A UBI, moreover, would create more of a welfare culture than we have now. Imagine four young men meeting in college and figuring out that when they reach age 21, they can each get $10,000 a year from the federal government forever. There are a lot of places they could go in America and rent a three- or four-bedroom house for $1,500 a month ($18,000 a year), leaving $22,000 a year to spend on food, cable, and various amenities. Would they want to stay out of the labor force forever? Probably most of them would not, but the UBI could easily postpone their becoming responsible adults for five years or more.
I think that this is probably wrong. If it is wrong, it is demagogic.
Henderson writes as if our current welfare programs do not cover everyone. In fact, those four young men could be eligible for Medicaid, food stamps, housing vouchers, and so on. They could stay out of the labor force just about as easily as they could under a UBI.
I really think that my essay on the basic trade-offs of the UBI is the most objective, least demagogic piece you can read about the idea. That essay points out that a UBI has two parameters with which to try to manipulate three objectives. The parameters are the amount of the UBI and the tax rate on earned income. The objectives are offering a generous benefit, keeping the disincentive to work low, and keeping the budget cost low.
Henderson is correct in pointing out that giving every adult about $10,000 a year would strain the budget. In my essay, I propose giving an entire family of four $10,000, which is half of what they would receive under many current proposals. Most people would not want to live on the UBI that I would offer. To the extent that they were able to work, I believe that they would do so.
The problem with my proposal is that it does not provide for a family that is unable to work and/or has special needs, such as a child with an expensive medical condition. I suggest that those special needs be met by charities and local governments.
It seems to be that the simple $10K makes it an easier calculation to make given your preferences/constraints. Chalk it up to transaction costs or some kind of cognitive avoidance of messy math/decisions but I don’t think Henderson’s hypothetical college men would bother gaming the existing welfare system. I’m not sure if that is good or bad.
I’ve read through both Henderson’s full post and Kling’s Aug 2018 UBI Trade-offs post. My first impression is that there is obvious truth in Kling’s/Saffran’s 2-parameter/3-desirata model but I’m skeptical that this model represents a truth can be objectively applied to real-world scenarios.
What I’ve taken away from Henderson’s post is the importance of the 1996 “Temporary Assistance for Needy Families” welfare reform. I think my observation that the simplicity and flexibility of the $10K/year UBI is also important.
Why not a $10K/year UBI that has the same 2-consecutive-years-or-5-year-lifetime-maximum constraint?
Those seem like reasonable alternatives to compare, in my mind. Current welfare vs. UBI, both with 2-consec/5-lifetime constraints. Unless UBI has significant benefits, don’t-rewrite-the-codebase rules apply.
As we become more modern, the economic consequences of where we live become more important. Small towns in the middle of nowhere were more plausible 50 or 100 years ago. This is changing fast, and now the economics of inefficient municipal organization patterns are much more severe. This isn’t a policy decision. This is the natural evolution of more advanced economic systems. A certain minimum size and organizational network effect is required to support basic modern economic activity.
Embracing a UBI will disable a good part of the normal economic pressures to aggregate populations more efficiently when we need it most. This is a bad thing.
UBI does not look like a reversible error, if error it be. Can’t we let some more enlightened nation take this leap first? I find the politics around it terrifying.
Upvote!
1. Free money on a limited time basis with the clock ticking, one to a customer, because you are certifed poor this year (and some people look down on you and your taking of the free money) is different from free money because you exist, come hell or high water, till the day you die and for your progeny as well, and everyone is doing it.
2. I sympathize with the proponents of UBI–it is elegant and has a low marginal disincentive to extra work. Still, it reminds me of Orwell’s quip that “There are some ideas so absurd that only an intellectual could believe them.”
3. George Gilder in _Wealth and Poverty_ cited some of the “income maintenance programs” done as controlled experiments in various states or municipalities and concluded that the impact on work effort was substantial and increasing over time. There must be published research on this. And his book is decades old. Can someone tell me what the research demonstrates? Not your blackboard proofs, but the research. Can someone show me empirical research that indicates that this is a good idea?
