Scott Sumner  

Three ways to do a UBI: None are feasible

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There's been a lot of discussion about the advantages of a universal basic income (UBI), which might involve giving everyone an income of say $10,000 or $12,000/year. I've written on this before, here I'll just provide a very short and sweet explanation for why it won't happen. Start with the two ways of doing a UBI:

1. Add on to existing social programs. This would require a mind-bogglingly large rise in taxes ($3 trillion?), and would in the end fail to deliver the required tax revenues for standard Laffer Curve reasons. AFAIK, no country raises the sort of tax revenue (per capita) required to finance a UBI in the US, if added to existing programs.

2. Replace existing programs with the UBI. There are two versions of this idea, neither of which would work:

a. Replace all social welfare programs with a UBI. This is a complete nonstarter politically. As soon as you start talking about taking away the public's Social Security, Medicare, veterans benefits, etc., people would freak out.

b. Replace only those social programs aimed at poverty reduction. This would allow for only a very small UBI, far too small to eliminate poverty. It might be worth doing, but it's not a UBI as most people think of the term.

So there are three options; 1, 2a, and 2b. None are feasible. There's no point in even discussing a UBI, it won't happen.


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CATEGORIES: Income Distribution




COMMENTS (29 to date)
Philo writes:

It won't happen in the U.S. In the near future. That's not enough to show it isn't worth discussing at all.

Partisan writes:

This seems like not very creative thinking for someone whose ambitions include remaking monetary policy!

I'm a fan of 2 (a), and agree that selling the idea politically is daunting. But why not try making it a choice? Obviously people who get more than $10K/year in benefits would keep with the old plan, but wouldn't others generally want to switch?

Jason Braswell writes:

Why have we centered on $10k as the magic number? I, for one, think that's crazy high. I think half that would be sufficient.

Three roommates in Alabama, a bare bones (yet still healthy) diet, a cheap cell phone, and slow internet access...I think $5k would cover all of this.

Airman Spry Shark writes:

1) Economically infeasible
2a) Politically infeasible
2b) Still sounds feasible

Chris writes:

What about 2b combined with tax reform? I still think a UBI is the easiest way to implement a progressive consumption tax by combining it with a large sales tax. The UBI will be larger than total taxes collected on lower income households so they will pay nothing or receive a transfer on net. On the other hand, the top households will pay much more taxes than they receive back in UBI.

Also, UBI has been much closer to being implemented in a country than NGDP targeting and yet you still seem to discuss that a lot. Should political viability be the primary concern when we talk about optimal policy?

John Hall writes:

Yeah, I don't see a problem with 2b.

Lorenzo from Oz writes:

Grandfather it in? That is, bring it in for the upcoming cohort while removing their eligibility for replaced programs.

Airman Spry Shark writes:

Even 2a could be feasible starting a few years after 2b was implemented; set the UBI to increase over time in sync with a slower-than-realtime phasing out of Social Security & Medicare (e.g., raising retirement age by a year every two years).

Scott Sumner writes:

Philo. Yes, never say never. In the very distant future conditions may change and it might become feasible.

Partisan, Every year I used to get a letter from the government telling me how much Social Security I could expect. Say it was $25,000/year, based on what I contributed. Now I retire and find that I'm getting $10,000/year.

And no Medicare.

And no veterans benefits.

Lots of luck selling that to even the sort of liberal Dems that might otherwise support a UBI. I don't think the supporters have any idea how big the challenges are.

Jason, I agree, but then the UBI supporters will complain that you have not ended poverty.

Airman, Yes, but the amounts would be very small---it doesn't eliminate poverty.

Chris, You said:

"Also, UBI has been much closer to being implemented in a country than NGDP targeting"

Which country? Switzerland, which rejected it by more than 3 to 1?

In contrast, Fed policy during 1985-2007 was not far from NGDP targeting.

Lorenzo, So you'll have a generation that pays Social Security taxes, but doesn't collect Social Security? Instead of the $25,000 their parents got on S.S. they collect $10,000? I'm not saying that's a bad idea, but I just don't see it being acceptable. And what about Medicare?

john hare writes:

Or 3) Eliminate the reasons for high minimum costs on the crucial items.

a. Allow companies to build basic cheap transportation without all the mandated bells and whistles.
b. Allow companies to build and operate cheap residences.
c. Allow companies to screen for capabilities rather than expensive credentials.
d. Massively reduce barriers to entry in the medical field for personnel, medicines, and devices.
e. Allow companies to provide alternative means of further education credentials at competitive prices.
f. Offer a $2k basic income to those making under $20k.

Airman Spry Shark writes:
Yes, but the amounts would be very small---it doesn't eliminate poverty.
Agreed, but that's orthogonal to its feasibility. And ending the high effective MTRs that result from the smorgasbord of anti-poverty programs with overlapping phase outs would arguably make even such a limited UBI more efficacious in reducing poverty than the status quo.
Nicolas Leobold writes:

If the status quo is allowed to continue (domination by large corporations and government), a UBI will be a necessity, otherwise I can envision massive unrest as automation replaces most jobs and government unions/parasitism dominates the rest.

Todd Kreider writes:

Scott wrote:


Which country? Switzerland, which rejected it by more than 3 to 1?

The Swiss rejected a UBI of $30,000 for all adults and $8,000 for children.

RC writes:

How about an NIT? That would be cheaper.

