Bryan Caplan  

Final Reply to Dolan on the UBI, For Now

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The Henderson Squawk Box Highl... Protectionism is not inflation...

Here's one last reply to Ed Dolan on the UBI:

...As for more recent evidence, the CBO working paper that I cited is the most comprehensive literature review I have been able to find. The CBO review reaches the following conclusions regarding labor supply elasticities:
  • Among men and single women, substitution elasticities appear to have increased and now range from 0.1 to 0.3. Income elasticities still appear to be smaller in absolute value than substitution elasticities and remain in the range of -0.1 to zero.
  • Labor supply elasticities of married women--historically much higher than the elasticities of men and unmarried women--have fallen substantially in the last three decades, although they are still higher than elasticities of men and unmarried women. The substitution elasticity of married women appears to range from 0.2 to 0.4, and their income elasticity appears to range from -0.1 to zero.
This is news to me.  I'd have to spend a week or so reading to evaluate this, but thanks for alerting me to this evidence. 

My other big concern is that behavioral economics is highly relevant here.  The disincentives you get after removing all inconvenience and most stigma will probably be larger than we get under the current regime.
[...]

Caplan: Even if you're right, you're ignoring my central point: The UBI unambiguously hurts incentives for the vast population that's currently ineligible for most government benefits.

Sorry if I've ignored this point, because it is a sound one. Isaac Schapiro makes a similar point in a report from the Center for Budget and Policy Priorities, to which I replied at length in an earlier post. To both you and Schapiro, I say, yes, the elasticities argument for a UBI is stronger for households that face high effective marginal tax rates than for those who face lower EMTRs because they receive no benefits. In the extreme case, they are exposed to the full income effect and get no help at all from the substitution effect.

I would make two points here. The first is empirical. I'd like to see a count of how many poor households or individuals get no benefits. Is it a "vast" number, or a relatively small one? And what kind of people are they?

I deliberately said "ineligible for most benefits," not all.  What kind of people do I have in mind? Healthy, childless (or non-custodial) adults, aged 18-64.  Labor force participation for this group is already shockingly low for people without college degrees.  I can easily see it going far lower under a UBI.

[...]

Caplan: Even if we followed your proposal to the letter, the highest income floor you say we can afford is far lower than almost any non-libertarian would accept. This isn't surprising, because you waste so much money on the able-bodied.

First, I agree, there are some non-libertarians who want a UBI high enough to let everyone live a comfortable middle-class life without working at all. That is particularly the case with some who write about the UBI in the context of an imagined automated utopia in which no one at all has to work. I say, pie in the sky. But let's not get off topic. This is a debate about why libertarians might take a UBI seriously. I don't have to worry that my $4,500 UBI is too stingy. I have to make the case that it is not too high.

My point: If the UBI you propose is lower than most people would accept, then you, too, should be worried that if we get a UBI, it will be fiscally disastrous.  My challenge: Instead of coming up with a bold, new idea that could easily end very badly, why not join me in simply pushing for austerity within the current system?

Second, I think when you write that my version of the UBI "wastes so much money on the able bodied," you haven't really thought through the whole program. Again and again, I have emphasized that in order not to "waste money on the able bodied," a viable UBI I must replace not just welfare for the poor, but "middle-class welfare" as well--much of which comes in the form of tax expenditures.

Both the status quo and your proposed reform waste hundreds of billions on the able-bodied.  But given the massive cuts you propose, it's not clear that you're wasting more money on the able-bodied than the status quo does.  My point, again: If we're going to be reformists, why push a bold, new idea that retains the basic flaws of the status quo, instead of just calling for less wasteful spending?

Caplan: But where do you see "excessive" conditions in the U.S. welfare state?

Example: Subjecting welfare recipients to drug tests. Example: Conditions that restrict interstate mobility, as is often the case with programs administered at the state or municipal level, and which would be intensified with some GOP proposals for "block granting" everything. Example: Provisions that unnecessarily add to the red tape of getting benefits, as with disability programs (see below).

Each of these has an obvious rationale.

a. Drug tests. If people want taxpayer help, they should be trying to make themselves employable, not getting high. 

b. Residency requirements.  These reduce incentives for welfare tourism, a classic perverse incentive of redistribution.

c. Red tape. If moderate inconvenience deters you from seeking benefits, you probably don't really need them.

