Episode #95 - A Check for Everyone? The Basic Income Idea

According to Wikipedia, an unconditional basic income (also called basic income, basic income guarantee, universal basic income, universal demogrant, or citizen’s income) is a form of social security system in which all citizens or residents of a country regularly receive an unconditional sum of money, either from a government or some other public institution, in addition to any income received from elsewhere.

Milton Friedman called it a Negative Income Tax, and Charles Murray dubbed it “the Plan” in his 2006 book, In Our Hands: A Plan to Replace the Welfare State. Murray posits, “Imagine that the United States were to scrap all its income transfer programs—including Social Security, Medicare, and all forms of welfare — and give every America age twenty-one and older $10,000 a year for life.”

Some Definitions

A Basic Income Guarantee would be means-tested, meaning you’d lose some of it after reaching certain income levels.

A Universal Basic Income would not be means-tested, and needs to “sufficient” in order to live on.

The Earned Income Tax Credit is subject to certain qualifications (having children, married or single) and is refundable on the personal income tax return, subject to being phased out as income rises.

The Negative Income Tax is also means-tested, and is what Milton Friedman proposed in his books, Capitalism and Freedom and Free to Choose.

The FiveThirtyEight Article

We’d like to give a shout out to Landon Loveall (@landonloveall) for sending along this article, and suggesting this show topic.

Basic Income. A Check for Everyone: What Would Happen If We Just Gave People Money?,” by Andrew Flowers, April 25, 2016, FiveThirtyEight.

On June 5, Switzerland will hold a referendum on a basic income that would provide 2500 Swiss Francs per month to each individual over 21 ($1700/mo, $20,400 USD).

The article says that this is the “most audacious social policy experiment” in modern history.” Really? I would suggest so was the USSR, China, Cuba, North Korea, etc.

The article points out that we simply don’t have data on how this proposal would work, or what would happen. We shouldn’t let anecdotes run ahead of facts, as happened with the microfinance movement.

History

Thomas Paine in a 1797 essay, proposed to provide 15 pounds sterling to everyone from the age of 21.

Martin Luther King in his 1967 book, Where Do We Go From Here: Chaos or Community? endorsed a guaranteed income.

Milton Friedman supported the Negative Income Tax from the 1950s, while president Richard Nixon proposed a guaranteed income type plan that passed in the House and stalled in the Senate.

Friedman’s plan in 1978 would have provided a family of four with $3,600 per year ($13,200 in today’s dollars).

Matt Zwolinski, Philosophy professor at University San Diego, is a prominent libertarian advocate, “There’s something objectionable about paternalism: treating adults as children who need to have their decisions made for them.”

But isn’t government providing an allowance to all “its children” the essence of paternalism?

The Empirical Evidence

The United States has ran four experiments on providing a basic income between 1968-1980. These studies took place in NJ, PA, IA, NC, IN, Seattle, and Denver. There was also a famous one in Manitoba, Canada (1974-79).

These studies did report a modest 5-7% decrease in work, and even more for secondary earners. So it appears that one of the strongest arguments against providing a basic income—that people won’t work—doesn’t hold.

But it bears repeating that these studies were a very limited sample size, were not randomized, and didn’t provide a “basic income” (i.e., sufficient to live on).

Yet the social scientists claimed, “We learned an enormous amount.”

Our question: about what? Studying poverty? What will we do with that learning—spread more poverty?

The only antidote to poverty is wealth creation, and that seems to missing from this entire discussion.

The US Government spends almost $1 trillion per year on a patchwork of welfare programs: SNAP, TANF, CHIP, EITC, WIC, SSDI, etc.

The article does point out that for any experiment to be valid is must meet four requirements: Universal, Randomized, long term, and basic (sufficient to live on). No experiment to date has yet to meet all four requirements, limiting the conclusions we can draw.

Interestingly, the political lexicon is starting to change from “basic income” to “Trust experiments” or “Citizen’s wage.” Isn’t a wage earned?

