Scott Alexander is one of my favorite bloggers, combining deep insight with fair-minded analysis. This and this are a couple examples that I really enjoyed.
A recent post discussing a policy of universal basic income (UBI) is less convincing:
About 40 million Americans live below the poverty line, which is $12,000 for an individual and a little higher for families. Multiplying these out to get $480 billion to end poverty is too high, first because most of these people live in families with each other, and second because most of them already have some income. Let’s halve it to $240 billion.
The top 1% are currently taxed at a rate of 37%, and this brings in about $560 billion. Increasing it to an even 50% would give an extra $200 billion or so, leaving $40 billion to get from random other places, the top 2%, etc. For a basic sanity check, the Bush tax cuts decreased revenue by $180 billion per year. A tax increase of the same scale as the Bush tax cuts would suffice for a basic income that ended poverty.
Isn’t basic income supposed to be universal? Yes, but most serious proposals accept that it will be gradually reabsorbed as higher taxes. People below some income gain money on net, people above the income lose money on net, and there’s some break-even point. I’m proposing the break-even point is somewhere between the poverty line and the top 1% – not in an abrupt way that forms a welfare cliff, but gradually according to the normal progressive tax system, and at a level so that we can imagine it abstractly as transferring money from the top to the bottom, with everyone else ending up about equally well-off, or getting gains and losses that cancel out.
This ignores the concern that higher taxes would stifle the economy, and the concern that the promise of a UBI would make more people quit their jobs and fall into the income stratum that benefits. But it also ignores the hope that lifting everyone out of poverty would obviate some welfare programs, or improve education, or bring other economic benefits. I don’t want to claim to be able to calculate all of these considerations, but order of magnitude estimate, we could give out a UBI sufficient to end poverty with a medium-sized tax increase.
I understand what he is trying to do here, but I think it’s a mistake. Unless I’m mistaken, it would be like describing the cost of the Social Security program not in terms of gross expenditure, but in terms of net redistribution. Or it would be like describing the tax burden of “Medicare for all” in terms of the difference between what people currently pay for their private health care plan and the extra taxes they would pay under the new system.
There are two ways to provide a basic income, which look very different but are effectively identical. In one version, only the poor and the near-poor receive benefits, and those benefits phase out as one’s income rises. In a second version, everyone receives an identical basic income, and the entire program is financed by a progressive income tax (or progressive consumption tax.)
Although these two versions look very different, they are effectively identical. Indeed you can draw up a version of each form of basic income that has exactly identical net benefits, exactly identical net taxes, and exactly identical marginal tax rates at each income level. And yet the gross taxes paid under the two regimes will be vastly different. (I believe Alexander does understand this point.)
In my view, the intellectually honest way of describing the tax cost of a basic income program is to assume that everyone gets the $12,000 income, and the entire program is financed by a progressive tax system. This makes the program look really, really expensive, but that’s because it is really, really expensive.
Today it’s increasingly common to see people gloss over the incentive effects of higher MTRs, as neoliberalism is out of fashion. But imagine someone saying, “Ignoring the incentive effects on agricultural output, Mao’s system of communal agriculture was an effective way of improving equality.” Tens of millions died in that egalitarian experiment, perhaps the worst disaster in human history. On the other hand, the inadequate response of the British government during the Irish potato famine may have been partly motivated by worry about the disincentive effects of charity. This is the hardest problem in public policy.
Obviously a UBI in the United States wouldn’t produce a “Great Leap Forward” style disaster. But the reason that won’t happen is that it’s likely to be financed with a really, really expensive tax increase, a tax increase vastly greater than the (modest) net cost of moving 40 million American up to the poverty line (a cost Alexander describes in the first quoted paragraph). I haven’t studied this issue in detail, but given the US population (330 million, and perhaps half as many households) it’s obvious that a UBI of $12,000 per person and significantly more per household would cost trillions of dollars. There is no plausible income tax increase that could raise that sort of revenue.
Defenders of the UBI would correctly point to the fact that you can supplement the income tax boost with a 20% VAT, and for many middle class families the extra UBI benefits would roughly offset the extra VAT and income tax. But it doesn’t end there. European countries with high levels of government spending and taxes typically have economies where GDP/person is 20% to 40% lower than in the US, mostly due to less work effort, although productivity is also lower in some cases. Basic economic theory predicts that Europe’s high taxes should result in substantially lower GDP/person, mostly due to less work effort, but also less productivity. The UBI can be seen as a gamble that these basic economic theories are wrong, even though the stylized facts strongly support the claim that taxes reduce output in the long run. Even within Europe, less taxed areas such as Switzerland tend to have higher output.
