Universal basic income — the idea of giving everybody money — has been gaining momentum in policy circles lately. Finland just wrapped up a trial, and India might adopt a nationwide program. Proponents are hoping that the US, as it grapples with mounting inequality, will figure out how to offer a UBI here.
But a new National Bureau of Economic Research (NBER) working paper by Hilary Hoynes and Jesse Rothstein dumps some cold water on UBI enthusiasm. In their paper, the economists argue that a developed-world UBI is more distant than we realize, and that pilot programs aren’t going to change that.
The aim of their paper was to pin down some UBI proposals in enough detail to analyze their effects, and to summarize what we know already (from existing research on the effects of welfare) about the likely income and employment effects of a UBI. “There is a lack of clarity on what makes a UBI, what problem it is meant to solve, whether the social safety net can or is providing these benefits, and what (if anything) can be learned from the pilot programs that we don’t already know,” the paper argues. “Our paper seeks to fill this gap.”
Their takeaway? We’re studying the wrong things. We’ve pinned so many hopes to UBI — some of them contradictory — that it’s not clear anymore what concrete empirical results from our pilot programs would help us conclude it’s a good idea. At the same time, proponents typically haven’t characterized their plans in enough detail that we can figure out how to pay for them and how they’ll affect the poor.
That doesn’t necessarily mean UBI is a utopian pipe dream. But it does suggest that, right now, UBI is proposed as a solution to many different social ills, and the details of UBI proposals are often underspecified — so it’s not clear who’d get money, how much, or how we’d pay for it. If we want to fix our welfare system, that has to change.
Giving people money solves problems — but which ones?
The idea of a universal basic income is simple: give everyone free money, no strings attached.
There are a lot of problems with America’s current welfare system. People fall through its cracks; they have difficulty finding out which programs they’re eligible for and experience shame and stigma for being on welfare.
There are also a lot of problems on the horizon. Technological unemployment hasn’t quite panned out yet — new technology might shift where the jobs are, but it doesn’t seem to destroy them — but some people fear that won’t be true forever, as we learn to automate more and more. And inequality is rising, leaving people worried that the gains from new technologies will leave most of us behind.
It’s that perfect storm of policy worries that has gotten so many people excited about UBI.
“Attention may be running ahead of actual policy development,” Hoynes and Rothstein argue in the opening to their paper. In particular, lots of arguments are being floated about UBI. They mostly rely on different and incompatible visions of the program, and they sometimes make exactly opposite predictions.
For example, take the argument that the current welfare system discourages work and traps people in poverty. This implies that a UBI would be good in part because it wouldn’t discourage work; if the program was working as intended, we’d see labor force participation increase.
A related argument, the paper observes, is the argument that UBI could “shift labor supply from unpleasant/precarious jobs to jobs that combine low pay with high amenities, jobs with opportunities for human capital accumulation, or simply jobs more aligned with individual tastes (e.g., in the arts).”
That is, instead of people working poorly paid jobs they hate, they’d feel able to work jobs that might be similarly poorly paid but which they love — founding a company, opening a restaurant, managing a community theater, making art, running kids’ programs. That’s a way UBI could avoid affecting the labor supply at all, while making the world a better place.
But other arguments for UBI assume it will decrease the labor supply. The technological unemployment argument, for example, seems to rest on the assumption that UBI will decrease the labor supply — and that this is a good thing. Under this model, UBI is part of how we transition from a society where people need to work to a society where they don’t. Complaining that they won’t get jobs is beside the point.
As the paper spells out, this makes it tricky to evaluate whether UBI programs are living up to expectations. We haven’t decided what problem we want to solve, much less what experimental results we’d see if we’d successfully solved it.
That’s a problem, Rothstein told me. Studies like the one Finland recently conducted are “meant to tell us whether a UBI is a good idea, but it’s not clear what results would lead to you saying, ‘Yes, it’s a good idea’ or, ‘No, it’s not a good idea.’”
Are we looking for a UBI to increase labor market participation? Leave it the same? Decrease it? Do we want a UBI in order to fix welfare disincentives to work, or in order to fix the fact that people have to work to survive? “You can’t solve a problem and its opposite with the same solution,” Rothstein said.
Does a UBI replace existing programs or supplement them? Both options have problems.
“A truly universal UBI would be enormously expensive,” the paper argues. This is uncontroversial, even among UBI supporters, but it’s important to spell out — and to look in depth at our options for paying for it.
“The kinds of UBIs often discussed would cost nearly double current total spending on the ‘big three’ programs (Social Security, Medicare, and Medicaid),” the paper finds. “Moreover, each of these programs would likely be necessary even if a UBI were in place, as each addresses needs that would not be well served by a uniform cash transfer.”
How expensive does a UBI have to be? That depends on how you’re defining it, of course. The NBER team argues that to qualify as a UBI, a program needs to be universal — given to everyone, not to targeted subgroups. It needs to be sufficient to raise the recipients out of poverty — for their core model, they consider a UBI of $12,000 a year.
That’s, unsurprisingly, super pricey. “A universal payment of $12,000 per year to each adult U.S. resident over age 18 would cost roughly $3 trillion per year,” they find. “This is about 75 percent of current total federal expenditures, including all on- and off-budget items, in 2017. (If those over 65 were excluded, the cost would fall by about one-fifth.) Thus, implementing this UBI without cuts to other programs would require nearly doubling federal tax revenue.”
Many advocates of UBI have a solution to that: UBI should replace other programs, not just supplement them. The NBER paper argues that this solution doesn’t work as well as we’d hope. “Even eliminating all existing transfer programs — about half of federal expenditures — would make only a dent in the cost,” they observe.
And that’s not the only problem. Eliminating all existing transfer programs in favor of a UBI would leave some big holes. For example, under the UBI they propose, a single parent of three children would be eligible for $12,000 a year in total assistance. Under the current system, that parent would likely be eligible for a lot more: health care through Medicaid, food stamps, rent and housing assistance, and potentially transfer payments through Temporary Assistance for Needy Families. “Replacing existing anti-poverty programs with a UBI would be highly regressive,” the paper argues. That’s not what anyone’s going for.
Making a UBI generous enough that we could afford to eliminate all other programs would raise the costs further. I asked Rothstein about a program that also provided payments to kids (a UBI in general isn’t yet on the table politically, but a UBI for kids may be). He said their paper hadn’t — and couldn’t — compare every possible program, but that you could improve the redistributive effects with an approach like that one. But again, any expansion of the benefits increases the price tag.
Rothstein and Hoynes argue that while supporters of a UBI are trying to make the transition from “out-there idea” to “serious policy proposal” with pilot programs, the pilot programs aren’t going to be able to answer the most important questions that remain. Those questions are how UBI will fit with existing programs, and how we’ll pay for it. If UBI is to become a real option on the table for Congress anytime soon, those are the details we’ll have to nail down — and getting them right should be our next priority.
The paper is a discouraging read for UBI proponents. But it’s not a reason to abandon the idea that everyone deserves to share in society’s prosperity, whether they work or not. Instead, it’s a reason to remember that a big idea isn’t a policy proposal, and that you have to start putting forth policy proposals — specific enough that they will be criticized — to get real policy change. I came away from the paper wanting a much smaller UBI (per person, not per adult) that we could scale up as the economy grows and the country becomes more prosperous. This paper needn’t be a call to give up on UBI, but a call to figure out how to make it work.
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