The problem with simple solutions is that poor people are just like everyone else–they’re complicated. And they have complicated problems.
That is why you do not want to try to solve poverty in a nation of 300 million people at a national level. A basic income is a partial answer. State and local governments and charities have to supply the rest of the answer.
Nick Rowe suggests a simple way to estimate the currently-feasible amount of a guaranteed annual income.
I’ve often thought that the “GAI” is a good idea (actually, a guaranteed daily income in practice), but search for the cloud that the silver lining has. So why isn’t this the outcome: This would cause an increment to prices, as demand for the basics (let’s say the basics, and ignore the junk food and liquor issue) will increase. Those prices will go up, and wouldn’t they change to achieve something like the same consumption that there is currently? Then, we rage about the population below the poverty line, increase the GAI, etc. So it’s an experiment in introducing inflation in certain goods (the profile of goods that the “poor” would choose to purchase), whose rate is something like the velocity of settling arbitrage in goods.
I thought this was the strongest part:
…is the following the “Great Society” the left has been clamoring for since the 1960s:
1. An underclass of illegals doing the hard stuff, and living in shantytowns.
2. Tens of millions of poor Americans watching TV, and giving zero incentive to their kids to study hard in school, because they’ve got the GAI awaiting them too.
3. The upper class, in their gated communities.
I’m not sure that’s what development economists mean when they talk about “getting to Denmark.”
This of course fails the ideological Turing Test; a progressive would read that and say “oh, come on.” Nevertheless, I think it kind of hints at the heart of an important problem: namely that if the proposed UBI is generous enough to allow our nation’s poor people to live relatively comfortable lives, lots of poor people will be satisfied with that, and thus it represents a strong disincentive to work (made all the more difficult to deal with by the regional variations in COL that he discusses). After all, we don’t have a UBI now and already there are lots of poor people who don’t work.
On the other hand, if its not generous enough to meet basic needs, then you’ll quickly see the resurrection of the various programs (Section 8 vouchers, SNAP, etc) that the UBI was intended to replace, and you’ve not managed to reform or simplify much of anything. On the contrary, you’ve enlarged the administrative state you were trying to shrink. Oops!
It seems to me, then, that trying to successfully implement a UBI that is both simple and doesn’t turn half the population into drug-addicted layabouts is actually a difficult challenge.
Contra Mr. Sumner, though, I must say I find the idea of a UBI almost entirely distasteful. Even if it is simpler than the mish-mash of social welfare programs we have today, the idea that the US government is going to pay people just for sucking wind north of the Rio Grande and south of 49th parallel is just…it’s not a rubicon I’m interested in crossing. Let’s put it that way.
On of the complicated things about poor people is the adverse selection problem combined with unrestricted internal migration.
They are pretty mobile, it is easy to move to other states, and that the draw of greater local benefits is likely to have a greater impact on those people who have relatively less to lose economically than the average person by leaving their present location. A good story about this in the context of poor people moving from Chicago to Milwaukee for this reason is Jason DeParle’s American Dream
A state’s anti-poverty plan may work and be affordable if restricted to it’s current poor residents, but not if it attracts too many different newcomers from elsewhere. Shapiro v. Thompson holds that there is nothing states can do about this, and no way to coordinate collective action except for policies enacted at the national level.
How do you reconcile the need for experimentation and tailoring to local knowledge and conditions, with the ‘welfare magnet’ and ‘race to the bottom’ problems?
This is the well-known free rider problem. I don’t think anyone takes the position that we want more free riders and should encourage them. States which don’t want free riders would tend to minimize handouts. States which do want free riders are doing the rest of us a favor. Thus, I view state competition for free riders to have much better outcomes than a national policy which prevents voting with one’s feet. The states which incentivize free riding tend to solve the free rider problem by running out of money to hand out. Competition, innovation, and survival of the prudent tend to ensure a more prosperous posterity.
Like Obamacare insurance mandates, we aren’t comfortable with bad solutions that ultimately evaporate to leave only good ones, so eliminating competition and exit is the only way to preserve bad solutions and perpetuate misery.
I’ve seen a lot of dancing around the free rider problem for the various income guarantees proposals, but direct address is curiously and surprisingly rare.
At least Keynes would have people dig for handouts. Disincentives for handouts act like incentives for productive behavior.
It helps if the guaranteed benefits are somewhat second-tier. In such a case, people who are better off will simply ignore the public option, which means the public option will be much less cheap. This is easier to do if the benefit is provided directly, rather than via cash.
A strong example of this is public defenders. Part of why public defenders do not break the budget is because you’d only use them as a last resort. They are thus much, much, much less expensive than if you multiplied the average cost of legal assistance times the number of people per year who use it.
A weaker example of this is food stamps. Many people who could use food stamps will simply decline to do so, because they don’t want the stigma of paying for things with a food stamp. In this case, the food itself is the same quality as what anyone else consumes, but the whole buying experience is second-tier. It has the same effect.