Imagine if the government sent all of us a monthly check that covered our basic living expenses. We would be liberated from financial insecurity, and those of us working in jobs threatened by robotics and artificial intelligence (such as factory workers and Uber drivers) would no longer have to fear long-term unemployment.
It sounds great in theory, which is why the idea has drawn increasing interest both in the U.S. and in countries from Canada to Finland to India. A number of prominent techies and futurists have come out in favor of the concept, with Tesla CEO Elon Musk recently saying, “It’s going to be necessary.” Notable advocacy for a universal basic income has come from Y Combinator, a Silicon Valley-based incubator, and the Niskanen Center, a DC-based think tank.
The idea isn’t just some socialist fantasy. The notion of replacing government services and in-kind benefits with cash has interested many libertarians and conservatives since economist Milton Friedman first advocated a negative income tax in 1962. The virtues of a system of cash payments include reduced bureaucracy, lower administrative costs and less paternalism. By giving people cash instead of food stamps, Section 8 housing vouchers and other forms of in-kind assistance, government treats recipients as adults capable of making intelligent consumption decisions rather than as children whose lives need to be managed by a benevolent authority.
Unfortunately, America’s city streets provide abundant evidence that many adults are unable or unwilling to manage their lives. Ultimately, universal basic income (UBI) would have devastating budgetary consequences, would not end poverty and could have adverse effects on our social compact.
From a fiscal perspective, UBI proposals range from insufficient to catastrophic, depending on the level of the payment and eligibility. Finland is currently experimenting with a monthly payment of about $600 per adult. That is a far cry from the income a single adult would need to make ends meet in a major U.S. city. Even the federal poverty level of $990 for a one-person household is less than the median rent for a studio apartment in any of the nation’s 10 most expensive cities — and that’s before considering the cost of food, transportation, clothing and other essentials. In Oakland, California, Y Combinator is experimenting with a more realistic basic income grant of $2,000 per month per family.
UBI could be set at varying levels around the country based on living costs, or at a flat level nationally, which would encourage those in more expensive areas to relocate or supplement their income. Aside from location, income payments may need to vary by size of household. Right now, UBI proposals often specify a flat payment regardless of family size. But if a proposal were to reach Congress, I would anticipate calls for increased payments to larger families on both sides of the political spectrum. The current Temporary Assistance for Needy Families (TANF) program pays variable amounts depending on family size.
Finally, from a cost perspective, there is the question of how universal a UBI program should really be. Finland is limiting its experiment to the unemployed, but cutting off or scaling back benefits to those who find jobs creates disincentives. On the other hand, paying $2,000 a month to Bill Gates seems absurd, but Social Security checks already go to older billionaires such as Warren Buffett and President Trump.
To give some sense of the budgetary impact of introducing UBI, consider a scenario under which every head of household between the ages of 18 and 64 received a monthly $2,000 check. Based on a Census estimate of 94.8 million households, that would cost $2.275 trillion dollars annually. Offsetting this cost would be savings from eliminating federal nutrition programs ($100 million), federal rental assistance programs ($21 billion), TANF ($17 billion), Supplemental Security Income ($62 billion), Earned Income Tax Credits ($67 billion) and public assistance spending at the state and local level ($543 billion). Since these offsets total only $810 billion, we are left with a net budgetary cost of over $1.4 trillion for a universal basic income program. With a projected 2017 deficit of $559 billion and trillions in unfunded entitlements, the federal government is not well positioned to take on such a large commitment.
A final objection to UBI is philosophical. Western nations climbed out of millennia of poverty when they developed a capitalistic regime undergirded by the Protestant work ethic — an attitude that was embraced by people of all religions. The idea that all able-bodied adults have an obligation to work runs deep in our culture. Although there are many exceptions arising from luck (like inheritance) and rent-seeking (getting deals based on connections rather than competence), most of us still have an expectation that our economic circumstances should be connected to our willingness and ability to create value for others.
Universal basic income would delink productive behavior and economic well-being. It could thus break popular support for the market economy. Once the public conceives of income as a right rather than as a reward for value creation, voters will wonder why some still receive more than others. And if we stop thinking of strangers as potential employers, clients and customers, we may start treating them as rivals and enemies.
Although I doubt that technological advances will produce mass unemployment, even if they do, paying people to remain idle or indulge in hobbies isn’t the correct policy response. Better alternatives would be to create labor-intensive public projects or to subsidize the wages of lower-skilled private sector employees to keep them competitive with automated alternatives. These options at least maintain some link between effort, value creation and reward.