In 2020, Democratic presidential candidate Andrew Yang brought attention to something
he was passionate about: universal basic income. While Yang successfully introduced the masses to
universal basic income, the idea has actually been around since at least the 1500s. But what is it,
and how might it affect an economy? Universal basic income, or UBI,
is a policy in which all adult citizens of a society regularly receive a set amount of
money. It is unconditional, meaning there are no eligibility requirements for receiving the
money. It is paid out by a government and can be implemented nationally or locally. The goal of UBI
is to provide enough money to meet a person’s basic needs, like food, access to clean water,
and shelter. In other words, its goal is to eliminate poverty. Additionally,
many economists argue that UBI can replace other need-based social programs that potentially
require greater bureaucratic control. While the idea of a universal basic
income has existed in some form or another since at least ancient Rome,
it was first argued for by the English philosopher Sir Thomas More. In his book “Utopia”, he wrote
“instead of inflicting…punishments, it would be far more to the point to provide everyone with
some means of livelihood, so that nobody’s under the frightful necessity of becoming first a thief,
and then a corpse." Later, the Spanish philosopher Johannes Ludovicus Vives and American philosopher
Thomas Paine argued governments should provide this basic income. In the 1800s, the Belgian
author Joseph Charlier argued that this basic income should be unconditional. By the 1900s,
many politicians around the world were calling to begin experimenting with a form of UBI. But
ever since, few experiments have actually been implemented, typically in a small society or in
small amounts. For example, in the 1970s, a group of Canadian economists conducted an experiment in
which it gave money to citizens in the town of Dauphin, Manitoba. However, this was more
accurately an example of a negative income tax, or a system which reverses the direction in which an
income tax is paid for incomes below a certain level. If you make less than a certain amount,
you not only don’t have to pay taxes, but you receive money from the government. So in Dauphin,
many did not qualify to get money from the government since they made too much money.
More recently, since 2016 the nonprofit charity organization GiveDirectly has been sending direct
cash payments to more than 14,000 households in the Siaya and Bomet Counties of Kenya.
Overall, however, economists don’t have much data to work with regarding the effectiveness of UBI.
Therefore, much of the analysis regarding its effectiveness is theoretical. With this in mind,
let’s look at the potential pros and cons of a universal basic income.
The first positive is the most obvious. A UBI would reduce poverty. It’s no surprise that
when people have more money, they can more easily take care of their basic needs. Related to this,
many argue a UBI would improve physical and mental health. By having basic needs met,
people generally would have less anxiety-related ailments. Third, many economists argue that
a UBI would lead to positive job growth while simultaneously lowering school drop out rates.
With more money, people would be more willing to make riskier decisions like starting a business
or going for an additional degree that would get them a better job down the road. Fourth,
a UBI guarantees income for people who work but are not included in the labor force. This would
empower traditionally unpaid work such as being a parent or caregiver for a relative. Finally,
some economists also argue that a UBI could help increase equality while fighting extreme
wealth inequality, as more people would have opportunities to invest their money in assets.
However, other economists argue that a UBI could make extreme wealth inequality worse,
as those with wealth would benefit from more consumers spending their money. A second
criticism of UBI is that it may actually end up depriving the poor of targeted support. Because
some experience worse poverty than others, current social welfare programs that target
those in need might be gone if UBI were to be implemented. Third, a form of national UBI would
undoubtedly be expensive. A 2018 study found that a 1,000 dollar monthly stipend to every
American adult in the United States would cost about 3.81 trillion dollars a year.
Fourth, some economists argue that UBI might remove the incentive to work,
which would then lead to a labor and skills shortage. It’s worth noting that so far there is
no evidence that this would happen, and automation could solve the problem of a labor shortage.
Finally, the most compelling argument against UBI is that it may cause inflation. As we learned in
a previous tutorial, a major cause of inflation is an increase in aggregate demand, usually due
to a higher income. As incomes increase, so do prices, so governments might have a difficult
time keeping up with a high enough UBI. In conclusion, it’s still too early to know
for sure if UBI would be the most effective macroeconomic policy for governments to fight
poverty. However, as automation becomes a greater threat to traditional jobs, a growing number of
economists seem to think UBI could be the solution for a future society where human capital is in
lesser demand. If current trends continue, someday we may live in a society that doesn’t
have to worry as much about scarcity. In such a case, we may find that UBI could become a reality.