If standard economic theory is correct, then a UBI will not merely redirect money from the rich to the poor, it will dramatically reduce (material) living standards for average Americans. There will be more leisure, but it will be unevenly distributed.
This is not to say a UBI is a bad idea. It seems plausible to me that the case for UBI will gradually increase over time. Perhaps in 100 or 200 years, today’s opponents of the UBI will look mean-spirited or foolish. But that doesn’t mean those future people will be correct about today, any more than our current (negative) views about Bronze Age wars are correct. What do we know about the trade-offs faced by people in the Bronze Age? (Hint: the Malthusian trap meant it was often a choice between death through war and death through starvation.)
Let’s keep studying the UBI, but it’s far too early to try the experiment. Especially with employers currently desperate to hire almost anyone, even people just out of prison.
PS. I said that Alexander is fair-minded. The quotation I provided above is directly preceded by this:
Everything below is epistemic status: wild speculation.
PPS. Presidential candidate Andrew Yang is running on a UBI platform:
READER COMMENTS
robc
Aug 12 2019 at 10:05pm
There is a 3rd option: Everyone receives basic income and a flat tax on everyone. It is still progressive due to the UBI.
And a fourth: UBI paid from a land tax.
Scott Sumner
Aug 12 2019 at 10:25pm
Agree about the flat tax as an option. A land tax would have difficulty raising that much revenue, given the politics of the issue. But it’s worth considering land taxes as a less distorting alternative to our current income tax regime.
Matthias Görgens
Aug 13 2019 at 7:07am
A land tax would be a particularly useful way to finance a UBI, because a UBI will likely increase land rents.
robc
Aug 13 2019 at 8:41am
I oppose the UBI, for most of the obvious reasons, but I am a Single Land Taxer.
One of the benefits of the SLT is it CANT raise as much money as the current income tax system does. So government (at all levels) would cap out at about 1/3 its current size.
Also, option 4 was an obscure reference to Thomas Paine, who favored a land tax to make 1 time payments to 18 year olds. “You are an adult. Here is a chunk of money, don’t screw it up, there ain’t any more coming.”
That may not be an exact quote.
Brandon Berg
Aug 13 2019 at 12:21pm
A flat marginal rate combined with a UBI is not ideal, because it means that you either have a very long phase-out resulting in very little money being raised from the middle class (e.g. $12,000 UBI with 30% tax rate means all income up to $40,000 is tax-free), or have a very high marginal rate.
A better option, perhaps, is to have a high rate for the phase-out (say, 50% on all market income up to the break-even point), and then reduce the marginal rate after that. So maybe you’d have $12,000 UBI, claw it back at a 50% rate up to $24,000 in market income, and then tax income over $24,000 at 35%.
People will say that this is “regressive” because people with high incomes have a lower marginal rate, but the effective rate is monotonically increasing, since the 50% marginal rate only applies as long as the IRS is clawing back the UBI.
Brandon Berg
Aug 13 2019 at 12:23pm
Honestly, though, I don’t think even this works out without substantial tax increases, so I’m not a huge fan, largely for the reasons expressed in the OP. But I think this is a less damaging way to do it.
Jim Rose
Aug 13 2019 at 4:07am
You rarely see a discussion of how a universal basic income will be paid for. The usual wave of the hand is just raise the taxes on the top 1% and everything will be okay.
Scott Sumner
Aug 13 2019 at 12:23pm
Yes, that clearly won’t work.
David Henderson
Aug 13 2019 at 12:40pm
Actually, I discuss it at length in my Independent Review article “A Philosophical Economist’s Case Against a Government-Guaranteed Basic Income,” Independent Review, Spring 2015.
https://www.independent.org/pdf/tir/tir_19_04_02_henderson.pdf
dmm
Aug 13 2019 at 4:53am
Not to mention that, with a few possible exceptions such as the homeless mentally ill, there is no real poverty in America compared to global standards, especially historically. What everybody talks about these days is relative poverty, not absolute poverty. If poverty is defined relatively, there will ALWAYS be poverty. For socialists/progressives, this is a feature, not a bug. They will always be able to feel morally superior calling for more forced redistribution.
chris
Aug 13 2019 at 4:18pm
You seem to be unaware of the actual situation a huge number of Americans live in. Approximately 10% of Americans have a negative net worth, meaning they survive on debt and/or social services. The next 10% have a median of around $5,000, meaning a minor health issue could send them into debt. 40 million Americans are food insecure.
