Schansberg: Universal Basic Income

April 1, 2019

by Eric Schansberg, Ph.D.

Andrew Yang is one of many Democratic candidates for U.S. President in 2020. Unlike most of his competitors, Yang is intelligent and sounds like a policy wonk. He’s eloquent and brims with joy. He’s thoughtful about policy and worried about both people and society.

But Yang is a mess on many issues, so why write about him? We should applaud candidates who talk about public policy in a thoughtful way. In particular, Yang is an avid proponent of a provocative policy proposal — the Universal Basic Income (UBI). I hope he gains traction, so he will have more opportunities to promote the idea.

I had heard about UBI, but didn’t give it serious consideration until last month when I read Charles Murray’s book on the topic, “In Our Hands: A Plan to Replace the Welfare State.” As long as America insists on a significant Welfare State, a well-constructed UBI is almost certainly better than modest tweaks to the status quo. Murray’s proposal is far better than Yang’s, so I’ll focus on Murray as I describe the UBI.

In a nutshell, the idea is that all Americans ages 21 and over would be offered catastrophic health insurance coverage and $10,000 per year by the federal government. (Wealthier, high cost-of living states might choose to supplement this. If not, many people would choose to move to lower cost-of-living areas.)

And the UBI would replace all other federal welfare programs. People could opt into the UBI or stay with their current arrangements. As Murray explains, aside from people at or near retirement, most people will choose the UBI. (Again, states might supplement these efforts — particularly, to help those with children.)

One advantage is immediately obvious: the dog’s breakfast of current federal welfare programs for the poor would be replaced by a cash grant that is simpler, more efficient, and less prone to promoting disincentives to work, to save, and to form and maintain a two-parent household.

Unlike welfare programs, all people would receive the UBI. It would remove the stigma for receiving “assistance” since everyone would get it. It would reduce the disincentives to work because you would still keep the UBI even if you earned quite a bit. It would reduce the disincentive to save. Currently, recipients can be cut off if they save “too much.” And it would reduce the disincentives against two-parent households among the poor, since current programs are often conditional on not being married.

Conservatives will applaud the UBI’s efficiency and lack of damage to incentives on work, saving and family formation. Liberals will appreciate resources for the needy, the removal of stigma for welfare and disempowering the bureaucracy that tends to dehumanize recipients.

Yang’s proposal kicks in at age 18, but Murray is wiser in proposing UBI at age 21. This is crucial, since the habits created between ages 18 and 21 will change the way that the UBI is perceived. Someone in college will not be tempted (much) to leave college to rely on the UBI at 21. Someone who works after high school for three years is less likely to be tempted to leave a job, income and career path to rely solely on the UBI at 21.

How would we pay for the UBI? It turns out that the current set of entitlement and welfare programs are more expensive. Murray recommends a UBI reduction rate between $30,000 and $60,000, so those above the poverty line receive less from the UBI, reducing its costs. (Yang wants to preserve some current welfare programs and use a value-added tax to pay for them.)

In all of this, Yang is primarily motivated by his apocalyptic concern for what he sees as an emerging economic emergency — where technological advance will cause immense problems for workers. I think he overestimates the impact of technological change, but I can certainly understand his concerns. (One irony is that Yang is not concerned about the apocalyptic loss of jobs in the government’s bureaucracy).

Murray’s concerns are clearly valid. Society cannot afford to destroy incentives to work, save and raise children in two-parent households. And taxpayers cannot afford the current system of entitlements and welfare programs. The UBI would be a big improvement over the status quo.

Eric Schansberg, Ph.D., an adjunct scholar of the Indiana Policy Review Foundation, is professor of economics at Indiana University Southeast.


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