Four Reasons a Guaranteed Income Won't Work

http://www.bloomberg.com/news/2013-12-04/four-reasons-a-guaranteed-income-won-t-work.html

by jseliger • 13 years ago

29 66 13 years ago

benjohnson2• 13 years ago

It's sad that many who claim to support 'welfare' don't like this idea because it reduces their ability to manipulate people.

yetanotherphd5• 13 years ago

Another way of phrasing the same thing, is that modern welfare systems (e.g. Australia's) put reasonable conditions on receiving welfare, that make it possible to target welfare to only the people who really cannot find a job, making the disincentive to work associated with welfare much smaller than it would have been otherwise.

I actually think it's sadder that you think characterizing people's attitudes using negative terminology is a substitute for a real argument.

EDIT: I've never complained about ratings before, but is this really a bad argument, or do basic income proponents just think that everyone who disagrees with them is an evil ignorant person? It seems to me that certain causes attract zealots.

scarmig4• 13 years ago

Don't feel bad--I got net two downvotes above for pointing out the numbers showing that federal spending on healthcare and Social Security together gets us substantially closer to being able to fund it (I'm pretty sure they're not wrong numbers--if so, whoever's down voting, just point it out and I'll happily hash it out).

Zealots exist anywhere. Here, have an upvote.

snowwrestler• 13 years ago

Is all manipulation bad? Ever worked harder because there was a deadline coming up? Or a bonus? Or a funding round?

svachalek• 13 years ago

In regards to the first point, I'm not sure what kind of crazy implementation they had in mind with their discussion panel. Pretty much everyone who makes money is paying some kind of taxes, and there's usually some baseline deduction built in there. That's what you convert into UBI for the taxpayer.

It's like the flat tax in that the net result shouldn't necessarily be more or less expensive than the current system, just a heck of a lot simpler.

andrewfong2• 13 years ago

One way of addressing the latter three points (reciprocity, politics, work) in part is to only give a guaranteed income to people who are actually working, regardless of how much they're earning. People would still have to work and contribute to society, but they would receive an income greater than the fair market value for that work. In the U.S., this would basically take the form of boosting the existing Earned Income Tax Credit.

gremlinsinc• 13 years ago

No, having any requirement at all puts more bureacracy into it, the point is to get rid of bureacracy -because that requires money for paperwork filing, and management, that could be spend on instituting the policy. The better method would be to have tax breaks for employed individuals. Perhaps each person would be required to pay back $500 in taxes per year if they're not employed, or something similar... Though, I feel we should move away from income tax as well and just have a national sales tax which would fluctuate based on what outstanding debt is and how much is brought in per year.

It IS possible to get spending in check, and fix everything, but we need to get rid of a LOT of bloat, there are WAY too many uneeded jobs in congress(especially in congress/and the senate lol). Personally, if I had a gbi, I would NOT work--in the basic sense, I WOULD innovate and do freelance work to earn extra money to put towards a startup idea... That is what I love about GBI -- the fact that entrepreneurs don't need to work but can actually work full-time on their business ideas!

andrewfong2• 13 years ago

Tax breaks for employed individuals is exactly what the EITC is. Assuming you stick with an income-based tax system, employment verification is effectively built in and requires little to no additional bureaucracy.

A national sales tax comes with its own set of bureaucracy. It's also regressive and shifts the tax burden disproportionately onto the poor (unless you made the sales tax wealth or income dependent, which would introduce the same bureaucracy you were trying to get rid of earlier).

I'm not sure a GBI would necessarily be good for entrepreneurship. I see your point, but having a runway disciplines young companies and forces them to get to market in a timely manner.

jordanb• 13 years ago

Requiring people have a job to receive the benefit turns the system into a subsidy for low-wage job providers who get to act as gatekeepers to the program.

The whole point of guaranteed minimum income is to make participation in the job market optional: workers are free to sit out the market if employers try to give them a raw deal.

For instance, Milton Friedman noted that it could be rational for a worker to voluntarily work in a dangerous environment and trade his long-term health for short term money, because his health in five years doesn't mean whole lot if he starves today.

The government's response to this is OSHA, a bureaucracy designed to publish and enforce minimum standards for workplace safety.