4. If this is such a great idea, let’s start it in one state and let it proceed for some decades. Well, most state legislators aren’t going to do it because they can’t muster enough votes and they can’t appropriate the funds, plus it would attract moochers from elsewhere. Well, the federal government doesn’t have the money either, and the USA is about 5% of the world’s population with lots of people wanting to move here and have their yet-to-be-born children raised here as citizens.
Also, there are probably dynamic effects from dysgenics. See _The welfare trait_’s review by James Thompson at Unz. Even if it’s just possibly true. Perhaps it’s a deeply flawed work, but what if it’s true?
What about Boundaries and Migration? Don’t just imagine the USA with a big moat around it and a sign that says “Moochers from the rest of the world, keep out!” There is an elastic supply of future moochers born here. Or as the late Harry Johnson would put it, individuals with “a strong preference for leisure and an aversion to industrial discipline.”
Even if it will work for a while, with no immigration, the future is also an “elsewhere” whence will come the citizens who will prove this idea just won’t work.
Question: Don’t we have something more important to do with our limited intellectual and political energy?
1) Re: “If it is wrong, it is demagogic.” This doesn’t follow. Your blog’s banner is: “taking the most charitable view of those who disagree.” IMO, you and David Henderson have an honest disagreement about UBI.
2) In your fascinating podcast with Eric Torenberg, you argue that policy should start from where we are. But your budget-prudent UBI requires scrapping entrenched welfare programs and completely overhauling the tax system. Maybe people would choose your UBI in a hypothetical social-contract situation behind a veil of ignorance. (And maybe not, given deep-seated intuitions about work and welfare.) But we’re not there. By contrast, your policy proposals for unbundling government services can, in principle, proceed incrementally and by decentralized experimentation.
3) There is sharp tension between budget prudence and UBI effectiveness. Would an affordable UBI make a big difference about poverty, dignity, and security?
Thank you, John. I admit that I was pretty surprised by Arnold’s tone. I was also surprised at how little evidence he gave for his claim. The 21 year olds I have in mind are probably pretty healthy. So the value of Medicaid to them is pretty low. I’ll grant him his point about food stamps and housing vouchers. I would bet that the two together don’t add up to more than about $4,000 per year. That’s well below $10,000.
I would not “grant” the value of the housing aid so fast. I am not sure these are available in every jurisdiction, and I am sure you can optimize your apartment – room mate preferences cash easier than with aid. (Often, aid is in the form of subsidies that are tied to specific apartments, when it is not actual public housing.) Also, the no-questions-asked and permanence of the UBI benefit has a lot of value.
Possibly. I’m trying to be charitable here.
Are “housing vouchers” easy to get for a single male?
To answer my own question, no.
Disabled is a broad category. Consider SSI, a subset of Social Security, open to everyone who cannot work. How do you demonstrate that you can’t work? Not having a job is a good start. Now just find a doctor to sign off that your inability to work is due to mental or physical disability. The list of mental disabilities is long. Long, and hard to confirm or deny the existence of.
Is it actually possible for childless adults to get substantial welfare benefits under the current system without qualifying for disability? My understanding is that access to welfare is extremely limited for individuals without dependents.
Also, the thing that most concerns me about a UBI is the way many proponents are pushing to make living off the UBI a legitimate, socially acceptable alternative lifestyle. It’s one thing to have it there for those who really need it, or to supplement earned income, but that’s not the rhetoric I’m seeing around it.
Of course, that won’t be possible with the numbers you’re suggesting, but I think you’re an outlier in that respect. Most promoters are talking about $10k per adult, or even per child as well.
Good point, Brandon. And, if you notice, I was criticizing the $10K per person that various people advocate, and the danger that it would lead to the life style choice that I was discussing is one that Arnold Kling thinks is wrong, and, if wrong, demagogic.
Let’s first get Yang’s proposal and arguments straight.
Going to the Andrew Yang 2020 campaign web site we can glean the following:
(1) It is intended to address a future crisis “In the next 12 years, 1 out of 3 American workers are at risk of losing their jobs to new technologies.”
(2) It would pay $1,000 per month to every U.S. citizen over the age of 18, however, people already receiving benefits would have a choice but would be ineligible to receive the full $1,000 in addition to current benefits.
