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The 2 most popular critiques of basic income are both wrong

Vox / Javier Zarracina

At first blush, basic income — a proposal where every American gets a regular stipend from the government, just for being alive — sounds like a radical, even absurd, idea.

It says that people should be guaranteed enough money to live on whether they spend most of their time working, or in school, or taking care of loved ones, or taking drugs and surfing. It says that the government should tax people who work to pay for a check that goes to some people who don’t do anything conventionally viewed as productive.

That raises a lot of obvious questions. Wouldn’t this totally ruin the economy? If everyone got money whether or not they worked, wouldn’t tons of people drop out of the labor market?

And if tons of people are dropping out of the workforce, and everyone’s still getting checks from the government, no strings attached, wouldn’t the cost become prohibitive? How could any country afford such an expansive benefit, especially when enacting it discourages people from earning money, eroding the tax base it relies on?

These are natural objections to a basic income, and they seem like common sense. But the best evidence we have suggests they’re unfounded. You can support a basic income or oppose one, but mass joblessness amid a crumbling economy shouldn’t be on your list of concerns.

The two main criticisms of a basic income

Making the case for universal basic income (UBI) has always required advocates to address two criticisms of the idea:

  1. Giving people cash will cause them to work less, hurt the economy, and deprive them of the meaning that work provides in life.
  2. Providing an income floor set at a reasonable level for everyone is unaffordable.

Call these the work critique and the cost critique. These are attractive arguments to liberals and conservatives alike. Conservatives have worried about the work disincentive effects of welfare programs for decades, of course, but some liberals, like Center for American Progress leader Neera Tanden, have attacked UBI on similar grounds, arguing that by discouraging work it separates ordinary people from a powerful source of meaning in life. Of course, that’s only true if UBI does, in fact, cause people to stop working en masse:

Same goes for the cost argument. Conservatives are, obviously, loath to take on expensive new social programs of any kind. But the universality of basic income proposals worries liberals who want more targeted increases in spending to help the poor. A policy that gives Bill Gates money he doesn’t need is a policy that has less to give the truly needy.

"If we instead choose to use our resources on people who don't need them, we won't be able to build on the progress we've made," Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities and former chief economist to Vice President Biden, cautioned when arguing against UBI at an Intelligence Squared debate in April.

But already, I think it’s clear that both the work critique and the cost critique, as cases against the idea of any sort of guaranteed cash grant, fail. They might be helpful critiques when designing the exact form a minimum income should take in the United States, but they leave the underlying concept unscathed.

Do basic incomes reduce work?

Alaska Governor Bill Walker announcing the amount of the 2016 Alaska Permanent Fund dividend.
Alaska Gov. Bill Walker announces the amount of the 2016 basic income the state pays to every resident, alongside middle schooler Shania Sommer.
Gov. Bill Walker

Let’s take the work critique first. University of Chicago economist Ioana Marinescu recently conducted a wide-ranging review of the literature on unconditional cash programs for the Roosevelt Institute, focusing on programs in the US and Canada. She examined experiments in the 1970s and ’80s that evaluated “negative income taxes” (NITs, essentially basic incomes that phase out as you earn more), Alaska’s Permanent Fund (which taxes oil extraction and returns the money directly to every man, woman, and child through an annual check), and a dividend the Eastern Band of Cherokees issued to members of the tribe from casino revenues.

All of these cases find reductions in work that are, at most, modest. In the Cherokee case (where members got about $4,000 to $6,000 a year) there was no effect on work; in the Alaska case, where checks are generally $800 to $2,000 per person (so up to $8,000 for a family of four), there's a small increase in the share of people working part time, but no overall effect on the share of the population working. Indeed, the part-time work boost could come from people entering the workforce anew. “Our fear that people will quit their jobs en masse if provided with cash for free is false and misguided,” Marinescu concludes.

The negative income tax experiments are more complicated. Most of the studies found no statistically significant reduction in work; only one, the Seattle/Denver experiment, found a reduction, and it saw the employment rate fall by 4 percentage points. But there’s a catch. The studies generally measured the policy’s effect on beneficiaries’ self-reported income, not their income as measured objectively by, say, the IRS or Social Security Administration. “Because NIT recipients underreported earnings in order to get a larger benefit payment, the impacts of NIT on employment are likely exaggerated,” Marinescu writes.

Moreover, at least some of the labor force participation decline that the NITs caused was socially desirable. Stanford economist Eric Hanushek, evaluating the non-labor force effects of the NIT experiments, found that “for youth the reduction in labor supply brought about by the negative income tax is almost perfectly offset by increased school attendance.” Other than that, the bulk of the decline seems attributable to longer spells of unemployment, as people used money from the negative income tax to fund longer searches for jobs. That’s a good thing: Research from Stanford’s Raj Chetty has found that longer job searches improve matching between candidates and jobs, increasing economic efficiency.

Similarly, a recent study of Dauphin, Canada's negative income tax experiment by sociologists David Calnitsky and Jonathan Latner found that the policy enabled a significant number of people to stop working, at least temporarily. But upon examining the written accounts of people in the town, Calnitsky and Latner found that most of those people cited good reasons for their decisions: “participants that left the labor force typically cite limited employment opportunities, engagements in care work, disability, old age and illness related leaves, or educational investment.”

