Monthly Archives: May 2017

The case against basic income guarantee

The universality principle scares the hell out of progressives, and it should.

It might have come as a major surprise to see libertarians fighting for basic income guarantee (see our last post). Switching the perspectives completely, SmallTalkEconomics now presents the rationale of why the progressives oppose such policy.

The first and foremost objection to basic income guarantee (BIG) is its fiscal feasibility. Many economists have done more or less sophisticated calculations proving BIG to be either too expensive (Henderson 2015) or fiscally neutral (Garfinkel et al. 2003). Despite the non-existing consensus, both estimates share the assumption of scrapping many existing policies which target specific groups such as children or the elderly. Yet these are the most popular policies of a welfare state and form a backbone of the social democratic vision of a just society. Eliminating those could be hardly perceived as leftist.

Daniel Sage and Patrick Diamond in their 2017 paper evaluate the suitability of BIG for becoming a turning point in decreasing support for European social democratic parties. Abolishing policies based on deservingness and replacing them by the universality principle seems to be a highly unpopular move. And not without a reason. Especially in countries with limited welfare infrastructure, the logic of BIG falters. The funds necessary for BIG would simply do more good if they were focused on those in need. The rich and redistributive countries would be also less keen to increase targeted welfare spending if BIG proves to be insufficient. This represents a substantial risk for the social democratic ideals.

Another reason for BIG popularity is the claim that it can outweigh the distortions caused by technology. But BIG would not affect inequality, it would merely hand out a paycheck for technological unemployment. Although the unemployed would have more time and space to get new qualification, they would not have the means to do so unless the government provided them with such training, thus increasing the overall spending. Moreover, BIG does not address the issue of tax revenue. Would the extra costs be covered by a more progressive income tax, a wealth tax, or even a robot tax? Such questions remain unanswered.

The progressives are also not necessarily utopian. Acknowledging that BIG encourages extensive leisure, they are also well-aware that such leisure means unemployment which is associated with poorer health and well-being. Hence BIG might lead to undesirable consequences drawing potentially more money from the public budget. Early experiments with unconditional income indeed showed that BIG decreased the working hours of the recipients. The consequences of unemployment reflected in health and well-being might be attributed to social norms rather than unemployment itself. However, social norms are difficult to change and even the enthusiastic progressives remain skeptical about such high level of social engineering.

Reference: Sage, D., & Diamond, P. (2017). Europe’s New Social Reality: the Case Against Universal Basic Income.¬†Available here.¬†