Eakinomics: UBI Enters the Presidential Debate

This past Monday featured a back and forth between candidates Bernie Sanders and Andrew Yang on the desirability of a universal basic income (UBI). Yang is a long-time UBI promoter, while Sanders took the “conservative” (my fingers hurt just writing that!) position of merely guaranteeing everyone a job. Putting their tiff aside, what is a UBI, and is it a good idea?

Simply, UBI is a guaranteed cash benefit that the government provides to all citizens. The idea is not new, and has appealed to both the conservative (Milton Friedman’s Negative Income Tax) and liberal sides of the political spectrum. It has resurfaced for three (or more) reasons. Yang, among others, sees UBI as a way to stem economic and political unease in the face of growing inequality. (Yang claims the ratio of CEO pay to worker pay has risen from 20 to 1 in 1965 to 271 to 1 in 2016.) Second, some advocates view this policy as a response to artificial intelligence, robots, and all techie threats to well-paying jobs. See, e.g., Give People Money by Annie Lowrey. A final — and very different — rationale is for UBI to replace the byzantine and counterproductive U.S. transfer programs. See, e.g., Charles Murray who proposes replacing Social Security, Medicare, Medicaid, welfare, social services, and other programs with payments of $13,000 per year to every American age 21 or older.

I’m not saying I side with Sanders, but UBI is not the answer to these challenges and may be a step in the wrong direction. First, notice that a UBI of, say, $10,000 would cost roughly $30 trillion a year. That is a lot of money, so you need a policy that is extremely effective to justify the price tag. With regard to inequality, notice that a UBI is by design not redistributive, and it would consume a huge fraction of the federal budget, leaving less money for targeted redistribution investments in human capital. And, to the extent that UBI causes some to leave the labor force, it might exacerbate the inequality problem.

Regarding automation trends and workers’ skills, the only solution is to support a pro-work, pro-skills agenda and to devote resources to investing in the education and skills of children and economically disadvantaged groups of individuals. Also, it is important that this agenda be coupled with programs that provide wage subsidies for low-wage workers while limiting the cash and near-cash benefits for individuals who cannot work. In short, we need a pro-work agenda and targeted redistribution. UBI is not this.

Finally, it hard not to be sympathetic to the notion that the social safety net is too complex and inefficient. But the social safety net should be about more than efficiently distributing cash; it should be about supporting economic self-sufficiency. Different programs will inevitably have different contributions to that goal, leading to some necessary complexity. But some complexity is better than a simple system for undermining the self-sufficiency of low-income Americans.

There have been UBI experiments and demonstration projects historically in the United States (the Seattle and Denver Income Maintenance Experiments) and abroad (Canada and Finland). There is nothing in the track record that would cause me to overrule my concerns about the structure of UBI, which should probably stand for Undercutting Basic Incentives.