While the overall standard of living is higher in America than in some places, there are a huge number of people that live one step away from disaster, reliant on social services to house and feed themselves. The higher standard of living probably doesn’t feel so important when you are having trouble feeding your family, work multiple jobs to make enough to survive and can’t take a sick day because you would lose that day’s pay, which may mean not having heating that month.
If you are defining the poverty rate as those living on $2 per day, most often referred to as extreme poverty, then reports put that number between around 300,000-800,000 people. That’s after taking out those using government programs to alleviate their extreme poverty.
Life safety endangering poverty, while less extreme than in some other places, is still a significant issue in America and we already spend billions trying to counter it. If a UBI system can alleviate the suffering of some portion of the population and possibly reduce the need to help the poor in other ways, such as food stamps, then it seems like something we should be discussing. To ignore the problem of poverty by hand-waving it away as a liberal fantasy is to ignore even the most conservative hard data that exists on the subject.
lamson12
Aug 13 2019 at 6:10pm
Does your negative net worth figure include student loan debt and/or mortgages? If so, what do the percentages look like after taking those out of the equation?
I was not aware that rates of extreme poverty ranged from 300 to 800 thousand and would like to investigate further. Do you have any sources that you could point to?
Finally, I think it would be instructive to determine how many people in poverty are there due to being dealt a bad hand versus just being bad at managing their personal finances. Solving the former situation is one of the key mandates of public policy, but the latter problem is self-inflicted and needs to be solved by the person in question making drastic changes. Lord knows, there must be hundreds of videos on YouTube about achieving financial freedom by now.
Mark Z
Aug 14 2019 at 2:35am
Almost any young person who recently bought a house or finished graduate school has a negative net worth. That’s not a sure sign of privation.
A d I don’t see what the point is if paying people money to get them to stop using social services; first of all, what guarantees they’ll use it to buy necessities or avert disaster? And not just keep collecting food stamps and living Medicaid just like before?
I think there’s more than enough money out into Medicaid, food stamps, public housing, etc. to easily provide necessities of the poor population. Many major cities spend over 40 or 50k per year on homeless services per homeless person. If you’re poor and you’re not getting these basic services, it is not for lack of money being spent on poverty, and throwing more money at it would be akin to pouring more wine into a broken wine skin.
Chris
Aug 14 2019 at 10:25am
Net worth usually includes assets of value, such as a home, so those people with mortgages are typically better off than those without and are taken into account in the data as such. Unless your underwater on your mortgage, a home purchase isn’t reducing the net worth value used in the data. Student loans are another matter, and while you are likely correct that they are not reflected in this data, my gut feeling is that they are not enough to change the point I was trying to make with the data.
Beyond that, I touched on it in my comment, but may not have been clear: The UBI in my mind, and I believe in the minds of many, replaces the convoluted web of social services for many people. This would be great, as most social services are convoluted, hamstrung and require a huge bureaucracy to manage. The UBI on the other hand would lift everyone, allowing those that previously had trouble getting or maintaining welfare to receive it. I’m not saying we wouldn’t have the existing programs, just that they could be scaled back significantly and serve a slightly different purpose than many currently do.
Lastly, while there is a lot of money being spent to help the poor, it is nowhere near enough and is applied inconsistently, largely based on whatever judgemental requirements politicians decided to throw in. Spending is also generally focused on helping the truly destitute stay alive, rather than giving people a foundation to build upon. The UBI would give the poor a stable resource that they can use to pay debt, increase savings for large purchases or emergencies, cover expenses during a job change and/or move (something many are practically unable to do), and whatever else people need to survive. Rather than supporting people when they’ve been knocked down, it would increase financial security so more people are more able to avoid catastrophe.
There are plenty of valid arguments to be had around the UBI, but I don’t think that the adequacy of our current social services is one of them. If our current underfunded, restrictive, piecemeal approach were adequately supporting the millions of Americans that are dangerously financially insecure, then we likely wouldn’t be having this conversation at all.
chris
Aug 14 2019 at 10:50am
Mark,
I just have to add that your question about what people will spend the money on is exactly the issue with our current social service programs. That judgemental mindset that implies that the poor will all just waste the money has hampered almost every program, forcing irrational requirements into the mix, all in the name of stopping fraud, abuse and the racist “welfare queen” trope that have been shown to be negligible.
There undoubtedly are people that will spend the money in ways you disagree with, but the vast majority of people, based on behavior in every other social service program, will spend the money in ways that improve their lives. If the UBI is paired with funding for financial services, I’m sure people would be even better off.
