I want to signal-boost Tumblr user squareallworthy‘s analysis of various UBI plans:
1. Jensen et al’s plan
2. Healy et al’s plan
3. Andrew Yang’s plan
4. Torry’s plan
5. Sheahen’s plan
6. Dolan’s plan
7. Stern and Murray’s plans
8. Santens’ plan
8½. Varoufakis and Reich’s plan
9. Yang’s plan, redux
He finds that most of them fail on basic math – they rely on funding schemes that wouldn’t come close to covering costs. The rest are too small to actually lift people out of poverty. None of them are at all credible.
These plans fail even though they cheat and give themselves dictatorial power. “End corporate welfare, then redirect the money to UBI!” But if it was that easy to end corporate welfare, wouldn’t people have done it already, for non-UBI related reasons? “We’ll get a UBI by ending corporate welfare” is an outrageous claim. And even the plans that let themselves make it fail on basic math.
This is humbling and depressing. And it concludes the intelligent and useful part of this post that signal-boosts the work of a responsible person. Everything below is epistemic status: wild speculation.
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.
If you think a world full of people trying to eke out an existence on $12,000 a year sounds dystopian, remember that’s the average cost of room and board at US colleges. I think the reason $12,000 can give college students such a good standard of living, but gives people on the edge of the poverty line such a bad one, is partly related to the hidden costs of work.
Why is this so much easier than the plans above? Number one, not pretending that it’s going to help the middle class. Number two, not pretending that it can be done without raising taxes. Remove those restrictions and the economics are easy.
Some people would say that it makes the politics impossible, but I’m not so sure. Raising taxes on the rich from 37% to 50% doesn’t seem outside the scale of what a Sanders or a Warren might do anyway. And pad it out a bit so that the middle class is still below the break-even point and gets maybe $1000 or so per year, and the pitch is still “end poverty in a way that makes you personally $1000 richer”. That’s still a pretty good pitch.
But if someone wanted a Yang-style universal income, one that went to everyone including the middle-class and which didn’t obviously raise anyone’s taxes, would there be a way to do it?
I wonder if you could just declare by fiat that it has to work, and leave the future to figure out the details. Start in 2020 with a basic income of $1 per person. Then mandate that it has to increase by $300 per year. Congress can decide how to do that, whether it’s by raising taxes or cutting other spending. If they can’t find the money, there’s a government shutdown until they can.
Even better, forget the $300 number and mandate that it has to increase at a rate pegged to GDP growth. Maybe fix the start date at 2020, and then in year X, one third of the difference between year X GDP and 2020 GDP must be given out as basic income. In theory you should be able to get a UBI of $10,000 per person in a few decades without making any person or government program poorer (though you will make their wealth increase less quickly than it would otherwise).
Aside from inflation (which means the $10,000 will be worth less than expected, but shouldn’t affect the system’s ability to reach $10,000 in 2020 dollars eventually) what am I missing?
If you want UBI, move the poor out of the cities. Rural places offer larger properties cheaper, land to build yourself things on, ability to grow food, a general lack of competition in things like who wears more expensive clothes, and just everything is cheaper and more fun on the cheap. You don’t go to a bar, you invite people over for moonshine. Friends can bring their friends and just anyone can come by because there is enough room outside the house in the garden.
City life means you live in a box with only the TV to entertain you and to get entertained you go out and spend money. Rural life largely means you build yourself things that will entertain you. You dig out, concrete and tile out a swimming pool.
Poor life is infinitely better outside the city. But as long as people are inside the city, they will waste their money on entertainment because what can they do in their tiny box homes with no land around to build and do fun stuff on?
I looked at a few of these and did not find the analysis to be serious or credible and don’t think they deserve to be signal boosted.
Honestly, they felt like paid content from some think tank (presumably funded by someone in the class of people likely to be paying the higher taxes that would fund these programs)
My objections to UBI have more to do with how the politics are likely to play out than the overall intentions.
It is theoretically possible to construct a plan that gets the incentives right and is affordable. But Alaska is a cautionary tale.
When given an opportunity, politicians will be sorely tempted to hand out ‘free money’ at the expense of programs that are beneficial, but less immediately tangible.
