Question

1. What is the fundamental premise of Universal Basic Income? 2. Name at least one country or political unit (such as a state or province) where Universal Basic Income is being tried. How is the program structured there? 3. Why do people argue that UBI is a good remedy for the 21st century economy? 4. Would you consider UBI to be a type of stabilization policy? 5. Would you consider UBI an effective way to reduce inequality?

Answer 1

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A universal basic income is a government guarantee that each citizen receives a minimum income. It is also called a citizen’s income, guaranteed minimum income, or basic income.

The intention behind the payment is to provide enough to cover the basic cost of living and provide financial security. The concept has regained popularity as a way to offset job losses caused by technology.

Plans differ on who receives the income. Some would pay every citizen, regardless of income. Others would only pay those who are below the poverty line, whether they are working or not. One proposal would pay just those left jobless due to robotics, a plan that 48% of Americans support.

The government sends the check, but plans differ on who funds the income. Some plans call for a tax increase on the wealthy, while others say corporations should be taxed.
In 1967, Martin Luther King Jr. said a guaranteed income would abolish poverty. That means reducing income inequality as well.

Economist Milton Friedman proposed a negative income tax.The poor would receive a tax credit if their income fell below a minimum level. It would be equivalent to the tax payment for the families earning above the minimum level.

In 2018, Facebook co-founder Chris Hughes outlined his plan in his book "Fair Shot." He argues that U.S. workers, students, and caregivers making $50,000 or less a year should receive a guaranteed income of $500 a month. “Cash is the best thing you can do to improve health outcomes, education outcomes and lift people out of poverty,” Hughes said Hughes’ guaranteed income is financed by taxes on the top one percent. It would work through a modernization of the earned income tax credit.

To Hughes, it's the only solution to an economy where “a small group of people are getting very, very wealthy while everyone else is struggling to make ends meet.” Hughes said automation and globalization have destroyed the employment market. It’s created a lot of part-time, contract, and temporary jobs. But those positions aren’t enough to provide a decent standard of living.

Mark Zuckerberg and Bill Gates agree. They argue that automation has fundamentally changed the structure of the U.S. economy. Sir Richard Branson said a guaranteed income is inevitable. Artificial intelligence will take too many jobs from people. Elon Musk said robotics will take away most people’s jobs, so a universal income is the only solution.

The snapshot below shows some of the program's many pros and cons that exist for countries who wish to implement a basic income.

Pros
Workers could afford to wait for a better job or better wages.

People would have the freedom to return to school or stay home to care for a relative.

The "poverty trap" would be removed from traditional welfare programs.

Citizens could have simple, straightforward financial assistance that minimizes bureaucracy.

The government would spend less to administer the program than with traditional welfare.

Payments would help young couples start families in countries with low birth rates.

The payments could help stabilize the economy during recessionary periods.

Inflation could be triggered because of the increase in demand for goods and services.

There won't be an increased standard of living in the long run because of inflated prices.

A reduced program with smaller payments won't make a real difference to poverty-stricken families.

Free income may disincentivize people to get jobs, and make work seem optional.

Free income could perpetuate the falling labor force participation rate.

It would be difficult especially in the US to get legislation passed because of stiff opposition to handouts for the unemployed.

Alaska has had a guaranteed income program since 1982. The Alaska Permanent Fund pays each resident an average of $1,200 a year out of oil revenues. Almost three-fourths of recipients save it for emergencies.

In 2017, the Hawaii state legislature passed a bill declaring that everyone is entitled to basic financial security.It directed the government to develop a solution, which may include a guaranteed income.

In Oakland, California, the seed accelerator Y Combinator will pay 100 families between $1,000 and $2,000 a month.

Stockton, California, is planning a two-year pilot program for fall 2018. It would give $500 a month to 100 local families. It hopes to keep families together, and away from payday lenders, pawn shops, and gangs.

Chicago, Illinois, is considering a pilot to give 1,000 families $500 a month.

Canada is experimenting with a basic income program. It will give 4,000 Ontario residents living in poverty C$17,000 a year or C$24,000/couple. They can only keep half of their income from any jobs they have.

In 2017, Finland began a two-year experiment. It gave 2,000 unemployed people 560 euros a month for two years, even if they found work. The recipients said it reduced stress. It also gave them more incentive to find a good job or start their own business. The Finnish government was supposed to extend the trial to employed workers in 2018. Researchers wanted to see if that would help them get better jobs, as well. But the Finnish government scrapped the expansion before it began. It is exploring other social welfare programs instead.

A pilot program in Utrecht, Holland, pays 250 people 960 euros a month.

In 2017, Kenya announced a 12-year pilot to benefit 6,000 villagers.They will receive a $22 monthly payment on their smart phone equivalent. It will double some residents' income. They must remain in their town. MIT economist Abhijit Banerjee will monitor the results.

Scotland is funding research into a program that pays every citizen for life.Retirees would receive 150 pounds a week. Working adults would get 100 pounds and children under 16 would be paid 50 pounds a week.

Taiwan may vote on a basic income. Younger people have left rural areas in search of decent wages. Some have even left the country to look for work. A guaranteed income might keep them from emigrating. It would also help the senior citizens left behind who live in poverty. The country only spends 5% of its gross domestic product on welfare programs. The average for developed countries is 22%.

Under the proposal, the government would pay NT$6,304 per month for children under 18 and NT$12,608 per month for adults. It would cost NT$3.4 trillion, or 19% of GDP. To fund it, Taiwan would levy a 31% tax on earnings above NT$840,000 per year. As a result, the program would raise the incomes of two-thirds of the population. The richer third would lose NT$710 billion.

In 2016, Switzerland voted against universal income.The government proposed paying every resident 2,500 Swiss francs per month.

Economists Kalle Moene and Debraj Ray propose a payment system tied to a country’s economic output.They suggest 10 to 12% of GDP go directly to the universal income payments. The benefit is it would automatically rise with national prosperity and inflation.

It's too soon to tell if these pilot programs will work. The universal income's simplicity makes it an attractive alternative to welfare programs. But its proponents haven't suggested solutions to its several potential issues.

The Bottom Line

The idea behind universal basic income is to provide everyone with a minimum living wage, whether they are employed or otherwise. UBI was proposed to address the present and future job losses stemming from technological innovation.

UBI is still experimental in several countries, including the United States. In fact, the government’s EITC is a form of guaranteed income.

UBI’s proponents see it as an answer to a fundamentally changed employment market. A guaranteed income would ensure financial security, allow financial freedom, remove the “poverty trap”, and support more path choices.  

Its detractors, on the other hand, call it as a lazy solution.They argue in favor of inflation and the consequential lowered living standards. They also see UBI as dole outs, likely to worsen America’s decreasing labor force participation rate.