People of all wealth brackets do stupid things with money all of the time. Poor people are no worse than others, they typically just happened to be born to poor parents, have a health issue that sent them into debt, or had some other poor circumstance. Unlike the middle and upper class, if they have an unexpected financial setback, take a risk that doesn’t pay off, or just do something stupid , they lack the financial stability to recover. The UBI would help people weather these setbacks, learn from any mistakes they may have made, and move forward.
dmm
Aug 14 2019 at 9:17am
chris:
I would really like to know the sources of your information.
“If you are defining the poverty rate as those living on $2 per day, most often referred to as extreme poverty, then reports put that number between around 300,000-800,000 people. That’s after taking out those using government programs to alleviate their extreme poverty.”
I may be misunderstanding you, but if you’re claiming that that there are over 300,000 people in America living on $2/day AND don’t receive any government benefits, I really suspect all your sources are not reliable.
chris
Aug 14 2019 at 9:48am
I referenced a few sources, including an Economist article from 2017 and several articles discussing census data. None were questionable sources. Here’s a few:
https://www.economist.com/democracy-in-america/2019/06/20/how-many-americans-live-on-2-a-day
https://dqydj.com/net-worth-brackets-wealth-brackets-one-percent/
https://www.ers.usda.gov/topics/food-nutrition-assistance/food-security-in-the-us/key-statistics-graphics.aspx
For the extreme poverty number, I used a range between the low estimate discussed in the Economist article and the high estimate that the research was refuting. I assume the actual number is somewhere between the two. But yes, they seem to have found that, even with social services, 300,000 people were still in extreme poverty. Our social services have many limitations, catches and bureaucracy that keep people from receiving them.
dmm
Aug 15 2019 at 8:30am
Hi Chris,
I just had a quick look at the research (linked below) that the Economist took its figures from.
https://poseidon01.ssrn.com/delivery.php?ID=288029089119124077079064022007024091103043056088031004087020092093070120089006101068017098101006051012034021074014113069022008122090028033029000087126011101072096015084017084101120000110028109069087122102083076093097103080095067084116127001028114096001&EXT=pdf
The original data that the researchers used is survey data. That should be enough to laugh at any statistics derived from it. Although I couldn’t find a margin of error for the paper’s results, I feel pretty sure it would wipe out the quoted 0.11% finding. The paper is full of estimates such as under-reported income. One quote in particular does not inspire confidence: “Importantly, we may yet overstate the true rate of extreme poverty, because our administrative data miss a number of important income sources for which surveys underreport or miss altogether.”
I’ll add one more point: Never forget that you are using the threat of deadly force against mostly kind, charitable and productive folks to fund your beloved welfare state.
chris
Aug 15 2019 at 10:24am
dmm,
The research quoted in the Economist article for the high number is rough, as the article points out. However, the article is specifically about how other research is showing the number to be lower, and they still have it at 300,000 people, hence the range I provided. That’s still a lot of people, and we’re only discussing extreme poverty with that number, not poverty in general, or food insecure, or financially unstable.
dmm
Aug 16 2019 at 3:08am
“However, the article is specifically about how other research is showing the number to be lower…”
Is that a typo? The research that gives the 0.11% (336,000) figure used the same data which other research used to find the higher figure, in order to correct for under-reporting and other errors. In fact, it found that some households that were originally classified as extreme poverty were not even in poverty at all. And it clearly admits, as I pointed out before, that even their much lower figure is likely an overestimate.
You did not address my point about the margin of error. You appear to be intent on continuing to use dubious statistics from such “reliable” sources without qualification to support your preconceived ideas. If so, there’s nothing else I can say.
chris
Aug 14 2019 at 10:32am
I responded with links, but I think that got the comment flagged, perhaps. The sources I referenced include census data, an Economist article from 2017, and USDA data on food insecurity. All legitimate sources.
I’m not arguing that America is a hell hole or anything, just that, regardless of our overall wealth, there are still hundreds of thousands living in extreme poverty, millions in poverty, and tens of millions that are dangerously financially insecure, and that is after government social services, tax breaks, and whatnot are taken into account. It may be a small percentage of the population in the most extreme situations, however, a small percentage of a large population is still a ton of people.
[I’ve released the previous comment with the links. It was indeed merely held up by the spam filter.—Econlib Ed.]
Benjamin Cole
Aug 13 2019 at 5:08am
A system more heavily tilted to property taxes alleviates some of the problem of marginal tax rates for people escaping poverty. Of course a system tilted towards property taxes might even alleviate the problem of high marginal tax rates on very productive people in higher-income people.