(3) Yang says it would increase employment and grow the economy: “The Roosevelt Institute found that adopting an annual $12,000 basic income for every adult U.S. citizen over the age of 18 would permanently grow the economy by 12.56-13.10 percent—or about $2.5 trillion by 2025—and it would increase the labor force by 4.5-4.7 million people.” Further, he believes there would be not work disincentives: “Decades of research on cash transfer programs have found that the only people who work fewer hours when given direct cash transfers are new mothers and kids in school. In several studies, high school graduation rates rose. In some cases, people even work more. Quoting a Harvard and MIT study, “we find no effects of [cash] transfers on work behavior.”” Yang believes that “UBI would put power in the hands of the worker—with consistent, unconditional cash to cover their expenses, Americans will be able to be more selective about the working conditions they’re willing to accept” and this will increase wages in the worst jobs.
(4) Existing displaced worker training programs are a failure: “the data indicates that retraining programs do not work on a large scale.”
(5) It will be paid for by the following:
– Offsetting existing welfare program payments;
– About $100 -$200 billion in reduced payments on health care, incarceration, homeless services, and the like;
-$800 billion from a VAT;
-Removing the Social Security cap;
-A new financial transactions tax;
-Ending the favorable tax treatment for capital gains/carried interest;
-A carbon tax;
-increased tax revenues from all the growth this would stimulate.
This would appear to be relatively close to Dr. Kling’s $10,000 per year.
As for Dr. Kling’s 3 desiderata, the first, generosity toward the poorest families, is not a consideration since it is optional, and they can choose whichever is better for them. It provides room for upward mobility, and it is paid for, so, no budget affordability issues. If the new taxes are strictly pass through redistribution and do not require massive new bureaucracies, it is not beyond the bounds of conceivability that such an UBI would have a fiscal multiplier at least competitive with if not better than say food stamps (1.73).
The problems with the Yang approach is that it only applies to US citizens. Libertarians and the hard left will have a hard time with this because citizenship is nationalism is white supremacy is bad. In addition, the Chief Justice yesterday divined that proposals to put a citizenship question on the census offends constitutional requirements of purity of thought. However, constitutional law is inscrutable, random, and arbitrary. And the Chief Justice’s anal orifice is capacious. Perhaps he will have warm fuzzies and pull out a new doctrine especially for a President Yang who will be liberated to address questions of citizenship. You never know with the US Supreme Court, the institution that proves beyond all doubt that judicial review is an irredeemable joke.
All the tax increases seem reasonable. Of course it would be much more efficacious to simply use them as an offset to eliminate payroll taxes. Assuming the proposed VAT applies to imports, which they do everywhere else in the world, the elimination of payroll taxes would make US workers more competitive globally. As it is they are largely taxed out of the market.
It will be important to get the VAT right too so that it taxes online services at a high enough rate to divert the hundreds of billions the current tax code allows to subsidize plutocrats’ brain-forest temples of ego over to socially productive uses. It would probably be best to combine the VAT with a $20 per year excise tax on each social media or email account to further eliminate maladaptive distortions under the current tax code.
If technology makes robosocialism fiscally sustainable, then I say let’s have exactly as much robosocialism as is fiscally sustainable. The way to determine that is to tax profits and nothing else.
Unrealized capital gains is a social construct. Specifically, a construct of the stock market. It’s not a real, physical thing. It’s a market price. It’s insane to tax something whose very existence is so questionable.
Realized capital gains are simply profit, and should not be thought of as a separate thing from other forms of profit.
Profits are at least actual money. If you tax profits and nothing else, you’re guaranteed to be spending only surplus money.
Combine this with NO deficit spending on these schemes. If there’s a national debt, no robosocialism payouts until the debt is paid off. Write that into the law.
If we must give away money, let it be money we can spare. That’s the way not to go broke.
All of this means that people can’t rely on getting any specific amount of free income. They’ll be forced to think of it as windfall. So be it. Windfall is exactly what it is.
” I suggest that those special needs be met by charities and local governments.”
The pressure will be irresistible to generously fund those special needs as well, which will incentivize more special needs.