But with guaranteed minimum income, nobody's going to starve, so employers will have to offer a safe work environment to entice workers into employment. No bureaucracy is needed to protect workers in desperate situations because there aren't any, everybody can make their own decision about how much risk they're willing to accept to work a given job knowing that their basic needs are provided for.

jupiterjaz• 13 years ago

"Cutting everyone a check for $1,000 a month, which most people in that room would consider too little to live on, would cost almost $3 trillion."

...What? I work a low skill service sector job and I only make $850 per month after all the taxes and deductions are taken out and I do fine as far as shelter and food are concerned. $1000 a month is plenty if it's after taxes and deductions.

growupkids• 13 years ago

I think the authors point was that the people in that room consider $1000 a month to not be a livable wage. Therefore, the inference is that those people would want to see more than $1000 a month, which would be even more costly. Perhaps the author just picked $1000 for ease of mathematical illustration.

benjohnson2• 13 years ago

I certainly agree - I've been in situations where I've made about $850 per month and did especially fine if I pooled my money among others.

hannibalhorn3• 13 years ago

The $600bn spent on "income security" excludes social security, no? That's a huge chunk of change, and a basic income could in effect replace the need for it. That said, any sort of transition would be difficult to implement (and political kryptonite.)

philwelch7• 13 years ago

You still end up with about a $2000bn net cost even after taking social security into account.

scarmig4• 13 years ago

It definitely does exclude Social Security, which as a program amounts to ~$750 billion a year. And Medicare and Medicaid, which amount to another $600 or $700 billion.

Combine them and the $600 billion on income security, and you get about $2 trillion, which is enough to fund a huge chunk of it.

I don't understand the how McArdle thinks that $12,000 per year is too austere for most people to live comfortably on and simultaneously decries how it will make many people drop out of the workforce. She should address what (many) advocates of it want.

Political concerns are, of course, another question.

philwelch7• 13 years ago

Basic income can't be a drop-in replacement for federal health care programs, because to get equivalent care you'd either need considerably more basic income or some other mechanism for providing health care. The most generous assumption from an accounting perspective is probably that the US adopts, wholesale, the Canadian medical system with equivalent per-capita costs borne by the federal government.

cpleppert2• 13 years ago

The reason she seemed to exclude Social Security is that there is no way to have a Basic Income replace Social Security without having a massive decrease in social security checks. You essentially cut them in half.

Social Security doesn't work if a check is $600 a month. It won't prevent poverty.

hannibalhorn3• 13 years ago

So ignoring Medicare / Medicaid / health insurance in general, the current expenditures on social security / unemployment / welfare add up to ~$1.4 trillion, which (given the 235 million adults stated in the article) is ~$500/month per citizen.

I could easily live alone on that in parts of the country. Given that people surviving on said basic income could (and should!) have roommates or spouses, it's even more than necessary.

cpleppert2• 13 years ago

Social Security and Medicare are about 1.3 trillion a year and any system that replaced Social Security and Medicare will be a system that is much less generous to the elderly. A basic income will essentially reduce the monthly check from 1100 to about 670 with no health benefits at all. There is no way to get around the fact that this will cause a massive increase in elderly poverty.

hannibalhorn3• 13 years ago

I live where $10/day is considered a decent wage, so $670/month sounds pretty good. If one spends their working years paying for a house and saving for discretionary expenses, with the knowledge that food and utilities will be covered by the basic income, it'd be much more than adequate. The real problem is that many of the more adventurous types would just go live in India!

Health care is a politically charged issue, so I'd say replace social security but leave medicare out of it. Obviously something fair would have to be worked out for people who have already paid into the system with an expectation of benefits much higher than $500/month..

yetanotherphd5• 13 years ago

The "cost" and "work" arguments really need to be combined together (this is also why economists prefer models to verbal arguments - it forces some amount of internal consistency and avoids endless arguments about definitions).

The primary difference between conventional welfare and basic income, is that you can have extremely high effective marginal tax rates for people on welfare. E.g. in Australia your effective marginal tax rate while on welfare is around 50%. For each dollar you earn, you get $0.50 less welfare (and pay a small amount of tax too).