Caplan: The American disability system's whole problem is that it's gradually moved away from the principle I suggest. It used to be hard to go on disability; now it's easy. We should blame the unintended consequences not on standards, but lack of standards. Reformist libertarians should be pushing to restrict benefits to the truly disabled, not extending them to everyone regardless of need.

I know I have been remiss in not dealing with disability at length, and I keep promising to do so. Be patient. Meanwhile, just one point: The real problem, as analyzed by Autor and others, is not that it is too easy to get on disability, but that it is too hard to get off.

A fair point, but it's fully consistent with my claim that the problem is lack of standards.  People with conditions that occasionally get better should have to periodically prove continuing disability.  They should be subject to audits.  There should be credible penalties for fraud.  And so on.  If you were running a voluntary charity to help the disabled, these measures would be common sense.  Involuntary charity should be held to at least as high a standard.



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COMMENTS (6 to date)
Floccina writes:
If the UBI you propose is lower than most people would accept, then you, too, should be worried that if we get a UBI, it will be fiscally disastrous.

A UBI created by me would be $200/week for adults. No additional money for children. I would tax it away at a 50% until it is gone and I would combine it with elimination of the minimum wage so that people could easily find work to supplement the UBI income.

The problem is that there's 0% chance my plan would pass.

Thaomas writes:

"Drug tests. If people want taxpayer help, they should be trying to make themselves employable, not getting high." Duh. The issue is is the number if violators found/deterred worth the enforcement cost. Should people be tested for all self destructive behaviors -- consuming sugar, porn, tobacco?

Still would like to see a discussion of UBI vs a generous EITC.

Duncan Earley writes:

I always thought the idea with a UBI or BIG was that everyone received it and then it was taxed away for people who earn past a certain minimum level.

This would make it affordable, at least it does in Australia where we have sort of a BIG. Its called "Newstart" and is currently $528 a fortnight. You get it if you are unemployed and can show you are looking for work.

(Note: parents with children under 18 can get a number of other benefits as well.)

Hazel Meade writes:

I actually think a $4,500 UBI sounds about right, although I am not really a UBI supporter.
It is large enough to make a big difference to the very poor, but not so large that it makes it possible to live on easily without working. People who are really disabled can possibly band together in group houses to make it feasible. I would also make it as easy as possible to self-employ or engage in other kinds of simple economic exchange. Lots of people on disability do get extra income from labor trades or cash-economy transactions that they don't report. So even people who are living off only the UBI could possibly make it work, but it wouldn't be easy or comfortable.

Also, If it was taxable, much of it would end up getting taxed back at the higher income levels, so maybe not that much would be wasted on the relatively well off.

I do agree the main concern is that too many people will think that $4500 is too little and will lobby to make it something where a person can live comfortably without needing to work. it mgiht be politically unstable because people will vote to increase the UBI over time, and that will making financially unsustainable.

Not Andrew writes:

Please, please, please do some basic research on the Disability Insurance and Supplemental Security Income programs.

There ARE reviews of disability. They are, in fact, called continuing disability reviews. Here's a report on them: https://www.ssa.gov/legislation/FY%202013%20CDR%20Report.pdf

Here's a report on the anti-fraud initiatives: https://www.ssa.gov/legislation/Anti-Fraud%20Initiatives%20Report%20FY2014.pdf

Here's a the SSA fraud page: https://www.ssa.gov/antifraudfacts/ There are civil monetary penalties and other ways of dealing with fraud (including prison).

Jacky writes:

Hi Bryan,
How about the argument that yes, a normal-bodied people would get the UBI and yes, tax may rise, but it COULD still be a more efficient system?

Say, we can raise the tax rate a certain percentage points so it will mostly be a wash for the middle-to-high income people? (ok a fixed percentage pts increase would exactly work for everyone but there are ways that it can. say a fixed cap on the tax increase)

so if you are making $200k a year. u will get say, $6000 UBI every year but u will also have to pay $6,000 more tax)

So why bother? we can then get rid of all the administrative bureaucracy, loopholes, system-gaming and only a simple tax system remains.

and that's also closer to Friedman's proposed negative tax system, i believe.

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