A Basic Income for Everyone? It's Not a Crazy Idea

(Bloomberg View) -- If there’s one policy that can unite socialists and Silicon Valley libertarians, it’s universal basic income -- a regular payment from the government to each and every adult, regardless of income. Many socialists like the unconditional nature of the program -- like Social Security, it has the potential to avoid arousing the anger of higher-earning people who feel they’re being forced to pay for those who don’t work. Indeed, polls reveal a plurality supports the idea in the U.S. and a majority supports it in Europe. Meanwhile, some in the tech industry believe that as machine learning and other technologies continue to replace human labor, basic income will be the only way to guarantee large portions of the human race a decent standard of living.
QuickTake Universal Basic Income

As a policy with support on both the left and right, UBI also has critics on both sides. On the right, many worry that UBI would increase poor people’s income to the point where they won’t need to work, reducing overall economic output. Many unions and thinkers sympathetic to the labor movement, meanwhile, worry that a transition away from work will both reduce human dignity and blunt the political power of workers. Critics tend to favor ideas that reward poor people for employment -- wage subsidies, government job guarantees and increases in the earned income tax credit.

With all this attention and controversy, the debate badly needs some data. Empirical evidence is the only thing that will answer the question of what effects basic income actually has on society. To this end, a number of governments and charities around the world are starting to experiment with unconditional cash transfers. Silicon Valley startup accelerator Y Combinator attracted a lot of attention when it announced its own UBI experiment, in which the company is giving 3,000 people each $1,000 a month for five years.

These trials will doubtless serve as good marketing for UBI, and help mollify critics in specific locations. But economists aren’t waiting for the results to start thinking about basic income -- a number of historical episodes help predict what would happen if people got regular government checks in the mail. So far, the evidence seems promising for basic-income boosters.

One potentially helpful analog is the negative income tax. This is where a government guarantees you a certain minimum income, which it takes away gradually as you start earning more money on the job. Negative income tax  is not a basic income, since it’s not unconditional -- the phase-out of benefits acts like an income tax, which economic theory says should discourage work. But it’s a good starting point for thinking about universal basic income, because if a negative income tax doesn’t discourage work very much, then a similarly sized UBI almost certainly wouldn’t.

In most cases, economists find that negative income taxes don’t decrease employment by a statistically significant amount. There are some exceptions, though. Economists David Price and Jae Song studied the Seattle-Denver income-maintenance experiment, where families in those cities were randomly chosen to receive guaranteed minimum incomes in the 1970s. They found that employment decreased by 4.6 percent, and income went down by an average of $1,800 a person -- a sizable reduction. That’s worrying, since it implies that government transfers could reduce the productivity of the economy as a whole by encouraging people to stop working.

But this program wasn’t a true UBI, because the policy penalized people for working. A closer UBI analog is the income that certain Native American groups receive from operating casinos. Economists Randall K. Q. Akee, William Copeland, Gordon Keeler, Adrian Angold and E. Jane Costello found in 2010 that these payments didn’t cause recipients to reduce the amount they worked.

But even this kind of study can miss the impact of the cash transfers on general labor demand -- when you give people money, they spend it on goods and services produced by other people, raising wages and employment.

Economists Damon Jones and Ioanna Marinescu found an example of a truly universal, unconditional transfer -- the Alaska Permanent Fund. Since 1976, a percent of the revenues from natural resource extraction in Alaska is paid out to all state residents. This acts just like a universal basic income. In research presented at the American Economic Association meeting earlier this month, Jones and Marinescu compared Alaska to other states, and found that the introduction of the fund had no effect on employment in Alaska (though interestingly, it did cause a small shift from full-time to part-time work).

This finding represents convincing evidence that a true UBI doesn’t discourage people from working -- at least, if it’s small. The Alaska Permanent Fund dividends are usually about $2,000 to $3,000 a year -- not enough to live off of. A basic income of $10,000 or $20,000 might look very different, however.

But Alaska’s experience means that there’s very little risk in implementing a small UBI. Giving every American $3,000 a year would cost about $1 trillion -- less than one-sixth of current total government revenue. That amount could then be increased as desired, or increased in certain areas in order to get more data about the effects of larger transfers.

In the ongoing war against poverty, a modest UBI looks like a safe, effective tool that wouldn’t hurt the economy.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Noah Smith is a Bloomberg View columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.

For more columns from Bloomberg View, visit http://www.bloomberg.com/view.

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