Usually high marginal tax rates are associate with a disincentive to work. However since when you are on welfare, the government makes you report your job-seeking activity, you are forced to try to look for work even though without this monitoring there would be little financial incentive to work. So having strings attached to welfare allows a higher effective marginal tax rate for people on welfare, and is therefore "cheaper" in some sense.

scotty79• 13 years ago

I would not be opposed to a system of guaranteed jobs that paid $10,000 a year, or whatever we think this basic income should be.

It already exists. It's called civil service/public sector and the problem with it is that there's not enough money and not enough made up jobs to hire everyone.

gruseom2• 13 years ago

Most of these objections (e.g. the reciprocity thing) seem absurdly made-up; you could just as easily make up something opposite. But a couple of points are substantive if not substantiated. For example:

But if you means-test it to control the cost, or try to tax most of the benefits back for people who aren’t low-income, you rapidly lose the efficiency gains and start creating some pretty powerful disincentives to work.

Why? I can see how "means-test" might imply bureaucracy and thus inefficiency, but what's wrong with using tax policy for this? It seems like an obvious way to ensure that people who don't need the money don't get it, and no more inefficient as everyone has to fill out their taxes anyway.

Come to think of it, isn't that so obvious that the debate ought to start there, rather than end there? Otherwise the objections start to seem rather straw-man.

didgeoridoo• 13 years ago

That's not it. The issue is that "means testing" a basic income results in an effectively negative marginal tax rate for those below the means-testing line. The argument is that this is a strong disincentive to attempt to climb out of dependency.

gruseom2• 13 years ago

Oh, I see now. That at least makes some sense. But surely you could construct some formula to mitigate that effect, if not eliminate it?

I fear that many arguments about incentive and disincentive are just morality tales anyway, based on beliefs about human nature. It's easy to imagine opposite stories. Maybe there will be a social incentive to work. Maybe there won't be enough jobs for everyone anyway. Maybe the disincentive to work will make wages go high enough that they become an incentive to work again. Maybe the disincentive to do menial jobs will free up incentive to do creative things, a net win for society.

It's easy to make these things up, and everyone mostly does it based on whether they already like or dislike an idea. (I rather like this one. Megan Mcardle presumably doesn't.) But do we have a good way to decide between them?

scarmig4• 13 years ago

It creates a steep marginal tax rate.

Imagine that there's a basic income of $12,000/year. It's means tested so that people making $36,000/year don't receive any funding.

If you go with a simple flat implementation of this, it amounts to a 33% tax rate on the first $36,000 of income. And that's at best--if you go with something that causes basic income to phase out only between $24,000 and $36,000, you go from $24,000 regular + $12,000 basic income to $36,000 regular and $0 basic--a 100% marginal rate.

You can make it phase out over larger and larger income ranges--say, make it phase out at a flat rate between $0 and $100k--but at that point you get very little of the cost benefits of means testing.

3pt141592• 13 years ago

The whole point is that some people won't be working because they are being made obsolete with the advent of computerized robotics. I don't want the uninformed and skilless clamouring to be in the work force, I want them out of the way.

As for the cost, that is simple. Don't just look at federal numbers. Basic Income should be at National, State/Province, and City level to iron out regional differences. Don't forget that there are a lot of other costs that go away with a Basic Income, like minimum wage and socialized housing.

philwelch7• 13 years ago

It will be nice to give everyone a basic income when robots have automated away all the jobs, but what do we do this decade?

Don't be lazy. If you think basic income is feasible with state and city assistance, run the numbers for San Francisco and California. Otherwise one side has numbers and you have idle, unquantified speculation.

marknutter3• 13 years ago

People have been predicting the demise of the workforce ever since the industrial age (and probably before that, too). With every technological innovation we cry "it's the end of work as we know it!" Yet here we are, hundreds of years in the future, with jobs abound. I'm skeptical that will ever change. We humans are great at coming up with shit for people to do for a dollar.

brownbat4• 13 years ago

Or, "There is a long history of exaggerated concern, rightly derided by economists, with the replacement and hence displacement of workers by machines."

http://www.becker-posner-blog.com/2013/03/automation-and-emp...