In general, I do not like welfare programs. But I cannot imagine why we tax people on income, including payroll taxes, who make $20 an hour or less or why we have a Federal Reserve that targets, until recently, a 5% rate of unemployment.
I am more comfortable dispensing with welfare programs if labor markets are kept as tight as possible.
Mark
Aug 13 2019 at 8:11am
The fact that we would struggle to pay for UBI shows that it is premature. UBI is supposed to be for when automation has displaced the need for human labor, meaning that there would no longer be economic scarcity except perhaps natural resource constraints.
Dylan
Aug 13 2019 at 8:29am
“Especially with employers currently desperate to hire almost anyone, even people just out of prison.”
I’ve got to say, as someone who finished his MBA recently, and has been looking for work for months, including applying for minimum wage jobs without success, continually reading statements like this is pretty depressing.
Scott Sumner
Aug 13 2019 at 12:24pm
It may be depressing, but it’s accurate.
Dylan
Aug 13 2019 at 1:29pm
That wasn’t meant as a complaint against your post, just makes me wonder what I’ve been doing wrong when apparently anyone with a pulse is supposed to be able to find work by just walking down the street, yet both myself and my wife have been applying for work like crazy and all we have to show for it is a single interview each (and mine was for a position that doesn’t pay anything, but hey, on the positive side, I got that job).
john hare
Aug 13 2019 at 4:01pm
I would have to get much deeper into your business than either of us would be comfortable with to understand your situation. Your proper answer to me is probably “buzz off” or more pungent words to that effect. I have been running a small business for a few decades and talk to a lot of other employers. Here are a few questions you may ask yourself.
Is your local area the problem in that there are many unemployed looking for the same jobs? It may be geography and a move may be worth considering.
Is your MBA actually in demand locally or regionally? If not, you may have been shafted by the expectations generated by the education industry.
Do you have a work history in the type work you were applying for? Non-skilled and needs training is a red flag on an applicant with MBA that is probably going to move on at the earliest opportunity. For some positions, it may be an advantage to forget the MBA.
Are you good with your hands? Mechanics and construction workers are in demand most places. Truck drivers as well if you can handle it. (I can’t)
If you have been unemployed for a long time that is a red flag to employers as it is a somewhat reliable predictor of poor motivation.
Have you been networking? a very high percentage of jobs come from personal connections.
How well do you blend in with the people in the places you’ve been? Showing up to a construction job interview in a business suit can be as bad as showing up to a business interview in ripped up jeans and flip flops. Locally Hispanic is an advantage in a construction interview when the company is largely Hispanic.
Do you talk a lot about how reliable and motivated you are and how hard and smart you work? In my experience the harder the sale the worse the deal. The hard sale generates resistance. Most of the time people that go on about how good they are beyond the simple answers are not all that good. A simple, “I’ll be there” is more believable than, “I’ll be there early and you can count on me and I’ll work harder than anybody you’ve got” and so on. I’ve had a lot of people promise the world and then show up late or not at all.
Of course you don’t want to answer me seriously on this, other than Buzz Off. Just things to think about from an employer in central Florida.
Dylan
Aug 13 2019 at 6:44pm
Hi John,
Appreciate the response, and while my post was mostly just venting some frustration after having woken up to a couple of “thanks, but no thanks” replies to some positions that I applied to that I thought were a pretty good fit for me, here’s some general answers to your questions.
I’ve been unemployed since January, but I was in school for most of that, and just graduated at the end of June. My MBA is from a school that is typically ranked as one of the top-10 business schools in Europe, and my program is in the top 20 or 30 in the world depending on your source. I live in NYC and have a background in investments and management consulting, although I worked for a very small firm that hasn’t done very well over the last few years, and one that I stayed at for way too long.
Ideally, I’m looking to make a bit of a change in terms of industries, and I’ve been volunteering at a couple of organizations that are more connected to where I want to be, and so meeting a fair number of people through that, although nothing like a job connection just yet.
The feedback I’ve had from the jobs I’ve heard back from is that I’ve got too much experience, although these are mostly jobs that I feel are a stretch based on my past experience (and would pay significantly more than I’ve made in the past).
As far as selling myself, I have a feeling I undersell myself more than go for the hard sell. I know that on at least some level I’m decently intelligent, I’ve almost always scored in the top 1 or 2 percentile on standardized tests like the SAT and GRE. Yet most of the people I associate with are way, way smarter, so kind of hard to use that as a selling point even if I was inclined. And, to make matters worse, as a listener of EconTalk, I’m pretty cognizant of how little I really know about much of anything, and that’s even worse for the subjects I arguably know the best…the deeper I dive the less I feel I know.
