Spend Baby, Spend

Basic Income and Deficit Spending

Economic data since 1980 show that the wealthiest Americans, colloquially known as “the one percent”, have captured increasingly more of the total share of the overall wealth in the United States. The Foreclosure Crisis exacerbated this and as a result, income and wealth inequality have regained their place at the fore of popular discourse. Candidates for the 2020 Democratic presidential nomination have made addressing this central to their campaigns, notably through redistributive policies such as Andrew Yang’s Universal Basic Income (UBI)[i] proposal paid for through a VAT or through pre-distributive policies such as a Federal Jobs Guarantee, part of Bernie Sanders’s Green New Deal. In this essay, I will briefly define the UBI, then look at the research of three Basic Income programs, which will address arguments both in favor and against a UBI, as well as consider issues with practical implementation. Finally, I will examine the question of separating income from production and macroeconomic realities and reflect on the implications for the UBI. 

Background:

Economic data since 1980 show a staggering picture of growing wealth inequality – the top one percent wealthiest families control a little more than 40% of the nation’s wealth, almost twice what their share was in 1978. According to Economist Thomas Piketty[ii], executive take home pay has sky rocketed 938%; yet working class wages have only increased by about 10%   (Piketty & Saez, 2014; Piketty & Zucman, 2014; Saez, 2014). As a result of the neoliberal response of fiscal austerity to the Great Recession and the Foreclosure Crisis, the disparity has only grown worse (Kelton, Stephanie, 2016).

Over the last 25 years, heterodox economists have explored several possible policy interventions to address the inequality question. Piketty, Zucman, and Saez argue for a modest redistributive wealth tax of 2%. More comprehensively, in the 1995 seminal work Real Freedom for All, Phillipe Van Parijs argues for a redistributive basic income paid to everyone as a material.  Since then, there have been several high-profile examples of a UBI in action, and the idea has become popular enough to be featured in a major party’s presidential primary.

Definition of and Basis for a UBI

There is a long philosophical history of support for a basic income, but most of the contemporary discourse stems from Phillipe Van Parijs’s work – a 1991 paper titled “Why Surfers Should Be Fed: The Liberal Case for a Basic Income” and a subsequent 1995 book Real Freedom for All. Building from Parijs’s philosophical framework, Juliana Bidadanure defines the features of the UBI as the following:

1.     A direct cash benefit rather than an in-kind benefit 

2.     Individual benefit rather than household benefit

3.     Unconditional benefit

4.     Universal benefit rather than means tested benefit

5.     Regular payment rather than a one-time or lump sum payment.(Uhuru Bidadanure, 2019)

Social egalitarianism is one the driving factors in Van Parijs and Bidadanure’s framework for a UBI. Bidadanure argues that a basic income floor can be used as a tool to disrupt hierarchical relationships. She points to the fact that it is an individual rather than household benefit, allowing people who would otherwise be economically dependent on their spouse their own steady source of income that can be used as an exit strategy from an abusive or dangerous situation (Uhuru Bidadanure, 2019). Bidadanure also argues that a UBI challenges the current system of paternalistic behavioral conditions for economic assistance. Current interventions seek to coerce specific behaviors out of recipients in return for economic assistance. By making assistance conditional on adopting behaviors, typically related to working, deemed acceptable by the state, the autonomy of individuals receiving the assistance Is diminished. To receive assistance is to abdicate a measure of individual choice to the state; to forgo assistance is to accept the limits on individual autonomy enforced by inequality. In contrast the unconditional nature of a UBI removes any requirements for receiving benefits, and the universality helps to destigmatize receiving the benefits while also working to build a stakeholder society. (Uhuru Bidadanure, 2019).