“Scott Alexander’s UBI plan for cowards who won’t abolish public education“
Whenever I read seemingly sane and knowably very smart people writing about UBI as a potentially reasonable policy, I despair.
Even assuming that some sort of universal shuffling-around of money to feed the masses were justified, the notion of, specifically, UBI – a direct transfer of money through taxation, is just incredibly stupid. It fails to use the wisdom of the investment community – banks, the stock market, private equity, to produce actual economic growth. And it creates incredibly pernicious political incentives.
I keep bringing up Universal Basic Capital – a once-in-a-lifetime or perhaps intermittent endowment of capital in the form of stocks or bonds, that all citizens in good standing would receive, at birth or later. The UBC endowment would be inalienable, that is you could not sell it or pledge it as collateral, or sell its dividend stream, of course. Just think how it would encourage economic productivity rather than poison it through extortionate taxation!
At the risk of sounding arrogant, will smart people ever wake up?
I don’t understand how UBC is different from UBI if it can’t be sold or used as collateral? The stocks or bonds have to come from somewhere, if they’re bought by the government and transferred to private persons then the government still needs to extract enough tax to pay for them doesn’t it?
This is correct – just as UBI the UBC is organized theft, transferring resources from the makers to the takers through a political process. However, while UBI squanders them immediately and does not stimulate productive investments, UBC at least uses the market mechanism to achieve better efficiency in allocation of productive resources.
If you think it’s hard to fund a UBI, just imagine funding the purchase of so many stocks that the entire population can live off their dividends (which are a tiny fraction of the stock price).
Imagine what the purchase of all these stocks would do the stock price. Hint: stock prices would massively rise, redistributing money in unforseen ways, and making the dividends per stock value massively lower, which would require even more stocks to be purchased to make the dividends reach a livable level, which would raise stock prices even more. I don’t think it’s an exaggeration to say this that this feedback loop could destroy the US economy.
Imagine if there were an economic downturn and stocks stopped issuing dividends temporarily. Would poor people starve? Would the government micromanage the dividend policy of each stock? Would a temporary UBI have to be created for each recession?
If you want to give the poor a steady income, then give them a steady income. Don’t build some crazy economic Rube Goldberg machine which *might* give them a steady income while turning the entire economy upside down along the way.
I really don’t want to give the poor a steady income. I am not a leftist, although I am butting into a debate among them. UBI is not means-tested, if I understand the proposals correctly, so it’s not about giving the poor a steady income either, it’s more of a vote-buying ploy.
Your objections to UBC are valid – indeed, the government would have to spend a humongous amount of other people’s money to assure enough of dividends for everybody to live on, and this would induce various shifts in the economy. However, the UBI doesn’t add up financially either – as Scott reviewed above, UBI fails basic math. The only way either could possibly be introduced is gradual, either by giving initially very little money, or by giving money only to some. Only with further growth of the economy would be eventually possible for all people to become useless drones sumptuously fed by robots.
Both UBI and UBC would inevitably turn the economy upside down but as I explained in my initial comment, UBC would use mechanisms that stimulate rather than destroy economic activity. Yes, the UBC fund managers would invest in stocks that give dividends. This would give a huge advantage to dividend-issuing companies in their ability to obtain capital, compared to those that do not issue dividends. Yes, in an economic downturn the stocks of companies that reduced their dividends more than others would drop like a stone, sending their managers to the poor-house, perhaps to be eaten by the poor.
Either way, stealing from producers to feed non-producers is bad for the economy but with UBC you at least you hitch the producers to the treadmill rather than just bleeding them dry with UBI.
I feel like the discussion around this post is mostly missing the point of the UBI project. We need to remember that it currently exists as a completely political project built around the idea of a social dividend (you get some of the productivity benefit of the last 40 years that “the market” hasn’t given you). It’s putting the cart before the horse, but that is actually the normal course of affairs when building a political constituency for an idea. When it comes time to actually do the math every “realistic” UBI is based around monetary expansion/deficit financing.
To put it another way, the “UBI people” are really just making the same old argument for higher demand in the economy and then either handwave away the labor force impact (which would be massive btw, way more so than a minimum wage increase) or they preach their utopia (hey we all want to dream big right?)