I read recently that one has to take into account both the transfer (UBI) and the Tax scheme. Talking about one without the other doesn't make sense.

For example, people who recieve UBI could have it taxed at their marginal tax rate. That would achieve a net transfer of money from people who had it, to people who need it.

Chris writes:

Scott,

So would you say that there has been a large change in Fed policy since 2007? It seems to me that they are still trying to meet the same goals they always were - the problem was that keeping inflation stable and NGDP stable were no longer consistent (and they maybe did a worse job of actually meeting their goals).

Anyway, even if policy ended up being close to NGDP targeting, it is still pretty far from the futures market policies you've proposed. I don't think that's an argument to stop talking about it, just as talking about a UBI is still worth it even if it doesn't get implemented.

Would you be willing to bet Bryan Caplan style that a central bank sponsored NGDP futures market gets introduced in a country sooner than a UBI? Because I would take the UBI side in a heartbeat.

Thomas B writes:

You say people would "freak" if you replaced Social Security benefits, and you're right.

They would also "freak" if you replaced their 401(k)s, or their bank savings, or their equity in their homes. And for the same reason.

Social Security is an insurance program that shouldn't be considered part of the regular budget at all. You're combining apples and pears.

James writes:

Thomas B,

Social security is not insurance. It is a tax and transfer program. You give no reason not to consider it with the rest of federal spending.

August Hurtel writes:

I remember a sci-fi story- I think it was Heinlein - where the central bank or whatever just gave the money to the people, rather than the banks. I suppose it makes sense- Bernanke proved beyond a shadow of a doubt that banks don't lend reserves, so giving it to them isn't going to do any good.

U.B.I. seems like lunacy, but then, what they do now is pretty crazy too.

Lorenzo from Oz writes:

The respective phasings in and out would be tricky, to say the least. But it strikes me as a bit more feasible, as it would be shifting a small group of the electorate at first.

Terry Hulsey writes:

Dr. Sumner,
Your 2 or 3 "only way" approaches will indeed fail. They are the completely wrong approach.
UBI can only succeed when both the recipients and the donors participate VOLUNTARILY.
Here's how the successful version of UBI will work:
The UBI endowment is created by voluntary donations from U.S. citizens, starting possibly as a check-off on their income tax returns. All funds (minus administrative costs) are distributed proportionally among those who participate voluntarily. You say, hey, who wouldn't participate! Well, participation comes with strings attached. Any participant agrees that he forfeits any right to vote in a federal election; he agrees that received amounts may vary from year to year since the fund is voluntary and not fixed; and he agrees that he is committed to this choice for 10 years, when the U.S. Census provides data for use in administering the fund.
I'm sorry that this issue was such a problem for you, but I'm so glad to have fixed it. Think nothing of it. I'm sure you won't.

Terry Hulsey writes:

I neglected to add a further condition for the voluntary recipient: He forfeits any claim on receiving any other federal monies.

dino writes:

[Comment removed. Please consult our comment policies and check your email for explanation.--Econlib Ed.]

Adam writes:

Good piece from Sam Hammond on why the negative income tax would be more tractable in that regard https://niskanencenter.org/blog/universal-basic-income-is-just-a-negative-income-tax-with-a-leaky-bucket/

benj writes:

With no other changes to your tax/welfare system, a UBI could be funded out from the rental value of Land.

This would give every American man, woman and child an income of around $4000pa.

This would a) reduce inequality (regional and individual) b) allocate land/immovable property at optimal efficiency, reducing vacancy, under occupation and urban sprawl c) lower the rental incomes/selling price of Land to zero, so many people getting an income directly or indirectly from real estate could thus find employment that increases our stock of wealth and welfare instead of parasitizing upon it.

A win-win-win.

Sorted.

Daublin writes:

Regarding 1, you can stomach a pretty massive tax increase if you are getting a $10k increase in income.

Indeed Laffer curve issues are important here, though. It seems pretty likely that a UBI country is going to have a complacent citizenry.

Re 2a, I think a UBI would do wonders for stopping the future *growth* of social security.

Benj writes:

@Daublin

Laffer Curve issues only relate to factors supplied by human effort. The revenue maximising rate for Land is always 100%.

Any argument against a UBI that doesn't that doesn't address that point is a strawman.

Scott Sumner writes:

John, Lots of good ideas there.

Airman, I agree.

Chris, I don't do bets. But I am interested in which country came close to implementing a UBI.

August, You said:

"I remember a sci-fi story- I think it was Heinlein - where the central bank or whatever just gave the money to the people, rather than the banks."

Central banks don't give money to banks.

Terry, You said:

"Think nothing of it. I'm sure you won't."

That's right.

benj, Land taxes have some appeal, but it would be politically impossible to raise that sort of revenue.

eric writes:

Feasibility is not the hallmark of most of most
of you academic economists, nor of "libertarians."

Mr. Basha writes:

2b is just a (politically feasible) start.

Replace what programs can be replaced and just have the UBI as an add-on. Of course, not a full UBI along the lines mentioned here, but enough for a start.

As time goes by, stop increasing all the other programs (or control their increase) and increase the UBI instead. When opportunities present themselves (political/budgetary crises, welfare misuse scandals), cut whatever you can get away with and add to the UBI payments.

Give this approach some decades and you may approach scenario 1 enough to eventually cut everything else and leave only the UBI in place. If there’s a will…

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