Objections from Right and Left

The UBI is not without its detractors. From the right, the objections stem from concerns about individual and fiscal responsibility. Common objections are that a UBI would disincentivize labor participation, increase spending on “temptation goods” – drugs and alcohol -, is impossible to finance, and would lead to the break-up of families (Berman, 2018). From the left, it is criticized as being a Randian trojan horse that will be used to further decimate social welfare services – and indeed this has been proposed by conservative thinkers such as Charles Murray (Murray, 2016). Heterodox economists, such as Bill Mitchell, have also criticized a UBI as being inflationary depending on its funding mechanism  and separating income from production (Flassbeck, 2017). These economists argue that a UBI without a subsequent increase in aggregate production of goods or services for money to be spent on will slow the circulation of money, causing inflation [Mitchell 2017].

Studies 

There is not extensive literature on basic income; nevertheless, there have been several high-profile UBI programs over the last few years for which studies of the impacts have been conducted. These programs are the Alaska Permanent Fund Dividend, the Eastern Band of the Cherokee Nation’s casino dividend, and the Basic Income Pilot in Ontario, Canada from 2017-2018 (Marinescu, 2018). There is a fourth program in Stockton, California that has just gotten underway; there are no studies for this program available yet. Research into the first three programs yielded quantitative studies of basic income in Alaska and the Eastern Band case and a qualitative study of the pilot program in Ontario. The study of the Alaska UBI, “Resource rents, universal basic income, and poverty among Alaska’s Indigenous peoples”, was published by Matthew Berman for World Development. The study of the Eastern Band of the Cherokee Nation, “Parents' incomes and children's outcomes: A quasi-experiment using transfer payments from casino profits” was published by Akee, Copeland, et al in 2010. The qualitative study of the Ontario pilot, “"Human Again": The (Unrealized) Promise of Basic Income in Ontario”, was published by Leah Hamilton and James Mulvale in 2019.

While all three studies have their limitations, they contain a diversity of experiences with basic income as well. Both the Alaska and Cherokee programs[v] are well established and on-going. There is substantial annual[vi] data available for analysis to determine the effects that basic income have on targeted communities. In the Cherokee case specifically, the data was gathered from a Great Smokey Mountains Study of Youth longitudinal study that surveyed the mental health of both Cherokee and non-Cherokee children in the region. Halfway through the study, the BI was implemented, allowing for built-in control group for subsequent study (Akee, Copeland, Keeler, Angold, & Costello, 2010). In the Alaska case, the BI is funded through a sovereign wealth fund derived from a non-renewable resource – Alaska’s oil reserves- rather than through the redistributive policies that fund the Eastern Band BI or the Ontario BI (Berman, 2018). The Ontario case offers little quantitative data, as the pilot program was canceled only a year after its launch after a change in provincial government. Despite this, the study offers important insight into the experiences of the people who receive basic income. 

Despite their diverse circumstances, the results of these studies are complementary. Both the Alaska program and the Eastern Band program have led to a reduction of poverty among the target population. In Alaska, the BI has lowered the poverty rate by between 6% and 12% since 1990, though it has been declining since 2005 (Berman, 2018). Eastern Band’s case shows that the increase in permanent income leads to better education outcomes and lower crime rates; crime rates were reduced below the average of the control group, which had remained stable throughout the course of data collection. These findings correspond with Marinescu 2018 review of previous work on the Negative Income Tax (NIT) regarding the positive impacts on children’s education, health outcomes, and overall stability. Both studies demonstrate that it is economically feasible to fund a universal basic income over the long term through different funding options – Alaska’s is funded by collectivizing the rents on oil extraction to benefit all residents of the state and Eastern Band’s is funded through redistributing a position of the casino’s annual income (Akee et al., 2010; Berman, 2018).

The two studies are complementary in what they don’t show as well. Neither study shows any evidence of a decline in labor participation. Both studies show that the income is treated as permanent income and planned into household[vii] budgets, rather than being used for immediate consumption on so called “temptation goods”.[viii] Neither shows[ix] evidence of increased family disruption; Akee, Copeland, et al. shows that the basic income increases family stability and likely lowers familial stress. It should be noted that in both cases, these programs are targeted to indigenous peoples and the concern that the increased income will be spent on “temptation goods” mirrors, in whitewashed language, historic stereotypes of indigenous peoples as predisposed to alcoholism [Dunbar-Ortiz , Gilio-Whitaker 2016].