The reason it isn’t presented this way is just the standard psychology of politics. A UBI sounds like a total economic regime change (which if large enough it absolutely is!) and so sounds attractive to anyone that hates their job and the current economic system. In my experience economists don’t talk about it as a realistic plan except under post-scarcity conditions (think technological singularity). Mathematical analysis of such a thing is inherently absurd, epistemologically similar to asking how many angels can dance on the head of a pin. Answer: However many I need to prove my point…
I think the issue is the one that you have stipulated ignoring, “the concern that the promise of a UBI would make more people quit their jobs and fall into the income stratum that benefits”. I think it crushes the other issue you are ignoring on the anti side and that the compensating issues you are putting aside on the pro side don’t compensate at all.
I get that its kind of lame to harp on an issue that you are explicitly disregarding, but I think it is a ‘other than that, Mr. Lincoln, how was the play?’ situation. Like, the difficulty with basic income is the same as the reason prisons must be hellholes.
This whole discussion seems off to me — an attempt to install something which resembles a Scandanavian social-welfare system without the two factors which seem to be essential to making it work:
1) A high tax rate. The Scandinavian countries all have income taxes which are 50% or more once you get aabove the median income. UBI proponents want to extract similar amounts of tax while only taxing businesses or the extremely affluent. But there’s not enough money there.
2) A high level of social trust. Most of the problems come from disincentivizing work. But in a cohesive, high-trust culture, people’s decision to work comes from a sense of social responsibility as much as economic forces.
The latter question is interesting. Generally, social trust is aided by ethnic homogeneity. (Someone measured that the degree white people trust other white people in a city is correlated with the ethnic homogeneity of the city.) The Scandinavian countries seem to be unusually homogeneous because for a few centuries before 1900 they were poor and had a high net emigration. We’ll see how things work in Sweden as the fraction of non-Nordic people increases.
UBI proponents want to extract similar amounts of tax while only taxing businesses or the extremely affluent
The fact that the Democratic candidates in the debates are proposing wealth taxes instead of a VAT like every other G20 country should tell you how far we, as a country, have our head up own ass about funding realities.
This whole discussion seems off to me — an attempt to install something which resembles a Scandanavian social-welfare system
Except that Scandinavian countries have nothing resembling a UBI. Never had.
Their bottom-floor general social assistance schemes may arguably contain an element somewhat resembling Scott’s proposal for a cash benefit reserved for the poor. But even that is a stretch.
These bottom-floor assistance systems are among the smallest welfare programs in Scandinavia. The financially important programs are instead based on targeting specific risks (disability, unemployment, sickness etc. etc.); i.e. they are not targeted on the poor in particular.
Targeting specific risks rather than the poor as such, is similar to the welfare systems in all high-income countries, including the US (Social Security and Medicare). Nothing particularly original there.
Here is the eventual resemblance to Scott’s proposal: Every legal resident over the age of 18 can go to the social security/assistance office, and after a means-and-asset test be given sufficient money to survive till the next consultation, but not more than that. If you want more than bare subsistence, you must accept activation requirements, with a stated aim to increase your employability.
The incentive to accept activation requirements, be it work or education/qualification opportunities, is that you then get a bit more than bare subsistence. It is sort-of like US workfare, but “nicer”.
Bear in mind that you will be offered these activation opportunities first, and if you deny them, social administrators will try to talk you into them (and tell you “you should own the process”). If you keep saying no and no, they will grumble and give you sufficient to live on till your next required meeting with them. At least they will do so in theory. Municipalities, who run these bottom-floor schemes, often have some degree of administrative and professional discretion in deciding what to do if someone refuses.
Oh, except you can say “no” if the social administrator deems you have valid reasons for doing so. But you must have reasons – getting money unconditionally is not how the system is set up.
It is a little like the US bottom-floor welfare system before the Clinton administration’s time-limit reforms, with the difference that the Scandinavian bottom-floor systems serve all adult residents, not only those with care responsibilities for children.
A UBI it certainly isn’t. The UBI idea is not popular with any major Scandinavian party. Never has been.
If that is a pity or not can certainly be discussed. But do not look to Scandinavia for this one. Their welfare systems are very work-oriented. Again, not different from anywhere else.
My impression is they use the carrot rather than the stick more often to nudge you into work, in particular compared to the US. But that is a difference in means, not ends.
