and every one of them out of poverty. (U.S. Department of Health and Human Services 2011 poverty guideline for a family of three: $18,530.) We call them “poverty programs” for a reason. If ordinary people with down-to-earth common sense were spending that half trillion, we’d call them “modest prosperity programs.”

In other words, there should be no poor people in the United States. We are spending more on poverty programs than would be required to end poverty, but we’re just not giving the money to the right people. We give it instead to bureaucrats whose job it is to pester and harass welfare beneficiaries, and generally make miserable poor people even more miserable without in any way making them less poor.

A second set of arguments follows the line taken by philosopher Matt Zwolinski. Zwolinski wrote, in “Property Rights, Coercion, and the Welfare State: The Libertarian Case for a Basic Income for All” (Independent Review, Spring 2015), that if we were to take the Lockean proviso seriously, we might think of things in terms of a Coasian analysis: A system with property rights and market processes produces much more prosperity than state ownership or centrally planned price systems. But the prosperity is not equally shared; the winners don’t deserve all their gains, and the losers, who played in good faith and did nothing wrong, ended up in shrinking industries. We’re better off allowing that dynamism, but if creative destruction is as productive as its proponents claim, then the “winners” should be able to compensate the (relative) “losers” and still come out ahead.

The Kaldor-Hicks “compensation” approach would simply note that market systems produce a net gain. But a fairer, more ethically defensible Coasian bargaining approach[1] would require that the compensation actually be made. If that part of the argument were accepted, it would be easy to conclude that the best and most efficient way to create a universal social safety net, one that would not encourage partiality and rent-seeking, would be a truly universal UBI.

Of course, as with the first set of arguments, the UBI would replace all the other welfare and social insurance programs (except for health care). That would mean dismantling minimum wage laws, Social Security, food stamps, and housing subsidies.

These two proposals, the first based on political expedience and the second on an ethical concern for making “potential Pareto” an actual Pareto improvement, would each require that the existing programs be replaced by the UBI. There is a third proposal out there, whose proponents would favor the imposition of a UBI while continuing existing programs. There might be consolidation and fiddling at the margins. But the more “radical” version is what Philippe Van Parijs and Yannick Vanderborght lay out in Basic Income: A Radical Proposal for a Free Society and a Sane Economy. This book makes UBI the centerpiece of a rethinking of the entire system of income distribution.

The Problem of Contingency

One problem with the existing panoply of welfare and anti-poverty programs is their contingency. The reason may not be obvious at first; after all, shouldn’t we only use public assistance to end poverty for people who are actually poor? The difficulty comes at precisely the point where what economists call the “price effect” kicks in.

A person with zero income, living in subsidized housing and receiving subsidies for child care, food, and other things, might want to live a better life. Suppose that person is a woman, with several children. Two ways this woman might improve her financial situation would be to marry a person who has a job or to get a job herself. The problem is that if she did either of these things, she would lose most or even all of her benefits. It has been variously estimated that, for the poorest Americans, the marginal tax rate for the first $10,000 or so in income is 100 percent or more. That means that if our subject earns $10,000, she loses $12,000 or more in benefits. This has been called the “benefits cliff,” and scholars have argued that this aspect of anti-poverty policy perversely locks in poverty.

There is much to be said for taking away the contingency. Everyone would be receiving a UBI (that “U” meaning universal). Even people who didn’t need the stipend and didn’t deserve it by any normal set of considerations would receive it. This would take away the “price effect.” On the other hand, doing this would bring into play what economists call an “income effect.” That is, if people have a taste for leisure, and they are given (say) $1,500 per month with no strings attached, some people who now work in jobs will simply stay home and play video games. Parijs and Vanderborght forthrightly acknowledge this objection, which they call the “free riding” problem. Ethically, the concern is that it would be unfair, and immoral, for able-bodied persons to live at the expense of others when the means of that living would be obtained coercively without the consent of those taxed to provide the benefit.

The authors give two responses to the “free rider” objection.

The first is that it can’t be right that “everyone should have to work,” given that the wealthy often take leisure, and in some cases do not work at all. This is an odd response, tacitly conflating the stricture that one “shouldn’t live at the expense of others” with the idea that “everyone has to work.” The wealthy do not work, perhaps, but neither do they live at the expense of anyone except themselves. A UBI would take money from some and give it to others; I don’t think this response is as powerful as the authors seem to think.

Their second response notes that the amount of labor in the overall economy devoted to the production of basic needs—food, shelter, and clothing—has sharply declined as the economy has become more productive and the division of labor and specialization have proceeded apace. Consequently, acting on the proposition that citizens are entitled to the fulfillment of their basic needs would place a much smaller drag on the economy than it would have in earlier times.

Maybe. But then again, the increase in productivity in all the other things we make and consume is only a benefit if people continue to find new and better ways to make those things. Absolving free riders from the obligation to make some contribution to society is something quite different, because it reduces the amount and diversity of products and services available for others to consume.

“Free Riders” Might Still be Contributors

Still, this response does have some merit, because it is likely that even those who “free ride” (using the most derogatory framing) are disposed to contribute to the happiness of their neighbors and friends. Van Parijs and Vanderborght are saying that the activities of citizens need not be formally commodified, and exchanged in the money economy, to be of value to the community. Producing art or music, volunteering at the kids’ school, assisting in the running of a charity, or giving great dinner parties for groups of friends may not be production, but they aren’t nothing. Happiness counts.

I fully share their assumption in this regard. It is simply not true that most people, especially most poor people, are lazy and looking for ways to live dissolute lives. The problem with a minimum wage is it makes scarcer the jobs that the least experienced workers can fill, and employers can then exercise prejudice or impose abuse on workers who aren’t sure they can find another job. A UBI would improve the “outside option” of all citizens, putting them in a stronger bargaining position vis-à-vis employers. People will find jobs because they want to, not because they must. Lives of contribution and participation in communities of meaning are things humans have always sought. There is no reason to expect that most people can be bought off for $1,500 per month.

Basic Income considers a wide variety of arguments about the implications of a UBI, asking whether it is politically achievable, and also whether it is economically sustainable. The book is readable and, for the most part, quite fair-minded. But make no mistake: Van Parijs and Vanderborght advocate a UBI and are quite serious about it. This volume is an important part of a growing and useful discussion.

[1] Michael Munger, “Kaldor-Hicks Coercion, Coasian Bargaining, and the State,” in Coercion and Social Welfare in Public Finance: Economic and Political Dimensions, edited by Jorge Martinez-Vazquez and Stanley L. Winer (Cambridge University Press, 2014), pp. 117-135.