What is Universal Basic Income?
It seems like every time we blog about increasing the minimum wage, our readers say our focus is misplaced. To quote from one commenter, we should stop worrying about raising the lowest rung on the labor ladder and instead “take a serious look at Basic Income” – a program which could “could give everybody enough money to live on” while “diverting most of the taxes we waste in bureaucratic ‘welfare’ programs.”
Here at Civic Skunk Works, we listen to our readers. So we’ve decided to start running a series on Universal Basic Income (UBI) and its policy alternatives. By doing so, hopefully this series can shed some light on this in-vogue policy proposal in our era of flat wages.
First off, what is UBI?
UBI is a basic level of subsistence provided by a government where all citizens in a given country receive an identical and unconditional sum of money that is in addition to other earned income. Thus, it is for both the billionaire and the bum. There’s no work requirement and there’s no peeing into a cup; if you are eligible, you get the check.
But what exactly defines an ‘eligible’ citizen? As you can imagine, there are many opinions on how small or large the age parameters should be. Some argue the US should give basic income to all citizens aged 18-64. Others, like Charles Murray from the American Enterprise Institute, suggest all adults over the age of 21 receive a monthly check. Regardless of age eligibility, one thing remains the same with all UBI proposals: the ‘citizen’s dividend’ you receive can be used in any way you please. A person can spend it, save it, invest it, or put it all on red. In this way, there is no paternalism attached to UBI payments – a feature which entices some libertarian thinkers into supporting this social welfare program.
What are the basic requirements of UBI?
Before one can decide what the appropriate UBI level should be, it is first helpful to examine what UBI must provide in order for citizens to feel economically secure. The Hawkins Ventures blog lays out six criteria for what an effective UBI must be able to offer its recipients:
- Basic necessities: food, water, sanitation, clothing, health care, & shelter in a reasonably inexpensive location in America.
- Some capacity to improve one’s lot in life.
- Be large enough to eliminate existing means-based social support programs, such as unemployment.
- Be large enough to enable the elimination of regulatory disincentives to hire, such as minimum wages or minimum benefits.
- Be small enough to provide incentives to work and the economy to flourish.
- Increase over time to ensure automation improves the standard of living for the unemployable.
And as Hawkins Ventures correctly conclude,
We propose the easiest way to assess the amount of Basic Income needed to satisfy the criteria we set out above is to do a grounds up analysis of what we think the minimum standard that everyone should be given if you are unemployable. We think most people today would agree there are some people who are unemployable, due to mental or physical ability…In other words, “What should people get if they can’t compete against a robot?”
Therefore, the purpose of the UBI is to ensure that no one falls below a minimal level of subsistence. As Bertrand Russell put it nearly a century ago,
A certain small income, sufficient for necessities, should be secured for all, whether they work or not, and that a larger income should be given to those who are willing to engage in some work which the community recognizes as useful.
How much would UBI cost the US?
To figure out how much UBI would cost we must first establish how much each person in the US would receive per year. Since we now know that UBI needs to a) set a minimum standard of living while b) not being large enough to take away the incentive to work, it follows that UBI must not be lower than the poverty line in America. (Note: a basic income which is lower than the poverty line in a given country is refereed to as “partial basic income.”)
So, where does the poverty line in America fall? If we use the 2014 Federal Poverty Guidelines as a guide, we can see that the current defined poverty line (for a household of one person) in the US is $11,770. Hence, a UBI that is able to satisfy the six conditions listed above must at least match this number.
If we then set the age eligibility for UBI at 21 years and older, there would be nearly 221 million qualifying Americans who would receive the payment every year.
Thus, if we were to give every US adult aged 21 and over $11,770 per year, how much would that cost? The answer: $2.6 trillion a year. That’s a lot of cash. But is this number less than what we already spend on other welfare programs? Would it be a worthwhile replacement of our current system?
These questions (and more!) will be answered in our next post in this Civic Skunk Works investigation. Stay tuned.