Well, Finland experimented with it…
@smilerz
Only for those on welfare, though, which found that it did little, suggesting that the recipients were smart enough to not rearrange their life for a temporary program.
One modification to the above story: The Scandinavian disability pension systems serve some of the purposes of a UBI.
If welfare recipients are found unable to work for disability-related reasons – and many are found to be thus unemployable, during the almost mandatory activation process – they can get a disability pension.
Since you do not need to have a previous labor record to qualify for a disability pension in Scandinavia.
So disability, but not poverty, is the entry criteria to an unconditional benefit sufficient to live on.
Interestingly, the US approach is rather similar. Since SSI (Special Supplementary Income) is a very similar type of scheme.
“UBI, but only for people with disabilities.”
Ironically, thanks to the social model of disability tied to the independent living movement originating in Scott’s Berkeley, disability benefits are on the defensive everywhere these days.
But that is another story, for other blog posts.
@Doktor Relling
This is like saying: “unconditional love, if you act nice.”
The very point of an UBI is that it is unconditional and doesn’t require one to prove that one is disabled or such.
One of the problems with disability programs is that it maps a grey area onto a black/white decision, where judging people is far from easy. An UBI removes the judgment, removes the incentive to not try to get a job if one is judged to be disabled for fear of being judged fully able, allows people to benefit from work even if they can’t earn that much, removes the problem of costly & bad judgments, etc.
Too bad it is unaffordable 😛
This is like saying: “unconditional love, if you act nice.”
Nice metaphor.
Since a UBI is too expensive, a bottom-floor disability benefit is the closest you get to giving the poor a permanent income. With all the messiness deciding who has disabilities entails.
A UBI is certainly isn’t. But it is as UBIsh you get in an imperfect world.
The US has something like that already, i.e. the SSI. Like Scandinavia, and unlike many other high-income countries where you have to be employed for years to qualify for a disability benefit.
Which might be sort-of comforting if you want to give at least some of the poor a permanent income.
Just as if you want unconditional love, you better get your partner to believe you are nice. Whether you are or not.
Life is messy.
@Doktor Relling
But that doesn’t make it an UBI. I prefer that people use terms correctly, even when it means that their illusions about a silver bullet, Utopian solution is shattered, or rather because those illusions are shattered.
Too many people argue for extreme solutions that will solve certain problems if fully implemented and respond to those who point out the major downsides of those solutions by proposing something way less ambitious, but then still argue that the advantages of a full implementation will be achieved.
This has various negative effects, resulting from irrational decision making. Sometimes it results in less radical solutions than are warranted, because of the false claim that the benefits can be achieved with less extreme measures and sometimes it results in more radical solutions than are warranted, because the of the false claim that benefits of the compromise solution are far greater than they are.
But that doesn’t make it an UBI.
We are on the same page.
The comment threads to this post are running cold, but in case some are still watching, let me end my entries by providing a link to those who are interested in how minimum cash protection is de facto provided in high-income countries, at least in most of them.
The European Union’s MISSOC tables provide updated, comparable information on the institutional structure of all EU28 main social protection systems, plus the systems in Iceland, Liechtenstein, Norway and Switzerland. 32 countries in total.
Click on “guaranteed minimum resources” for institutional info on how, and to which extent, basic income protection is provided in each country.
This is a nice institutional data base also if you live in Canada, US, Japan, South Korea, Taiwan or wherever and want to compare minimum protection in your country to these others. There is a potential for mutual incremental learning, or for comparative studies if you are a social scientist. Here is the link:
https://www.missoc.org/missoc-database/comparative-tables/results/
Admittedly, this information is for those who by temperament are Aristotelians rather than Platonists – i.e. for those interested in what the ever-shifting mud on Earth looks like, in contrast to those who like to look up at the fixed stars of Ideas, including the UBI idea, shining down on us from above.
Enjoy.
Quite the opposite. It is about as far as it is possible to be from a UBI and still be in the same general category of “things that might be considered social safety nets”. Plain unemployment insurance, aka “welfare” is more UBI-like. Welfare, you just have to show that you don’t have a job and are at least pretending to try to get one. SSDI, you have to not have a job and spend a year or two jumping through bureaucratic hoops as you prove that you can’t ever possibly get a job. Welfare usually goes away if you get a job, which is un-UBI-like, but it’s there for you if you lose that job and are unemployed again. SSDI, if you get a job, you’ve just forfeit forever because you just proved you were lying when you said you couldn’t ever get a job.