What most negative income tax studies don’t find is any evidence that people were dropping out of the workforce permanently, the kind of outcome that basic income opponents really worry about, and which would justify fears about people losing the meaning that comes from work. It certainly appears that when people get guaranteed cash, they work anyway. They’re not suffering from chronic anomie; they’re just more economically secure.

That makes sense. Just dropping out of the workforce entirely to veg out and do nothing — to become, in the words of basic income advocate Philippe van Parijs, a “Malibu surfer” — isn’t really appealing to most people. People like the sense of purpose that work gives them, the status it gives them in their community and with friends and romantic partners; they like being social during the day rather than staying at home and watching TV (probably the only leisure most people could afford if a basic income were their only source of money). Indeed, Calnitsky and Latner find that in Canada's experiment, “no qualitative account provides any evidence, even if stretched, which could be construed as documentation of the ‘Malibu surfer.’”

International evidence is also encouraging. Iran, believe it or not, has a program very much like a basic income. While winding down the country’s extensive oil subsidies for citizens, President Mahmoud Ahmadinejad implemented a flat cash dividend, paid out to every man, woman, and child in the country. Social conservatives like Ahmadinejad tend to also be big welfare state and redistribution supporters; that helps explain their support from poorer parts of the country.

The current reformist president, Hassan Rouhani, has opposed the basic income out of concern that it discourages work, and the policy has been dialed back slightly. “Parliament passed a law requiring the government to drop the well-to-do from the roster,” Djavad Salehi-Isfahani, a professor of economics at Virginia Tech and a fellow at the Brookings Institution, told me. “3-4 million of the 80 million [total population] have been dropped.” All the same, he says, “I think it is (or was) very much a UBI program.”

Salehi-Isfahani and a colleague, Mohammad Mostafavi-Dehzooei, have studied the Iranian basic income’s effect on work. “Our overall conclusion,” they write, “is that the program did not affect labor supply in any appreciable way.” That’s especially astounding given the size of the benefit: In 2011, when it was introduced, it provided about 29 percent of the median household income on average. In the US, that would mean paying out $16,390 to the average family.

The benefit has since eroded with inflation, and Iran is economically different from the US in countless ways, but the fact that a basic income that massive caused so little disruption to work is striking.

In total, the evidence suggests that a nationwide basic income or negative income tax in the United States would have either zero or a modest effect on work. And there are reasons why we might want to root for a modest effect, rather than zero effect. If a basic income did discourage work, it would also encourage education and longer, better job searches, and it would raise wages. Berkeley economist Jesse Rothstein has estimated that a negative income tax could provide $1.39 in benefits to recipients for every $1 the government spends, because by mildly discouraging work it would force employers to bid up wages.

The cost critique doesn’t fly either

The cost critique is even simpler than the work critique. I’ll let Robert Greenstein — the president and founder of the Center on Budget and Policy Priorities, perhaps DC’s leading and longest-standing advocate for the interests of poor people, and one of the people in Washington I admire most — make the case:

There are over 300 million Americans today. Suppose UBI provided everyone with $10,000 a year. That would cost more than $3 trillion a year — and $30 trillion to $40 trillion over ten years.

This single-year figure equals more than three-fourths of the entire yearly federal budget — and double the entire budget outside Social Security, Medicare, defense, and interest payments. It’s also equal to close to 100 percent of all tax revenue the federal government collects.

There’s no doubt that a basic income would be a significant new expenditure. But I think this kind of simple back-of-the-envelope math is misleading. The truth of the matter is that the US could easily afford a basic income program that wipes out poverty entirely.

Negative income tax cost estimates Wiederspan, Rhodes, Shaefer, 2015

In an absolute must-read paper for anyone interested in the basic income debate, the University of Michigan’s Jessica Wiederspan, Elizabeth Rhodes, and Luke Shaefer estimate the cost of the US adopting a negative income tax large enough to wipe out poverty. To be conservative and get a high-end cost estimate, they assume that such a program would discourage work substantially.

Despite that, they find that a household-based negative income tax, set at the US poverty line and with a 50 percent phaseout rate, would cost $219 billion a year. That’s almost the same as the combined cost of the earned income tax credit (which supports the working poor), Supplemental Security Income (itself basically a negative income tax but only for the elderly and disabled), food stamps, cash welfare, school meal programs, and housing subsidies. You could swap those programs out, put a guaranteed income in their place, and wipe out poverty entirely.

Is this the best possible way to do a guaranteed income? Not necessarily. There’s much to debate in any particular program design. But the Wiederspan, Rhodes, and Shaefer paper shows something important: Funding a guaranteed income to eliminate poverty is doable for a country as rich as the United States.

This is not to say that designing a good guaranteed income program is easy. It’s not — and that’s particularly true given that the motivations behind basic income programs are so diverse. When some advocates like the idea because it can reduce poverty, while others want it as a way to adapt to technological change or to dismantle the rest of the social safety net, creating a policy that satisfies everyone is very difficult, if not impossible. There are promising approaches that advocates could embrace, like carbon dividends or child allowances, but designing and enacting them requires care, attention to detail, and a willingness to compromise. It’s a tough project.

But the underlying idea — of giving out unconditional cash, whether or not people work — is sound. It’s feasible and doesn’t need to be prohibitively expensive. Basic income just won’t lead to the budgetary or economic disaster that many of its opponents claim it would.