Abrupt technological advances can disrupt certain industries very quickly, and it can take a while for the wages and the workforce size to find a new equilibrium. But I agree, that's much different than the sudden and dystopian end of all labor.

MaysonL• 13 years ago

During World War II, one of the U.S.'s great technical marvels was the Norden bombsight. Production, by GM, needed to be ramped up: but labor in Detroit was exceedingly tight. The only sufficiently large group available, who were hired, trained, and succeeded in production, were "superannuated Negro prostitutes." The reason the Germans didn't produce their own bombsight in equal numbers is that they believed that such a device could only be produced by highly trained, laboriously apprenticed technicians.

IMO, the idea that there are worthless people, in any significant number, is a pernicious and evil meme.

3pt141592• 13 years ago

That is a nice story, but maybe we should face the replacement of human labor head on instead of lying to ourselves.

brownbat4• 13 years ago

Side note, the Norden bombsight was pretty useless in actual combat. The German solutions weren't much better.

But precision bombing was the fundamental engineering challenge of WWII. And the US did solve it, twice. Sort of.

BF Skinner's pigeon guided missiles were the first way, they were crazy effective. They were just too weird for everyone.

Giant irradiating bombs that don't need any precision struck everyone as a much more sensible approach, so we went with that instead.

I think the last 70 years or so would have been better if we'd gone the pigeon route.

jfarmer• 13 years ago

These arguments are specious.

Most Libertarian proponents of a guaranteed income don't favor it because it will "save money," but because it's the least economically distortive way of redistributing wealth. The arguments goes, "Well, as long we're going to be handing out money, we should do it in a way that minimizes the number of strange incentives." There are also ways of implementing a guaranteed income that don't involve mailing a bunch of checks to people every month, e.g., a negative income tax.

Overall the article appears to be arguing against a particular and very naïve implementation of a guaranteed income.

philwelch7• 13 years ago

So how does a negative income tax get implemented, you mail people a "refund" after they file their taxes for 0 income for the previous year? What do they do until then?

ds9• 13 years ago

Well here is one way it could be implemented, and this would also solve the issue of cost.

Imagine it's offset against earnings. That is, if you earn more or less than the benefit amount, you get paid the difference - in one case by the employer, in the other case by the government.

You can see how this solves the cost problem: the society overall is already paying the total cost is of whatever people are currently paid; this just puts a floor on the range.

Clearly this would get rid of much of the extreme inequality: it would amount to a kind of minimum wage; the net effect would be to give workers a larger share, and more bargaining power, and leave less for the upper-middle and the 1% - at no more cost than the current system.

patmcc• 13 years ago

To the cost argument: to say "it would be hard to manage efficiently" makes it looks like most first-world countries don't already have a massively successful income tax collection program of some kind. They do. Tax rates could be set so anyone at the minimum income wouldn't pay; anyone at that level to "middle class" (or whatever) would pay back part of it in taxes; and anyone above a certain level would pay back more than the minimum income. Would some people be taking home less overall? Yeah, sure. Same as any other welfare service.

As for the idea that people won't work anymore and society would crumble - people like xboxes and new iphones and clothes and nice cars and even feeling productive. I tend to believe they'll keep working. Some will stop, sure. They're the same people who don't work now or are criminals.

marknutter3• 13 years ago

The problem is when people start to say that money for xboxes, clothes, and new iphones should be covered by a basic income.

adamnemecek3• 13 years ago

http://en.wikipedia.org/wiki/Slippery_slope

oakwhiz• 13 years ago

You're saying that people should not be allowed to purchase clothing with money from social assistance programs. I'm fairly certain that clothing is a basic human necessity, especially during the winter.

The problem is when people start to say that they ought to have control over other people's lives.

adamnemecek3• 13 years ago

For anyone unfamiliar with the author, she has close ties with the Koch brothers so remember that while reading the article.

EDIT: You can read more about her at http://shameproject.com/profile/megan-mcardle/.

cies3• 13 years ago

Funny, I already had the idea she was on that "side" of the game when I read it. :)

yetanotherphd5• 13 years ago

I don't quite get why you think this is useful info. Koch brothers are just people promoting a political agenda, like George Soros or any political party.