AFCD is more UBI-like than SSDI; it basically is a UBI for children of poor parents. EITC is more UBI-like. Food stamps are more UBI-like. Pretty much all of the traditional social welfare programs are more UBI-like than SSDI.
The economics aren’t easy unless you really do have a sharp phase out right about the poverty line. You’re right that the amount of dollars to eliminate poverty is fairly low: I would put it a bit higher at $306 billion (40 million Americans, 2.5 people per household, $19,120 the 2019 poverty line for 2.5 individuals), but same general ballpark. Totally doable, but it’s probably a recipe for a large underclass. Say we increase the minimum wage to $10.10. Full time that’s $20,200/yr, probably closer to $17,500 after taxes and the cost of work. If the entire basic income is lost at the minimum wage, then that elimination alone amounts to a 71% implicit tax on getting a minimum wage job – and that’s if it’s full time. And ironically, unless you keep unemployment insurance, an unemployed person would actually be worse off in the basic income world than the current one.
If you wanted a basic income to work, the most efficient way to go about it would be to make it based on household size and pair it with a flat income tax that replaced all current income and social security taxes.
Total federal spending right now is $4.4 trillion. We’ll cut out Social Security, which is $1.1 trillion, and $0.6 trillion for other income support programs (for veterans, etc). So we have to find $2.7 trillion to finance the non-BIG part of the government.
What does a BIG cost that eliminates poverty at the household level and also makes it somewhat plausible for retirees & the disabled? Some rough estimates. We have ~330 million people, about 320 million of whom aren’t illegal immigrants. With about 2.6 people per household (that’s roughly right but I’m not sure precisely for the citizen/legal resident household size), we have ~123 million households. That seems reasonable given that in 2018, there were 127.56 million total households. The average household poverty level is $19,562 ($12,490 x 1 + $4,420 x 1.6). That require just over $2.4 trillion in spending.
Okay, we also need to give a little extra to the disabled and retirees. We’ll say that each household that has either a disabled or person older than 65 receives and extra $10,000/yr. With around 50 million people over 65 and another 8-9 million who are disabled, that’s close to 60 million people. Many are married, but relatively few retirees have children. For lack of a specific number, we’ll say 40 million households and that will cost $0.4 trillion. So add it up, and we need $5.5 trillion to fund the government. Given that unemployment right now is below 4%, the deficit should be near zero.
What is the tax base? First, let’s say a carbon tax of $50 per ton. It won’t last long term if we do phase out carbon emissions, but then again the cost of the basic income should grow more slowly than the economy. With 6.5 billion metric tons of CO2E emissions, that’s $325 billion or $0.3 trillion. We’ll say that receipts from the Fed and various other small miscellaneous stuff add another $0.1 trillion.
Corporate income is approximately $2.2 trillion. We don’t want to be uncompetitive, so let’s make it simple and assume a simple structure with 0% tax on the first $20,000 of income and then a flat 25% thereafter, with no other tax breaks whatsoever. We’ll assume a 90% compliance rate, and an average tax rate of 24%. That’s $475 billion, which we’ll round to $0.5 trillion.
Personal income in 2019Q2 was $18.6 trillion. Assuming a 15% evasion/underreporting/otherwise untaxable rate, we have $15.8 billion of income available to tax. We need another $4.6 trillion. A flat tax of 29% should do the trick.
This is definitely possible, though it only provides a bare minimum poverty-eliminating basic income. If you’re a factory worker and your $65,000 a year job is eliminated, a basic income at that level plus your new $24,000/yr retail job isn’t going to come anywhere close to restoring your standard of living.
I worry about what happens to that 29% flat tax rate though, given that there will be a strong incentive to increase the basic income (the EPI policy briefs write themselves) and if the government enacts other progressive policy priorities, especially Medicare for all. There’s no way to do that without seriously biting into the incomes of the middle class.