Charles Murray has pointed out that the question to which he has no good answer is why, after ‘scrapping’ them, wouldn’t the political system reintroduce
the existing suite of welfare programs again, one at a time, since there are bound to be gaps and sad sympathy cases, and all the same political conditions and incentives to do so still exist as those that were around when the programs were originally implemented. You can’t rely on poor people to spend all their UBI on the ‘right’ things, and you can’t rely on the progressives to not raise a paternalistic and bureaucracy expanding stink when they don’t. Additionally there are the political incentives for the left to campaign on the promise of ever more generous UBI for all time, which it certainly will, and indeed as leftist parties routinely do with every state welfare program all around the world.
In other words, UBI plus local charity is not a stable political equilibrium, and we’ll end up at the worst of all worlds, budget-busting UBI plus the work-discouraging welfare hydra.
Improving the EITC seems like a much more reasonable solution than implementing a UBI from scratch.
The fact that it’s so obvious is probably why there isn’t a clamoring for it, even though it’d a fraction of the frictions associated with a UBI.
Another decent solution would be implementing the UBI strictly as a social dividend, which also strikes me as more budget friendly and morally appropriate.
One family, one household tax rate implies one roof. Favoring low income implies low home rents. Thus the most efficient way to meet your target, a rent subsidy, collectable by landlords. I am demagogic to landlords, the most efficient mechanism to get to the goal.
Roof subsidies have multipliers. Food can be stored with access to kitchen. sleep, plumbing and light available. Reduces volatility costs everywhere, housed can budget with better scale. Landlords bear the transaction costs of the subsidy, and must register the property.
I don’t think Mr. Henderson’s four young men get off so cheaply. They have more to spend on housing and the landlord knows this. (A landlord meets some definition of a rent-seeker.) All rents go up, the solution is Universal Rent Control. Next, Universal Urban Blight, then Universal Urban Renewal with, of course, Universal Basic Housing.
It’s the college tuition scenario in different guise.
You go wrong with this very section. None of those things are easily obtained by healthy, young adult males, and they certainly don’t come with a combined $10,000/year value- the Medicaid has almost zero value to a young person with no children, and good luck keeping food stamps or any other income welfare subsidy without proof of looking for work. As for the housing subsidies, you won’t get them as a young, single male- full stop.
I am sympathetic to the idea of bundling all of welfare into single payment, but I think Henderson has the far better argument here against the UBI than any I have seen for it.
What is the market failure that a UBI is supposed to be correcting for?
Current welfare programs tend to reduce the benefit the more money you make. The impact is that earning more money doesn’t improve your lifestyle very much, which is equivalent to a very high marginal tax rate, which discourages recipients from working or trying to become eligible for and get higher paying jobs. If one knows if he busts his ass and doesn’t get any more for it than what he gets with a life of low-rent indolence / ‘leisure’, then to the extent he can get away with it, he won’t. UBI as replacement for all those programs fixes that issue.
Hm… If this explanation is correct, it seems to me that it is not UBI that corrects for an inefficient outcome, but rather the removal of the current welfare programs. Is there an assumption that giving some form of welfare is a politically given constraint, and so the only option under consideration the combined proposal of removing current welfare programs and adding a UBI?
Is there an assumption that giving some form of welfare is a politically given constraint,
Yes.
Do you think there is no such constraint?
There is such a constraint on what can be achieved through democratic means. However, I think many advocates of UBI believe that UBI would also be a good option if there was no such constraint. This cannot be true if there is no inefficiency that is corrected by the UBI part of the combined proposal, separately from the removal of current welfare programs.
It is hard to talk about “inefficiency” when the preferred outcome is not specified.
In this area, there are lots of different preferred outcomes. Some of the disagreement involves “your short-term preferred outcome–a simple generous UBI that keeps most everyone well out of poverty–conflicts with my long-term preferred outcome of self-reliant people who are productive.”
How could a UBI paying a family of 4 just $10,000 replace existing safety net programs that provide much more? We would be paying $10,000 to tens of millions of families that don’t need the money and paying only $10,000 to poor families without other income sources that cannot survive on on such a small sum.
I don’t get it either. Perhaps Arnold will explain.