Everyone has a political viewpoint, and it's hard to see anything wrong with writing articles consistent with that viewpoint.

adamnemecek3• 13 years ago

I don't quite get why you think this is useful info.

Because I'm repulsed by everything they stand for. The world would be a better place if they were dead.

Koch brothers are just people promoting a political agenda, like George Soros or any political party.

Well I guess I should get rid of that shrine devoted to George Soros that I have then. Or what's your point?

Everyone has a political viewpoint, and it's hard to see anything wrong with writing articles consistent with that viewpoint.

http://en.wikipedia.org/wiki/Propaganda

Houshalter• 13 years ago

Cost can be dealt with by making it a negative income tax. That way not everyone is getting the full amount. People that are already making money only get a little from the system, whereas truly poor people get more. The new tax would be set just enough that it pays for itself. It probably wouldn't start at an amount that replaces current systems like welfare, but even $3,000 would help considerably towards evening out wealth inequality.

"People not working" is a good thing IMO, because many jobs have/are being automated and we can actually support people not having to work. The market rate for labor is pretty low. Things like the minimum wage prop it up even further from what the market rate would be. A lot of people not working would not actually cost the economy that much.

And as I said, the minimum income would probably start at a low amount, so people would still have a large incentive to work for the time being.

cies3• 13 years ago

because many jobs have/are being automated and we can actually support people not having to work.

Nicely put... I just want to dream on to this thought for a few minutes before I go on with my life :)

philwelch7• 13 years ago

Negative income taxes are an elegant solution, but they entail literally paying people to commit tax evasion, not just in the "if I evade my taxes I won't have to pay as many" sense but also in the "if I evade my taxes the government will give me money" sense.

wwweston• 13 years ago

"At any given point, a minimum-wage job may be very unattractive compared with spending more time with your family. But over the long run, it’s very hard to get a “good” job if you have been living on a basic income rather than working; employers do not like the signal sent by resume gaps."

If a guaranteed income does in fact provide enough of the labor force with an incentive to drop out as an alternative, then it seems likely that employers would have to stop thinking of resume gaps as an indicator.

Which, really, would be win-win, because my guess is that resume gaps are possibly less helpful in evaluating a candidate than most of the rest of the usual cargo cult surrounding hiring.

mgkimsal• 13 years ago

" then it seems likely that employers would have to stop thinking of resume gaps as an indicator."

Exactly what I was thinking. I don't understand why it's so hard for people to consider that when social changes are introduced, some of the current ways we value things will change, and current judgements can't necessarily be used as a gauge for future behavior.

Employers looking at 'gaps' and never ever inquiring from anyone remotely interesting why those gaps occurred are just throwing potentially great workers to the competition. "I took 18 months off to care for my dying parents, who passed away last month" is a totally different type of person from "meh - there's just too much quality day time television beckoning me to sit on the couch to bother looking for work".

johnpmayer• 13 years ago

I don't understand why it's so hard for people to consider that when social changes are introduced, some of the current ways we value things will change, and current judgements can't necessarily be used as a gauge for future behavior.

Ceteris paribus is quite prevalent in economic discussion.

marknutter3• 13 years ago

There will still be people who have employment gaps and those who don't, even with basic income. With enough resumes to filter through, that will still be a factor.

lsc• 13 years ago

If a guaranteed income does in fact provide enough of the labor force with an incentive to drop out as an alternative, then it seems likely that employers would have to stop thinking of resume gaps as an indicator.

Now, while I agree that gaps are considered way more important than they ought to be, experience is really, really important. Someone who has done a thing for ten years is going to be way better than someone who has done the same thing for only two, all other things being equal. Really, experience makes such a big difference that even without other things being equal, the person with a decade of experience is usually better.

Hell, this is one of those things that the unions and management agree on. All other things being equal, a more experienced worker is going to be more effective and productive.

Gaps matter too. I mean, I agree that they aren't as big of a deal as most employers make them out to be, but all other things being equal, the kid who has been doing the job for the last five years is going to be better than the kid who did the job for five years, then took five years off to catch up on netflix.

cies3• 13 years ago

"Less incentive to work"

Yes! And more incentive to start a company!