I disagree. We haven’t ended corporate welfare because we lack the political capital. It’s an issue which has largely escaped the collective attention of the American electorate. Creating UBI by ending corporate welfare is a brilliant idea because you’ve found a way to kill two birds with one stone. How else do you expect people to get passionate about ending corporate welfare?
BTW, here’s a proposal which is not on the list: https://blog.samaltman.com/american-equity It sounds a bit like your last idea though.
In my view, you eliminate all or nearly all existing welfare and replace it with UBI, so you can fire a crapload of government workers who do eligibility and social service work. You are taking moralizing and social engineering OUT of welfare and putting in UBI.
In re government workers (or mostly, government contractors, who don’t get nearly as good a deal), it’s commonly thought they eat a large part of the “welfare” budget, but I’ve never seen an accounting that is so.
In re moralizing … Certainly, that can be a problem. But I’ve also seen it said by people who ought to know that the Salvation Army is remarkably effective at “helping” people turn their lives around, but it’s because they engage intensively with people whose lives are messed up.
And then there was the time, probably back in the 1980s, where the state of Massachusetts published a report, I remember it as “Who is on welfare in Massachusetts and how do they turn out?” But after reading it, I got the distinct impression that they were trying to avoid stating in plain words what their data showed: A large fraction of people on welfare go off it after a few years. This is presumably what we want the system to do, someone is hit by a problem, they fix it over time, they get off welfare. But a fairly small fraction of the total recipients over time (though a significantly larger fraction of the money) were girls who had kids before they were 19 and stayed on welfare for many years. It struck me that if we had a magic wand that prevented girls from getting pregnant before they turned 19, a lot of our socio-economic problems would disappear.
Welfare and the associated staff don’t cost all that much.
The total amount spent by the federal government on income support is projected to be $499B this fiscal year. $147B of that is federal employee retirement and disability, so $352B net. Community development net of disaster relief is about $55B and social work $18B, about $425B total. That would produce a basic income of about $110/mo if distributed equally among all U.S. citizens and legal residents (~320 million). It would also throw all of those government workers out of work.
You could eliminate Medicaid and Obamacare too, or even Social Security and Medicare, but good luck with that politically unless the BIG is high enough to offset the losses of those programs.
If those people are a big part of the budget, then they are going to be a big part of the problem when you try to eliminate their jobs.
My plan to deal with rich people getting UBI is a social incentive:
Anybody who donates the full amount of their UBI to a registered charity (or outright refuses it) gets two badges: a physical one they can put in their lawn (charity mentioned is optional) and a digital one they can put on emails or social media.
Anybody who could afford it would be proud to have the badge. Rich folks love them some charity bragging.
So, a status symbol that you can get for giving money to your church or PAC launderer?
Why not just go all out and call this a knighthood?
Whoever came up with a similar badge indicating your UBI was spent entirely on property tax would absolutely clean up in New Jersey.
How does that deal with rich people, at least from the cost perspective? The federal government still has to pay the BIG and pretty much everyone who cares about the badge will just replace $10,000 of their pre-existing annual charity spend with the BIG. Who would refuse the BIG rather than spend it on their favorite charity? Probably the same very small pool of people who already donate to the government to reduce the debt.
The real challenge with dealing with the tax paid by the top 1% is that the nominal tax rate has bugger all to do with the actual tax rate. The 37% value is wrong, because the books are rigged (in a manner which is technically not illegal). The 50% figure would be wrong, because the books would be even more rigged.
Remove ALL the tax cuts, ALL the deductions, ALL the subsidies, and then reduce the tax rates accordingly. Now you have a larger pool of net UBI recipients, because you removed a lot of jobs that produced nothing of net value, but nothing of value was lost.
There’s one major issue with any kind of UBI proposal that’s been weighing on my mind for a while now and I don’t see anyone else mention it, so here it is: single point of failure.
Existing models of social welfare are predicated on the premise that most people are able to – and will – secure a living on their own. The purpose of welfare isn’t to provide an alternative to employment/enterprise, but to provide a safety net for those who fall through the cracks. Providing such an alternative is a feature of UBI. This has even come up in discussions of the topic here.
