The Pros And Cons Of Basic Income

Politicians and economists waver on whether a basic income can effectively address the world’s most pressing problems. The hotly debated topic isn’t a discussion of right or left, but one fixated on economics. These proposals can take a variety of forms, including a cash grant or negative income tax, but in general they all aim to provide unconditional income support.

For liberals, it spells the end of poverty and lower income inequality, where conservatives expect it to replace most of the existing welfare programs. Despite some bipartisan support, the concept has failed to gain enough traction to pass as a law in the United States.

Nixon's Proposal

In the 1960’s, the Nixon administration almost brought America the first basic income program. The Family Assistance Plan, as it was known, proposed a $1600 stipend in 1969 dollars for a family of four with no earned income plus an additional $800 in food stamps. Nixon’s proposal shockingly passed through the House but ran into stiff opposition from both liberals and conservatives in the Senate.

After suffering the sting of rejection, the topic seldom reached public policy discourse, outside of academic articles, until fairly recently.

2008 Crisis Sparks Renewed Interest

The fallout from the global crisis in 2008 bred newfound support for a guaranteed basic income, with experiments now planned or underway in Europe and other parts of the world. Many supporters believe that new technologies, like machine learning, will make it harder for low skilled workers to tread water in the future.

A basic income would then cushion the fall when an increasingly automated economy generates fewer jobs and renders a large portion of the workforce to the sideline. The results of these tests could prove if a guaranteed income benefits the greater public or discourages hard work as most critics contend.

Results?

So far, the effects are inconclusive. In June 2016, Switzerland overwhelmingly rejected a vote to introduce a universal income, citing concerns that greater spending would leave the country without sustainable public finances or a robust social safety net. Nonetheless, other countries are still flirting with basic income experiments of their own, namely Finland, the Netherlands, and India.

Finland’s scheme, launched earlier this year, will provide its citizens with a basic income regardless of employment status. The two-year experiment offers 2000 unemployed Finish citizens of varying ages with a monthly basic income of $581.48 which will replace their other social benefits. This cohort will continue to receive the stipend even if they find work. Kela, the organization that runs Finland’s social security programs and this one, hopes the experiment will boost employment and address the drawbacks in the current welfare system that discourage citizens to find employment.

The Case For Guaranteed Income

Evidently, there is a growing consensus that a guaranteed income can offset certain systemic problems, explicitly income inequality, poverty and an uncertain future of increased automation. Many of these problems exist due to rising living standards and stagnant wage growth around the world and as it becomes worse, many other countries will attempt to adopt similar programs.

This is becoming abundantly clear in the United States, which recently recorded $12.58 trillion in total household debt for 2016, reflecting the highest levels since the financial crisis when liabilities peaked at $12.68 billion. At the same time, real wages for most workers have barely budged in 40 years, while income for the upper echelon has grown 138 percent since 1979.

In other words, the rising share of indebtedness coupled with stagnant wages and the growing threat of automation has played a significant role in the recent outcry for a basic income.

Looking at it this way, the case for a guaranteed income appears strong. It offers numerous advantages to our current welfare system that costs Americans taxpayers $1 trillion per year and also helps alleviate a serial epidemic of wage stagnation.

Arguments Against Basic Income

But after a detailed examination, opponents quickly point to a few critical shortcomings in the move from theory to application.

If America levied a basic income that paid citizens a flat cash stipend large enough to lift them above the poverty line, the cost could potentially be destructive. According to the Economist, a country the size of the United States would need to raise the share of GDP collected in taxes by nearly 10% to pay every child and adult about $10,000 per year.

More generous programs would require larger tax hikes and the cannibalization of most non-health related social spending.

Simply put, a basic income sounds noble, but in practice it would be very costly.

Beyond costs, another obstacle to implementing such a policy stems from its potential impact on productivity and the labor force. Defenders of the current system claim that making it possible to live without working discourages citizens from looking for long term security in the job market. Work is also one of the few defining aspects of most societies and to make it obsolete would have both productive and social repercussions.

Meanwhile, basic income supporters seem to forget worker’s resilience to adapt in the face of greater automation. Throughout history, mechanization hasn’t destroyed jobs, instead it changed them into new opportunities that required greater cognitive dexterity and technical knowledge.

If automation could truly render human labor redundant, it’s unlikely that unemployment would be 4.5 percent and near full employment.

Conclusion

Managing the risk of automation obsolescence while also tending to rising poverty remains one of the greatest challenges facing both advanced and developing economies. But these problems won’t be solved simply with a guaranteed income; instead, it requires more progressive reforms like incentivizing education and training programs that will prepare the workforce for a more productive tomorrow.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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