That's why big-corps/govts that employ a lot of low-wagers don't like this idea;

and small-self-owned, small-hi-tech-govt, and potential biz starters without access to funding tend to like it.

The level of the guaranteed income can be "low", thereby leaving "some" incentive to work.

I like the fairness, low-overhead and the sigma-reduction of this method of wealth re-distribution very much. This method is not directly/economically benefiting the 1% -- sure, I agree on that. But it helps _a lot_ of people to live more comfortable and puts pressure on good labour conditions from the bottom up.

Go Switzerland; please lead the way on this one -- it hope and predict it to be a great experiment!

Edit: typo.

chipsy• 13 years ago

I'm coming around to believe that the most promising, direct method of implementing equitable wealth redistribution is through cryptocurrency. Probably not just yet, but within the upcoming generations of protocols; the change in philosophy away from a competitive/speculative, gold-like asset is in part foreshadowed by the growing popularity of proof-of-stake. In Nextcoin[0], for example, mining no longer exists.

There are a lot of ways to model a currency so that rebalancing of wealth from richer accounts to poorer ones is a smooth, gradual, automatic process. And the software to do it, and the marketing campaign to popularize it, can be put together much more quickly and cheaply than ramming it through the existing political system.

All of which isn't to say that the political process is dead; but there is potential for a revision of government's duties, where software can do the job instead of a bureaucracy.

[0] http://nextcoin.org/index.php/topic,104.0.html

pfranz2• 13 years ago

Working backwards:

4) 'over the long run, it’s very hard to get a “good” job if you have been living on a basic income rather than working; employers do not like the signal sent by resume gaps' Economics would change significantly. If you wanted a "good" job and lacked the education and training you have the opportunity to pursue it on your own. I have a feeling there would be a huge increase in non-for-profit work (both in the traditional sense and in previously unseen markets), apprenticeships, and likely more internships (working for free at for-profit companies). I can't find any citation, but I remember recently reading about women joining the workforce significantly reduced the amount of volunteers for charities.

3) Politics would be very hard--but politics follow the people's will. If there's enough support, it'll happen (even if the transition is messy). I haven't seen strong, widespread support (or even wide knowledge of Guaranteed Income) just yet.

2) Admittedly, I'm not quite following the point. Society and government are the rules we all decide to make up and follow. The argument sounds very similar to politics, except 2) is convincing the people and 3) is convincing the politicians and people implementing it.

1) Cost is exactly why we're looking more seriously at this now (although, we may not be there yet). Ideally, it would be cost neutral or a net win to transition off of the quagmire of various welfare systems--similar to the argument for a flat tax rate. As a whole (speaking for the US) we're more prosperous and can afford to take on more of a social burden (or transition our social burden from various welfares to a simpler system). We're also moving toward a society where we don't need to have every person working to survive. I don't know if the statistics back up the narrative of city's factories getting closed and a majority of the population transitions to welfare and disability--while on the other side of the coin entertainment and the service industry are the largest growing markets.

philwelch7• 13 years ago

Ideally, it would be cost neutral or a net win to transition off of the quagmire of various welfare systems

Ideals aren't convincing. Numbers are.

pfranz2• 13 years ago

I completely agree. There are two aspects here; what do we want out of a society and what we can do with the resources we have (the numbers). We're clearly moving towards the resources, which is why I hedged so much on the topic of cost (and put it last instead of first). I'm just interested in moving the conversation in that direction. I like the idea, but I'm not entirely sold on it--it would be /very/ disruptive.

drawkbox• 13 years ago

I like to compare it to free to play. It could possible work if the high end becomes the whales that F2P games require to allow most people to play for free > 95-98% and then the riches made by the highest advancing 2-5% players provide the revenues to provide for the whole system. If there was some base level free to play number, it would be an evolutionary step as big as moving into modernized farming and what created markets, maths and the thinking man/woman due to extra time not having to survive all the time. Somehow the system would have to allow for the tasks noone wants to do though maybe by rewards. It could skew actual needed services ahead of more greedy ones.

All of the biggest games and internet product companies are free to play, maybe society is next or it will have to be when labor is limited, new things will have to be created and more freedom is needed to solve these problems.

Four Reasons a Guaranteed Income Won't Work

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