Free Money for Everyone? — Extraordinary Measures for Extraordinary Times

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There is much current debate about how economies will recover from the Coronavirus recession that the IMF considers will be the worst since the Great Depression. Already most countries have spent and committed eye watering amounts which will likely take generations to recover. These sums dwarf the ‘bailouts’ designed to head off the 2008 financial crash so it’s not surprising that voices have been raised calling for a radically different approach.

How about this one? Instead of traditional loans and welfare acting as a bridge back to our ‘life-as-usual’ capitalism, what if every individual were given, as a right, a fixed regular amount paid for life directly to them regardless of their situation (so not means tested) other than age. There would be no conditions attached or variations imposed when a person’s situation changed. The amount would meet ‘basic needs’ to avoid poverty — what the individual did beyond that would be up to them.

This is Universal Basic Income (or UBI.) Note the absence from the definition of the word ‘job.’

Whilst it’s no surprise that the subject is being much discussed now as it was after the 2008 crash, it’s not a modern idea. Some support for a guaranteed income for all can be seen as far back as the 16th century in the writings of Thomas More. In the last century, Labour party Quakers proposed an unconditional weekly income in the UK and this was followed by a movement in its support in the 1920s with proponents including Bertrand Russell. In the 1960s and 1970s a number of related experiments took place in the US and Canada and by the 1980s it was much discussed across Europe where the Basic Income European Network (BIEN) — one of the leading centres of research and modelling — was formed in 1986.

Importantly, its support is not split along traditional party lines. It has proponents and detractors on either side. On the right, free market economist Friedrich Hayek (one of Thatcher’s heroes) and Richard Nixon were supporters as is Mitt Romney today; on the left, Martin Luther King was and, today, John McDonnel in the UK along wth Bernie Sanders and Andrew Yang in the US are. This apparent unanimity should not mask quite different reasoning — on the one hand the abolition of welfare systems (‘who needs them when people are given cash?; if they screw up it’s their problem) and on the other the reduction of poverty.

This duality of view goes beyond the political divide too. Take a gender view such as feminism for instance. UBI’s supporters see it as delivering a value to traditionally unpaid work (i.e. recognising the importance of the ‘housewife’ role in hard currency) whilst its detractors argue that it might dissuade women form entering the workforce (i.e. keeping them ‘in the kitchen.’)

The issue of unpaid work can also be seen in a sector view such as social care — an area desperately in need of funding revision (https://bit.ly/2yLzLIQ) in which those providing care are overwhelmingly women. McKinsey Global Institute suggests that if all unpaid care work worldwide were paid at minimum wage level it would be worth the annual economic output of China.

Let’s then consider the generally accepted main arguments for and against which encompass personal, logistical and economic factors.

For

• It removes the disincentive to work that is built into many traditional welfare systems (certain benefits being removed when work is found resulting in the often-heard argument — ‘I’d be better off not working’.)
• It simplifies the welfare system (to this end it could be seen as a logical extension of Universal Credit whose main objective — regardless of its actual performance so far — was to streamline the many individual benefits into one single alternative.) It’s the complexity of many welfare systems that results in people under claiming and the neediest therefore not being supported. This is true in general but also in one particular area — benefits are normally based on household income whereas UBI is given at an individual level. This will likely make a huge difference both for those claiming welfare and those powers administrating it.
• It removes the enormous cost (for instance in people and systems) of operating the welfare system.
• It removes the intrusive means testing of welfare.
• It removes (or at least reduces) the need for credit and indebtedness which in turn reduce the risk of economic crises and related austerity measures.
• It can be controlled by the country implementing it. A state can raise money through taxation or create money without creating debt or inflation.
• It reduces or removes reliance on traditional work as a source of income now that technology is reducing the number of jobs and the gig economy is reducing job security.
• It potentially frees up time (if work is reduced) to allow us to be more creative, civic minded and leisurely (and probably happier) in the way that we spend it. This has a positive impact on society and probably the environment.

Against

• It creates an impossible requirement for the state to fund because — without taxation or condition — everyone’s income from the state will rise.
• It is a disincentive to work — give people money with no conditions (to work, to train, to look for work) and they will be idle. This idleness means less tax and therefore less money for the state to support everyone.
• It does not level out income differences if everyone receives it.
• It creates more poverty because the extra income for the middle earners pulls them further away from the lowest.
• It leads to increases in addiction (such as drugs and alcohol) in some cases, the consequences of which will still require medical and welfare funding.
• It benefits even those who don’t need help unless tax restrictions are introduced. If this happens then it’s no longer universal (and anyway this needs a generally acceptable definition of ‘need’.)

Of course much of this is down to theory — what’s more it’s economic theory which is far worse (it’s not called ‘the dismal science’ for nothing.)

Importantly, that theory has been put into practice in a number of trials including in India, the Netherlands and Kenya. The most recent — and only national — test was in Finland between 2017 and 2019 and this was deemed to be a failure. Case closed then? Well no.

The apparent simplicity of UBI is revealed as its actual complexity by 5 caveats to the results of this Finnish test — 1) that it was applied to a small and distinct test group (2000 unemployed people compared to a control group of 5000 unemployed) because of limited budget, 2) that it was set up to run very quickly and so some robustness was accepted to have been lost, 3) that the results were based on only 25% of participants’ feedback, 4) that the test did place conditions on income including the loss of other benefits, and 5) that, most importantly, the objective was quite specific — as Michael Stynes, CEO of Jain Family Institute told Business Insider in December 2019 “They were interested in the question that basically boiled down to: If you replaced conditional unemployment benefits with unconditional unemployment benefits, do you get increased employment?” On that basis the trial failed because many remained out of work. Whilst there were benefits on the softer measures — test participants generally declared themselves healthier and happier as well as finding the system less bureaucratic which made them more trustful of the institution and more optimistic of their future prospects of finding work — these were not key to the measurement of success.

