Wednesday, September 27, 2006

Want Free Money?

Then join the growing movement of academics, economists, and social activists advocating the institution of an Unconditional Basic Income (UBI) paid to every citizen without exception.

It would overcome the “poverty trap”. Conventional welfare schemes and unemployment benefits create perverse incentives that breed dependency. (Getting a job doesn’t sound like such a good idea if it means your welfare checks dry up!) Replace conditional welfare with a UBI and more people will want to work.

The UBI increases the real freedom and bargaining power of the worst-off, who can then afford to walk away from exploitative employers. With the security of a UBI, workers can negotiate fairer wages and working conditions. (Note that this relieves the need for minimum wage laws and labour regulations. We can free up the market and hence boost the economy, counterbalancing the taxes needed to fund the UBI.)

You might worry that some would bum off the UBI without contributing anything back to society. I have three responses: (1) The above benefits of the UBI outweigh this cost. (2) Societal contributions need not be economic in nature – by reducing the need to work, a UBI would enable people to spend more time parenting, studying, creating art, or volunteering in their communities. (3) If you really envy the bum, you have the option to join them. What, you don’t want to after all? The fact is, most of us want to achieve something with our lives, and contribute to society in some way or another. The UBI better enables us to do just that.

[P.S. The above is my latest attempt at philosevangelising to the locals, reprinted here to allow for comments. But you're probably better off reading this old post instead.]


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13 comments:

  1. I wonder though to what extent conventional welfare systems and Unemployment insurance were deliberate forms of social control? UBI would no longer have that aspect and the people who believe in (or benefit from)social control of the poor would not support it. It is similar to the situation with the police, who are always the last ones to support the abolition of a law, out of self-interest.

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  2. a few concerns....

    > Societal contributions need not be economic in nature

    The problem here I think is that they need not be economic but they also need not be positive. A contribution to society that IS positive will probably be rewarded in some way (by money probably) and an optimal situation might be to reward such activities even more.
    I know it is rather un PC to say it but people with no job but seeking a job (the unemployed as opposed to peopel who dont look for a reason like having had a child) probably genuinely DO contribute less. They may well contribute a negitive amount to the outside world (in fact I'd argue far more of us than we would be comfortable admiting do this partly because there are too many people) - some would argue they do so on agregate and that would not be disproven if some did indeed contribute positively.

    > If you really envy the bum, you have the option to join them.

    Not everyone has the same preference set.

    > poverty trap

    yes but I wouldnt call it a poverty trap - thats such a leftist term - I'd call it a high marginal tax rate.

    > The UBI increases the real freedom and bargaining power of the worst-off

    I notice that many workers on almost any income percieve themselves as having very little power. Possibly because they dont save despite the considerable incentives - I wonder if the UBI wil cause even less peopel to save and yet leave them still at the mercy of an employer by over committing their income.

    But actualliy I support it anyway :)

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  3. > and an optimal situation might be to reward such activities even more.

    by this I eman that money will become an even more accurae predictor of "good for society" and in the end not being paid may imply "bad for society".
    As such I would suport a family suport payment which I think of in terms of paying parents to compensate themfor the not inconsiderable obligations we put upon them.

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  4. it would also have a positive effect on families because there would be no trouble with maintenance; simply deduct the money from the dad's monthly payment. as men see their buddies incomes slashed, watch how responsible they become.

    >We can free up the market and hence boost the economy, counterbalancing the taxes needed to fund the UBI

    actually enough tax is already collected in rich countries to pay for a decent UBI.

    >You might worry that some would bum off the UBI without contributing anything back to society.

    of course this is true and your responses are correct. but it does take a moralising out of welfare, people won't need to present credible tales of woe. surely that is also a good thing.

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  5. How much would the UBI be? In the US, for example, we have some 280 million and a GDP of 13 trillion. Supposing a UBI of $10,000 per person, which is 125% of the individual poverty rate, this would cost about 21% of GDP, in the best case where there is no loss of output. Empirically, we know that this best case is unlikely. For every one percent increase in government spending as a share of gdp, growth falls off by around one third of one percent. (back of the envelope calculation, no controls for other variables. details provided upon request) Let's assume that we could get rid of a lot of other spending such as conventional welfare and such to get the cost down to 1.4 trillion. That would imply a loss of annual growth of about 3%.

    I'm not sure if it would really be worth it to give up that much economic growth, which has done more for the poor than any transfer program so far devised. Of course my numbers could be wrong, but I woner what you estimate would be the cost in terms of economic growth.

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  6. I'll point out the first error in my calculations too: I assumed that GDP would initially stay the same upon the introduction of a UBI and just grow more slowly.

    "actually enough tax is already collected in rich countries to pay for a decent UBI."

    Sure. If almost every other expenditure were eliminated. In the US, I suppose that if medicare, social security and regular welfare were eliminated, and if the UBI were low enough, then enough would be left over to fund a UBI at no additional cost. Without a concrete amount for a UBI, it's impossible to say.

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  7. >>"actually enough tax is already collected in rich countries to pay for a decent UBI."

    >Sure. If almost every other expenditure were eliminated.

    If he means in NZ (or Sweeden or whatever) the situation would be different from countries like the USA of course.

    To get onto a hobby horse - NZ could make up the difference with a high capital gains tax like the fast growing economies seem to do.

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  8. hmm seems I lost a post - how annoying.
    anyway my point was
    1) you might wnt to exclude money taken from a person and given back to the same person as a tax credit (ie the UB for bill gates)
    2) after that you couldesign the sixe of the UB to exactly match the available money Or even the available money after economic effects.
    It couldeasily be designed to be tax neutral - and if that means a low UBI that is larely just a function of the fact that you dont have high benefits - a debate you cna have at a later stage.

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  9. Genius,

    I recognize that the USA is somewhat unique. I just know where to get economic numbers for the USA more readily than any other country.

    Even in the USA, it might be possible to have a UBI that was less costly than our existing programs. Or it might be possible to have a UBI that ensures no one lives below the poverty line. I'm wondering if it would be possibly to have a UBI that does both.

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  10. well I'd say - unless it creates calue (which it might but we are assuming it won't) then no - but maybe that doesn't matter

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  11. James- a UBI is often promoted as a replacement for the welfare state. If the US diverted its welfare spending into a UBI there would be $10 000 per person. Spending wouldn’t increase, regulation would be dismantled and disincentives would work would be largely be eliminated. I think most economists would agree that this would be rather good for the economy.

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  12. Stuart,

    As I examine the statistical abstract I get the impression that the government spent 1.4 trillion in 2005 on "transfer payments." To give $10k to 280 million Americans would double that.

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  13. Oh, well yeah, kids wouldn't get it.

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