Universal Basic Income

(Bloomberg) -- Should the government guarantee every citizen a monthly stipend, no strings attached, no questions asked? Or a decent-paying job with benefits such as health care and sick leave? Those ideas are part of a global debate over whether and how much to strengthen the social safety net to offset widening inequality and to ease deepening anxiety over joblessness caused by workplace automation. While programs that provide jobs are among the biggest anti-poverty measures in developing countries, the stipend idea known as universal basic income is generating interest and has prompted trials in Europe, North America and Africa. A guaranteed allowance that takes the place of means-tested welfare programs could have appeal across the political spectrum, depending on how it’s structured. In the U.S., the notion of ensuring a basic income or a job is a common thread among candidates seeking to be the Democratic Party’s nominee for president in the 2020 election.

The Situation

Some of the biggest evangelists for a universal basic income can be found in Silicon Valley, where technology billionaires like Mark Zuckerberg and Elon Musk see it as a solution to potentially large job losses — and consumer backlash — from driverless cars, robotics and other forms of automation. Google’s philanthropic arm is a backer of GiveDirectly, a New York-based nonprofit that is providing 5,000 Kenyans a guaranteed income of about 75 cents per day for up to 12 years to test, among other things, how it affects employment, nutrition and mental health. One of the broadest experiments is being planned in the Indian state of Sikkim, where the ruling party says it will provide a basic income for every one of 610,000 citizens by 2022. India’s government already guarantees rural workers up to 100 days per year of paid employment. Some U.S. lawmakers are ready to leap in. The liberal legislative wish list known as the Green New Deal envisions guaranteeing all Americans “a job with a family-sustaining wage.” How to pay for that? Some backers of the plan embrace Modern Monetary Theory, an unconventional doctrine that insists governments can run budget deficits far bigger than economists typically accept, so long as inflation stays low. In his campaign for U.S. president, Senator Bernie Sanders proposed using tax dollars to ensure that everyone who wants a job gets one paying at least $15 an hour, plus benefits, doing things like rebuilding crumbling infrastructure or providing child care. Entrepreneur Andrew Yang based his long-shot campaign for the Democratic nomination on a plan to give every American adult $12,000 a year. Not everyone is a fan. Swiss voters in 2016 soundly rejected a proposal for a basic monthly income of about 2,500 Swiss francs ($2,460) per adult, after the government warned that the proposal would force a tax increase and cause a shortage of skilled workers, sending jobs abroad. Hillary Clinton, the 2016 Democratic nominee for U.S. president, revealed after her loss that she had considered making a universal basic income a central piece of her economic plan but rejected it because of the cost. 

The Background

The idea of a government-guaranteed minimum income dates back centuries, with some saying a version originated with humanist philosophers of the 16th century. British philosopher and Nobel laureate Bertrand Russell was one of the 20th century’s earliest advocates, and a type of basic income was debated, and rejected, at the 1920 U.K. Labour Party conference. It wasn’t until the 1960s that it became part of the mainstream political discussion in the U.S., when President Richard Nixon proposed a minimum income for families in the form of a negative income tax. That idea didn’t make it out of Congress but led to adoption of the earned-income tax credit, which supplements the earnings of the working poor. Conservative economist Milton Friedman, who is credited with proposing the negative income tax, wanted to end the “earnings cliff,” in which government aid disappears once income exceeds a cap, potentially discouraging people from working. The tax credit is widely considered an effective anti-poverty program, but the earnings-cliff issue is more complicated than ever: The U.S. now has more than 80 low-income programs, each with its own earnings cap. As for a job guarantee, the U.S. has the experience of President Franklin D. Roosevelt’s Works Progress Administration, which employed several million people in construction and the arts during the Great Depression.

In 1968, Milton Friedman discussed his proposal for a negative income tax.

The Argument

Many basic-income backers cast the idea as the ultimate expression of what a developed economy can achieve: It would lessen poverty and inequality, reward work and encourage enterprise, maybe even make people a little healthier and happier. But two questions would be key to any program. How big a payment to give? And what would become of existing means-tested safety-net programs, which focus on helping the neediest? To win over the anti-government-handout crowd, a program guaranteeing a basic income would need to replace, not supplement, the dozens of social welfare programs now costing U.S. taxpayers about $1 trillion a year. In theory, the political right and left might be able to coalesce around a guaranteed-income program generous enough not to leave anyone worse off, but not so lavish as to discourage job seeking or require higher taxes. Rather than trust elected leaders to thread that needle, some Democrats in the U.S. would prefer to focus on advancing more practical priorities, such as a $15 minimum wage and paid family leave.

The Reference Shelf

• A Bloomberg View column analyzes the idea’s pros and cons.
• “The Town With No Poverty,” by Evelyn Forget, is a landmark study analyzing Canada’s experiments with basic income in the 1970s.
• The Basic Income Earth Network’s website provides history, background and FAQs.
• Rutger Bregman, a Dutch writer, makes the argument in an op-ed and in a book: “Utopia for Realists: The Case for a Universal Basic Income, Open Borders, and a 15-Hour Workweek.”
• On Reddit, the “BasicIncome”community gathers articles and commentary from around the globe on the pros and cons of the idea.

To contact the editor responsible for this QuickTake: Laurence Arnold at larnold4@bloomberg.net

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