Other tests have been run before. Between 1968 and 1982 a number of US tests were undertaken. They too were considered either non representative (they applied Negative Income Tax — NIT — whereby rather than the state taking income through tax of earnings over a fixed point, it pays income on earnings under that fixed point) or too small (even though at some 9000 participants they were more than four times larger than the Finnish test.)

The scope of any test will likely be an issue. As journalist and novelist John Lanchester says, “pilot schemes can give you all sorts of evidence about the effect of UBI on individuals, but to run an economy-wide UBI you would be running an economy-wide experiment.” That is very risky. In normal times it would be hard to imagine any Government committing to it; in these days of emergency does that make the appetite bigger or smaller?

Ultimately the key issue is likely to be one of balance — how much is enough for the individual to function (as John Lanchester says ‘to provide psychological and practical security and to prevent destitution but not enough to disincentivise work’) and how much is too much for the state to fund?

Finding a practical answer will certainly require flexibility. In fact UBI isn’t a one size fits all anyway. There are numerous variants as well as separate but related schemes often talked about in the same breath. Some of these — such as the Liveable Income Guarantee and the Minimum Income Guarantee — eschew some of UBI’s core principles such as universality in that they apply to specific cases rather than to everyone. Some versions introduce limitations and forms of conditions that appear to change the entire nature of the principle — e.g. Bruno Dellepierre (General Co-Ordinator of happonimy.org) argues that there must be limits on how individuals are allowed to spend their money — ‘to support freedom, rather than curbing it’ we should ask ourselves if we are happy that ‘a single person would spend his or her universal basic income on cigarettes and excessive amounts of alcohol, things the person uses to numb insecurity and which destroy their health?” This inevitably leads to arguments of the Nanny State.

These versions then create a number of flavours of the principle. Even UBI’s detractors see benefits in some of these. The Joseph Rowntree Foundation (an independent group focused on solving UK poverty) is against UBI in principle, arguing that resources would be better spent on reforming the existing social security system from which UBI is (according to Chris Goulden) a ‘distraction.’ It nevertheless acknowledges that some modified versions have been modelled to show poverty reductions of 14% for all UK working age adults.

Since affordability will always be one of the main litmus tests, proponents point out that there are various ways in which versions of UBI can prove their case. For example, the hard-right version (or what John Lanchester calls the ‘let-the poor-die’ version) would, it’s argued, pay for itself by simply eliminating the state welfare system. A very different example is the NIT based version which is funded by means testing and taxing of the rich — it could be argued however that such an amendment would mean that it isn’t UBI at all. Another version is known as the ‘Gradual’ approach which argues that it should initially be applied at a low level of payment and monitored with a view to increasing in line with the available budget (theoretically this makes sense but the practicalities seem labyrinthine and the timing protracted.) Most of us would, I’m sure, have a number of questions and concerns about all of these.

The UK Chancellor has said that he opposes UBI because he sees the existing universal credit welfare payment as sufficient. These are however early days in terms of the overall impact of the current emergency. In any case, most agree that trying to instigate it right now — in the midst of the pandemic — would be foolhardy; Torsten Bell, head of the Resolution Foundation and former advisor to Ed Miliband, told Labour List that it would be “misguided given the pace of what is happening”. That doesn’t however mean that the impact of the pandemic over time won’t be a catalyst or change.

Nobel prize winning Economist Milton Friedman said, “only a crisis — actual or perceived — produces real change” and that Economists and planners need to “develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes the politically inevitable.” Maybe we are about to test that view.

In the end this surely will boil down to acceptability — the PITS test (the Person In The Street.) At the heart of any form of UBI is the fact that the funds must be raised via taxation of some form so we are all funding a pot from which we all take. Would the person in the street therefore find it acceptable that some people have an income from not working? Do we see the scheme as being a helping hand to those who most need it or a handout to those who don’t? Do we think that people would still be hungry to work for the things that they want above the most basic level of what they need? Our answers will most likely be driven by where we see ourselves — really these questions are not about ‘them’ but about ‘us’. Economists (even behavioural ones) and planners can model the cost of making such a seismic shift in the way we live but they can’t model if and how people will accept it.

In the same way that the principle of the scheme needed to be tested so too does the principle of its acceptance to the electorate. In this regard, a 2016 Swiss referendum may be instructive — almost 77% voted against a constitutional change to support UBI. That was of course a single example of a rich country before the pandemic. Maybe today and somewhere else we — the people — will see it differently.

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Sources

Aria Bendix, Business Insider, December 2019

Bruno Delepierre, Happonomy.org, July 2017

Chis Goulden, jrf.org.uk, April 2018

FT.com, April 2020

Gian Volpicelli, Wired.com, April 2020

John Lanchester, London Review of Books, July 2019

Matt Stevens and Isabella Grullon Paz. New York Times, March 2020

Rory Macqueen, Guardian, April 2020

Sanjana Varghese, Wired, Saturday Feb 2019

Sienna Rodgers, LaboutList.org, April 2020

Ubi.org

Wikipedia