Given that the Ontario UBI pilot program only lasted 15 months, the Hamilton-Mulvale study cannot offer a comprehensive look at how the UBI impacted Ontarians. However, its findings do seem to correspond with the quantitative findings of Berman and Akee. Interviewees from the targeted population responded with four basic themes – all wanted to be hard working and financially stable, existing social programs do not offer enough assistance whereas the UBI did, the conditionality and stigma attached to traditional welfare programs have had negative repercussions for recipients, and having a basic income allowed them a degree of financial stability by being able to plan long-term finances more effectively (Hamilton & Mulvale, 2019). 

Limitations of Studies 

While the studies address most of the objections from the right and illustrates[xi] many positive outcomes for the target populations, they do not much address the concerns of the left or heterodox economists. There are positive indicators – both the Alaska study and the Eastern Band study show no deleterious effects of a basic income on labor participation, for example. But the recipients in the Ontario pilot program had to forgo other sources of financial aid and welfare services to qualify for the program, and this still didn’t prevent a shift in governing parties from ending the program (Hamilton & Mulvale, 2019). Because the other two examples are funded through either rents on a non-renewable resource or a stream of income that highly specific to the population that it is meant to target, neither offer a strong rebuttal to the experience of the Ontario pilot regarding funding a scaled for the nation UBI that will be steady and permanent without decimating other governmental social and welfare services. 

Another potential limitation of the two empirical studies is that they look largely at individual measurements of success and improvement. The studies show benefits to individuals, but there’s not nearly as much investigation into the larger impact of the BI on their communities. Are these communities becoming more resilient? Is infrastructure improving? Is community health improving? Is education improving? Participants in Alaska have noted that job prospects are still limited in rural areas (Berman, 2018). The Eastern Band program does show some measures of impact on the community – health, education, and arrest rates – but are examined from the individual level rather than investigated as a larger community trend as a result of the UBI (Akee et al., 2010). The Eastern Band BI is funded from casino profits, but the casino profits also help to fund the overall Tribal Budget, which then is one of the largest funding sources for development projects (Eastern Band of Cherokee Indian Department of Commerce, 2018).  Akee does not account for the impact that the community and economic development programs the Department of Commerce may have had on education or overall employment outcomes.

This all points to the funding mechanism of a UBI program being a primary determinant of whether it is successful at the individual level, if it helps improve both individual lives and community resilience, or if it becomes another policy designed to impoverish workers and make them more dependent on corporations and private interests. Most program proposals in the United States for funding are designed to be deficit neutral and redistributive: a progressive 2% wealth tax (a Piketty/Zucman favorite) or, as Andrew Yang argues for, through a VAT tax. A third proposal for a UBI that is deficit neutral (or deficit negative) is Charles Murray’s dissolution of the entirety of the welfare state. While Murray’s proposal is beyond the bounds of the mainstream, deficit neutral spending is a defining feature of the neoliberal era which has seen the rise of wealth inequality. To determine if such a redistributive policy will spur economic growth, we need to examine the macroeconomic impacts of these funding mechanisms.

Macroeconomic Impacts

What are the macroeconomic impacts of a UBI funded through these methods? Is paying for a UBI through a mixture of tax increases and spending cuts good or bad for the economy overall? A 2017[xiii] study from the Roosevelt Institute, using the Levy Institute’s macroeconomic model to investigate this question. The study looks at three UBI schemes – 1) an allowance of $250/month per child. 2) $500 per month to each adult, or 3) $1000 per month to each adult – over 4 funding scenarios – Deficit Funding (1-3), fully deficit neutral (4-6), Mixed with mostly deficit spending (7-9), and mixed funding mostly from taxes. The figure represents the change of each scenario with respect[xiv] to the baseline economic numbers. The schemes funded entirely from taxes (4-6) show no economic improvement or growth at all, whereas the most generous UBI allotment, $1000 per month, paid for either partially or entirely by deficit spending, both bring around 13% increase in GDP over baseline, increases wages by about 5%, lowers unemployment by about 2%, and grows the labor force by over 4.5 million[xv]. The data shows that a deficit funded UBI has significant positive economic impacts that can be felt throughout the entire economy. An entirely deficit neutral funding – 100% redistributive – would have no positive economic benefits at all, and depending on the taxing mechanisms, which are not addressed in this study, may ultimately lead to negative economic impacts(Nikiforos, Steinbaum, & Zezza, 2017).            