I tend to get along with everyone, and in the past I’ve never had an interview without immediately being offered a job…I just have a really, really hard time getting that interview. Right now what I’m hearing from people I know is that I’m intelligent and good at what I do, but that my background is not well aligned for any kind of job. I have too much experience for the jobs I’m qualified for and not enough specialization for the jobs the next level up.
I’m sure I’ll make something happen eventually, just a bit frustrating and stressful in the meantime. Thanks for listening.
john hare
Aug 14 2019 at 4:25am
@Dylan 644 pm
Reading your answer made me realize how localized my viewpoint is. It seems likely that it hardly applies to your situation at all. I have to wonder how many of the other “solutions” people come up with are not applicable to other locations with different sets of problems.
Dylan
Aug 14 2019 at 8:47am
John @425am (Yikes! You’re up early, must be that hard work of being an employer)
I think your viewpoint has lots of good general advice that is just as practical for my situation as it is in Florida. Network with the right people, dress for the job you want, etc… While I’m doing some of that, there’s certainly more that can be done.
I do take your more general point though, lots of us try to extrapolate from our specific knowledge to cases that are more general, and while that can work and we all need to do that to some extent, we should also be aware of the limits to that approach. One of my volunteer jobs has been mentoring small businesses on basic strategy and finance topics, and it is pretty easy to take my knowledge from another industry and apply it in cases where it isn’t a great fit. Really have to work to not do that.
chris
Aug 14 2019 at 11:23am
Dylan,
It sounds like you’re having a tough time; sorry to hear that. The best advice I can give as someone who spent some time unemployed and at one point sent out 1,000 resume/cover letters is to keep at it, get inventive, and reach out to the people you want to work with, even if they don’t have an opening. My professional career has been based on reaching out to people that didn’t happen to have openings.
Dylan
Aug 14 2019 at 10:23pm
Thanks Chris, appreciate that. While I’m dipping into my retirement savings a lot more than I’d like to, at least I have the savings available, which is more than can be said for a lot of people.
chris
Aug 13 2019 at 4:32pm
Ex-offender unemployment is around 25%. That doesn’t take into account the type of job ex-offenders are able to get, or how much they are getting paid for them. There may be an uptick in hiring of ex-cons, but let’s not blow that uptick out of proportion.
Dave Smith
Aug 13 2019 at 9:43am
But the author of Caplan’s current book discussion claims that transfers increase work effort….
Daniel
Aug 13 2019 at 10:33am
“In my view, the intellectually honest way of describing the tax cost of a basic income program is to assume that everyone gets the $12,000 income, and the entire program is financed by a progressive tax system. ”
It’s definitely the most build-it-from-the-ground-up way, but is it intellectually dishonest to describe policy changes as relative to current policy?
While I agree that gross costs are relevant for considering the cost of a program, I’m not so sure that setting a new baseline for costing is that fair. Consider a situation where Paul makes $10 and Peter makes $100. Under current policy, I tax Peter to pay Paul $10. I’m considering your UBI #1 (negative income tax rather than a truly U BI) to get Paul to $25. So does this cost $50, $5, or $0? I agree it’s not $0, since that’s just net of revenue that we presently deem acceptable to source. If we said compared to current policy, it costs an extra $5, to be paid for with higher taxes (or, hey, I could always switch this to debt; either way it has to be paid, so cost is non-$0). Or we could construe it as costing $50 to be paid for with taxes- $10 from Paul and $40 from Peter. Of course what actually happens is that the government gives Paul $15 and takes $15 from Peter. Accounting for it this way subsumes existing policy (already transferring $10) under my new policy. What if I paid for it with debt- I’d only need to take out $15, and that’s still including prior policy. I’m not so sure gross costs relative to no-policy-at-all baseline is the right way; gross costs relative to current policy seems more appropriate to me, and that’s what Alexander was doing. Maybe you can convince me, Dr. Sumner?
John Alcorn
Aug 13 2019 at 11:18am
Re:
Prof. Sumner, Today, marginal tax rates and disaster relief are separate policy issues in broadly prosperous constitutional democracies. Famine is not on the radar screen. There is some concern about taxpayer liability for private damages in areas prone to floods or wildfires. Aren’t disincentive effects of charity mostly a non-issue in disaster relief, rather than the hardest problem in public policy?
Wasn’t the Irish potato famine a clear-cut matter of disaster relief? Maybe putative disincentive effects were unfounded rationalizations of unwillingness to help the victims; rationalizations motivated by rigid ideology or bias.