Advocates also claim that innovation would flourish since this would free the tinkerer-in-the-garage and poet to pursue their dreams.

The appeal of this is idea is very Utopian—and a utopia is an imagined place or state of things in which everything is perfect, and exists nowhere.

Charles Murray’s Plan

There’s probably no better thought out plan than Charles Murray’s, as detailed in his short book, In Our Hands: A Plan to Replace the Welfare State, published in 2006.

Murray posits, “Imagine that the United States were to scrap all its income transfer programs—including Social Security, Medicare, and all forms of welfare—and give every America age twenty-one and older $10,000 a year for life.” [$11,868 in 2016 dollars, from the age of 21 to death.

The Framework

  • Constitutional Amendment—this is required to dismantle the programs that we now have, and make sure they aren’t reintroduced.
  • Universal Passport at birth.
  • A bank account (ABA routing number; no bank, no grant).
  • Reimbursement schedule: at $25,000-$50K earned income, 20% tax on amount above $25,000, to a maximum of $5,000 reimbursment. For example, if you earned $40,000, you’d be required to reimburse $3,750 (40,000 – 25,000 x 25%).
  • Eligibility. Regardless marital status or living arrangements.
  • Changes. Link increases to median income growth, productivity, or an inflation indes.
  • Tax revenues. Murray assumes revenue neutrality—that is, the government raises the same level of tax revenues.
  • Programs to be eliminated: Social Security, Medicare, Medicaid, welfare programs, social service, agricultural subsidies, corporate welfare, student loans, and scholarships. Students could use future grants as collateral for loans.
  • Leaves state funded education, transportation infrastructure, and even the Postal Service.
  • Immigrants, incarcerated criminals are not eligible.
  • You must buy health insurance at 21. (approximately $3,000 per year).
  • Privatize health insurance, repeal employer tax deduction, and repeal medical licensing laws, and enact tort reform.

In 2002, the population of 21 year-old and older was 202.3 million. In 2011, Murray calculates we would be breakeven with what spend now (by 2005 we were at $7,000/yr for everyone 21+).

Murray points out that if stock market doesn’t grow 4%/yr, the government can’t pay for all its promises now.

Murray argues The Plan would end “involuntary poverty”—that is, for people who do right and are still poor.

What About Work Incentives?

Murray points out most people who stay out of the labor force with the grant will be the same as who don’t work today. More likely, people will work fewer hours, not fewer people working. Murray believes the net decrease will be acceptable to our economy.

Purpose

How to live meaningful lives in the age of plenty and security.

Murray also wants to revitalize institutions that lead to satisfying lives, especially marriage, mobility, changing jobs to vocations.

Mark Twain

Don’t go around saying the world owes you a living; the world owes you nothing, it was here first.

Well, Mark Twain never said it. But in 1880, an essay by Robert J. Burdette (a popular humorist) titled “Advice to a Young Man,” ran in an Iowa newspaper:

No, my son, the world does not owe you a living. The world does not need you, just yet; you need the world… But don’t fall into the common error of supposing that the world owes you a living. It doesn’t owe you anything of the kind. The world isn’t responsible for your being. It didn’t send for you; it never asked you to come here, and in no sense is it obliged to support you now that you are here…
When you hear a man say that the world owes him a living, and he is going to have it, make up your mind that he is just making himself a good excuse for stealing a living. The world doesn’t owe any men anything son. It will give you anything you earn…

Ed and I believe, on pragmatic grounds, Murray’s Plan is better than what we have now, and we could support it, if it was accompanied by a constitutional amendments repealing the existing infrastructure.

With cryptocurrencies and the blockchain it could be much easier to manage.

What’s interesting is to think about the Bootleggers and Baptists coalitions that will form both for and against this idea, with the public sector unions being the major opponent (like public school teachers against vouchers for education).

The August 2014 edition CATO Unbound (online debate forum) was dedicated to the Universal Basic Income. Click the image below to access it.

We would love to hear your thoughts on the Basic Income idea!

Just Because

 

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Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.