Future Research

            A missing aspect of the available studies is how well the basic income achieves its goal as envisioned by Parijs; increasing personal freedom and autonomy. Further research needs to be done on the overall impact of the UBI on the community. What impact does it have on civic participation? Does it enable more residents collaborating to start business ventures?  Additionally, future interventions need to be larger in scope to determine the impacts on a larger community; a major city or small state instituting and committing to a UBI program would present an ideal scale for a more ambitious program. 

Conclusion 

Economic and wealth inequality have, over the last few decades, have grown exponentially. A Universal Basic Income has been suggested by people on both the left and the right as a potential intervention. Though examples are few and data is limited, the examples we do have show that a UBI is successful in raising families out of poverty, improving health and education outcomes, lower criminality rates, and allowing families to better plan their finances. The UBI has also shown no indication of leading to increased consumption of drugs or alcohol, especially in the days and weeks following issuing the annual payment, nor has it led to a decrease in labor participation or the dissolution of families.

Despite these successes in limited and specific instances, challenges remain. Funding remains a concern, and decisions over how the UBI is funded will ultimately pay a major role in the efficacy of the system. If the UBI is funded through deficit spending – that is, predistributing resources at the beginning of a budget year to inject new resources into the economy – then the economic benefits will be felt throughout the entire economy. If the UBI is funded solely through raising taxes or through reallocating current spending, both of which are redistributive policies pulling from existing wealth, it will not lead to economic growth (and may ultimately be contractionary). 

Even with the correct funding mechanisms to encourage overall economic growth, the long-term impacts are hard to measure. Ideally, the UBI will be an aspect of the social safety net, and there would be other initiatives such as Medicare for All, a Jobs Guarantee, or an infrastructure greening program that will address similar individual and community issues. If the UBI is enacted as one of several economic reforms, they can work in conjunction with each other to improve wellbeing. However, the threat of the UBI as a tool of the ruling class to enforce workplace discipline is real, and given its popularity with eugenicists and Silicon Valley executives with a history of exploitive labor practices, it is not impossible to see a future where their vision of a UBI is what the US gets. 

Bibliography 

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Berman, M. (2018). Resource rents, universal basic income, and poverty among Alaska’s Indigenous peoples. World Development, 106, 161–172. https://doi.org/10.1016/j.worlddev.2018.01.014

Eastern Band of Cherokee Indian Department of Commerce. (2018, June). EASTERN BAND OF CHEROKEE INDIANS Comprehensive Economic Development Strategy 2018-2022. Retrieved from https://ebci.com/wp-content/uploads/2018/07/2018-CEDS-Document-Final.pdf

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Hamilton, L., & Mulvale, J. P. (2019). “Human Again”: The (Unrealized) Promise of Basic Income in Ontario. Journal of Poverty, 23(7), 576–599. https://doi.org/10.1080/10875549.2019.1616242

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Marinescu, I. (2018). No Strings Attached: The Behavioral Effects of U.S. Unconditional Cash Transfer Programs. IDEAS Working Paper Series from RePEc.

Murray, C. (2016, June 3). A Guaranteed Income for Every American. Wall Street Journal.

Nikiforos, M., Steinbaum, M., & Zezza, G. (2017, August). Modeling the Macroeconomic Effects of a UBI.docx—Modeling-the-Macroeconomic-Effects-of-a-UBI.pdf. Roosevelt Institute.

Piketty, T., & Saez, E. (2014). Inequality in the long run. Science, 344(6186), 838. https://doi.org/10.1126/science.1251936

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