Means-tested subsidies for food, shelter, and health care—to mitigate relative poverty or inequality—and marginal tax rates do get bundled in public-policy debates. Bryan Caplan’s new book project will provide conceptual and empirical clarity on this thicket of issues.
Scott Sumner
Aug 13 2019 at 12:28pm
John, I don’t think it’s that simple. The line between disaster and chronic poverty is often quite blurry. Famine in Ireland occurred quite frequently. It seems obvious that the UK policy was wrong; it’s not obvious what the optimal policy should have been.
John Alcorn
Aug 13 2019 at 4:58pm
Thanks for your helpful reply. I would say that the line between disaster and chronic poverty in a nation is blurry until demographic transitions and agricultural and industrial revolutions establish pretty broad prosperity. Today, there is usually a clear line between disasters and chronic relative poverty.
Prosperity also has muted the human toll of natural disasters, although nuclear weapons, mega-viruses, and climate change present mind-boggling risks of catastrophe.
I defer to you about recurrence of famine in Ireland. Wikipedia indicates three major famines peculiar to Ireland, roughly at intervals of a century: (a) the famine of the Cromwellian conquest 1651-1653, (b) the Irish famine of 1740-41, and the Great Famine of 1845-1849, which was matched and mitigated by massive emigration.
Scott Sumner
Aug 14 2019 at 6:45pm
I’m no expert here, but they also say:
“In the 40 years that followed the union, successive British governments grappled with the problems of governing a country which had, as Benjamin Disraeli put it in 1844, “a starving population, an absentee aristocracy, an alien established Protestant church, and in addition the weakest executive in the world.”[25] One historian calculated that, between 1801 and 1845, there had been 114 commissions and 61 special committees enquiring into the state of Ireland, and that “without exception their findings prophesied disaster; Ireland was on the verge of starvation, her population rapidly increasing, three-quarters of her labourers unemployed, housing conditions appalling and the standard of living unbelievably low”.[26]”
And that’s all before the 1845 onset of the Great Famine. Again, I don’t dispute the need for more aid during the Great Famine, it’s just that the broader issue of optimal public policies is much tougher.
John Alcorn
Aug 15 2019 at 8:43am
The ‘agrarian question’ in modernizing countries in Europe in the 19th century (and often well into the 20th century) couldn’t be answered by commissions and public policy, partly because suffrage was limited and landowners had disproportionate voice in parliaments (political economy), partly because productivity wasn’t sufficient yet. Instead, the agrarian question was eventually transcended by interlocking growth in non-agrarian élites, democracy, productivity, internal migration to cities, and,in some countries (e.g., Ireland and Italy), emigration to the Americas.
PDV
Aug 13 2019 at 9:05pm
I don’t see your point. Why should we care about the gross tax revenue, if it’s administered simply enough that no waste is introduced? If a UBI is implemented as a NIT, which it should be, it will be distributed the same ways as normal tax refund checks. In this case, there is very little change. Technically the gross receipts of the government might go up massively, but the gross taxes which pass beyond the IRS, to lawmakers or anyone else who can spend the money, will only go up by the nominal amount, $240 billion. It’s just moving money around inside the IRS, making refund checks for lower-income bigger (and creating refund checks for 0-income people) and those for higher-income smaller. This is not in any sense Big Government.
Mark Z
Aug 14 2019 at 2:44am
I don’t think the concern is purely about the administrative costs, and your last sentence is wrong. Who exactly enforced my tax liability? A government compelling me by force to give 60% of my income to strangers is certainly bigger to me than one compelling the payment of mere 30%, and is certainly playing a bigger role in the overall allocation of resources. I’m not sure what more relevant sense of the word ‘bigger’ there is.
silver
Aug 14 2019 at 8:49am
I’m not an economist, and I’ll take your word for higher taxes reducing work effort and productivity. But my intuition is still that the benefits of UBI would outweigh these effects, even if they’re really substantial.
I’m thinking of higher functional IQ through reduced stress, lower crime rates, increased trust in the government, and a mechanism to avoid catastrophe if automation happens a lot quicker than we expect. I don’t trust the government to react quickly enough if that happens.
Wrt the third point, isn’t Donald Trump a really good argument for UBI? It seems fairly clear that he would not have won the election if we had a substantially improved level of trust in the government from the populace, and the same should be true for future extremist candidates. I would accept a substantial decrease in GDP in exchange for an assurance that we won’t repeat that experiment.
JayT
Aug 14 2019 at 5:34pm
The people that voted for Trump would be the ones most hurt by the UBI, and the people that didn’t vote for him would be the most helped by it. People that made less than $50K backed Clinton while people making more than that disproportionately voted for Trump. I don’t think the UBI would have done anything but increase Trump’s chances of getting elected.
silver
Aug 15 2019 at 4:57am
That correlation appears very small based on a quick google search. And it’s not like the bottom 50% would benefit from UBI+VAT and the the top 50% would be hurt; a larger group would benefit and a smaller group be hurt. So I suspect that a large majority of Trump voters would benefit.
But even if that were wrong, it would be enough if a significant portion of them benefited. It doesn’t need to be > 50%.
Armin Chosnama
Aug 14 2019 at 5:55pm
This is a hard problem, and we don’t have the analytical tools/clairvoyance to say anything accurate about it. So, we look for data to confirm our biases and pretend we know what we’re talking about.
The only thing I can add is that Scott Alexander **used to be** one of my favorite bloggers, but his internalization of bay area progressivism has turned him intellectually soft. Nowadays, he’s more likely to be peddling fad-of-the day opinions (“separating families bad now that Trump is doing it” or “trans people can do no wrong”) than saying anything useful. His post on UBI was the perfect example of his recent biases, and pretty much what I’ve come to expect from him.
Scott Sumner
Aug 14 2019 at 6:38pm
Armin, Strongly disagree about Alexander. His posts are often brilliant, some of the best I’ve ever read. If you want something more “conservative”, read his two recent posts on billionaire philanthropy, where he demolishes his critics.
RPLong
Aug 15 2019 at 8:09am
To my knowledge, there is absolutely no empirical evidence that a UBI addresses poverty more effectively than any other kind of welfare program. It has always struck me as odd that so many smart people have become interested in an extremely expensive welfare reform that has so little evidence backing it up.
chris
Aug 15 2019 at 10:20am
While you can debate the merits, costs, macro-economic impact, etc. the basic math of the UBI pretty well demolishes poverty. If poverty means someone makes less than $12,000 and the UBI gives every individual $12,000, then the poverty rate just dropped to zero, by that definition at least. It’s hard to debate the effectiveness compared to other programs as well, since this would essentially solve poverty, where none of our current programs do so, independently or combined. The efficiency of the program could be a question, but that is based on how exactly it’s implemented.
RPLong
Aug 15 2019 at 12:36pm
chris, you’re certainly not accounting for inflation when you use that definition, and there should be no question that giving $12,000 to every human being in the country will produce inflation. At that point, “$12,000 is the new zero” unless you pair the UBI with some plan to control the price level. Is anyone proposing that?
Chris
Aug 15 2019 at 3:41pm
Well, I did say you could argue the macro-economic impact, however, if the UBI is somehow formatted to essentially ensure that nobody makes less than $12,000 a year, the number of people receiving the extra income would be a pretty small percentage of the population, which should limit overall inflation. Also, most of these people are already operating in debt, so it’s not like this is going to significantly increase their buying power. The most likely negative inflation related impact I can think of would be rents increasing in poor neighborhoods to offset the increase. The accompanying positive is that these same poor neighborhoods are more likely to get and support retail that is currently missing. It could seriously help alleviate food deserts in a way food stamps are unable to.
john hare
Aug 15 2019 at 5:21pm
You could have a UBI of $50K and there would still be extreme poverty. There are those that would drug/alcohol/gamble/etc it away and still be on the street and hungry.
RPLong
Aug 16 2019 at 9:19am
Chris, I am not sure that the limits to “overall” inflation are relevant here. I’m not worried about the inflation that a middle class UBI recipient might receive, I’m worried that if you give the poor an additional, free $12,000 per year, their rents and grocery prices — at the local level — will adjust to the newfound money circulating. This might not seem noticeable in downtown Seattle, but I can guarantee you that the poor will notice this in, say, Tyler, Texas, because $12,000 is a lot of money in Tyler.
There is no reason to expect that this kind of inflation won’t ultimately cancel out the benefits of a UBI, merely because the total national inflation level might wash out the local fluctuations.
As I said, there is no clear empirical evidence that a UBI will address poverty more effectively than existing welfare programs. Accounting tricks and definitions are no way to alleviate poverty. If we are going to seriously consider the largest and most disruptive welfare reform in national history, shouldn’t the empirical case for it be much stronger than it is?
Kevin Baldeosingh
Aug 16 2019 at 8:27pm
I believe a UBI is feasible but only if two requirements are met (1) it must not exceed the amount required for VERY basic necessities; (2) it must be financed by reducing government expenditures rather than taxes, including monies spent for healthcare (people will have to buy insurance out of their UBI payments).
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