Let’s say we manage to implement UBI somehow. What happens? Some people will drop out of the workforce, others won’t ever join it. No, these choices won’t be universal. Yes, there will be a sizeable group of people who will depend on UBI as their sole way to make a living, possibly all their life. Keep it up long enough and this group will grow, because people who never worked will have kids and will be unable to educate them how to find gainful employment (because they have never actually worked for a living). We are not lacking examples of this happening today, under existing welfare schemes. UBI will – if anything – make things worse (through being easier to obtain, having less stigma attached, etc. etc.)
You might not see the problem yet, but note that you’ve created a class of people who solely depend on handouts for a living. Deprived of those handouts, they’re fifty shades of… in trouble, because they have no experience nor skills required to provide for themselves. The moment something happens that threatens those handouts, this entire class if left with no way meet their basic needs.
I would think we’re smart enough to avoid obvious eggs-in-one-basket scenarios. You may think the US government is a big and strong basket, but are you willing to bet that UBI – if implemented – is guaranteed to remain in place for ever and ever and ever?
They already exist. This is a problem with welfare in general, UBI, private charity, public assistance, whatever. The more provided with fewer strings, the larger this class.
That is a huge problem and our host has addressed it, with sarcasm.
(imagine a world where we had created and calcified a perpetually under-employed stagnant underclass. It sounds awful.)
In an old comment about UBI I addressed this:
UBI is a solution in search of a problem. Also, the solution doesn’t work.
Yeah, and that problem isn’t “helping the poor”, but probably “keeping capitalism, if there is massive unemployment due to automation”.
For that problem it might be a solution, after a difficult transition period of 10-20 years, when neither unemployment or automation is high enough.
These United States are already running an EPIC budget deficit. You don’t hear about it because both parties have decided it’s a Loser Move to talk about such a downer topic, so we’ll just keep going down the hole, but we’re heading for a trillion dollar deficit this fiscal year. That’s about $3000 per citizen and year.
My favorite PKD quote feels suitable here: “Reality is that which, when you stop believing in it, doesn’t go away”
https://www.cnn.com/2019/07/11/politics/treasury-us-budget-deficit-widens/index.html
You never hear about the deficit because the US has a fiat currency which it borrows in AND prints, so budget deficits are macroeconomic input parameters that are expressed in currency depreciation and inflation but are otherwise essentially theoretical.
Contrast this with countries that either do not control their own currency (like Greece) or who borrow mainly in a currency they don’t control (think Argentina). These countries actually do have to worry about budget deficits because they can actually run out of cash to meet their obligations. The US, at this present time, can simply create as many dollars as it may need to pay its dollar-denominated borrowing costs. And given that working-age employment is not near historical highs, inflation is low, and the dollar has strengthened considerably over the past years, running a trillion-dollar deficit actually seems like the macroeconomically prudent thing to do.
Now where that spending is being directed is certainly a reasonable topic for debate.
Weirdly, your analysis makes me feel better. I am saving more than $3,000 per year. And since I’m doing better than average, I’m also saving enough for the two or three poorer people I have to make up for.
We could also up the immigration rate if we really had to. The politics of that are hard, but if things got genuinely ugly, we could import an endless stream of people who would be willing to take on their $70,000 slice of the debt.
Of course, like a bank, the point it turns ugly is when you can’t get anyone to take your IOUs. It’s a long way to that point yet.
I have played with the numbers several times over the years. We are closer to a flat tax + citizen dividend than most people realize. Maybe not a 12K dividend, but a significant one.
My most recent crack at it came up with 8K/adult and 4K/child as pretty close to neutral vs. the pre Trump tax system. Some of that should come in the form of health insurance vouchers, as I figured the employee tax exemption for employer paid health insurance and ObamaCare subsidies in my calculations.
See here.
This, by the way, is part of a series on how to simplify the income tax, up to the point where W4 forms become unnecessary. 99% of the people pay the same flat rate. This is very different from the aggressive clawback rate Charles Murray used in his book.
Once we start looking at a flat tax for most people, then moving partway away from the income tax becomes feasible. That is, a hefty carbon tax could become part of the tax mix.
The tax revenue to GDP ratio of the US is currently 27.1:
https://en.wikipedia.org/w/index.php?title=List_of_countries_by_tax_revenue_to_GDP_ratio&oldid=894456399
A UBI which covers only adult citizens aged 18-65 would cost 2.4 trillion while covering all adults would cost 3.0 trillion, compare to the US GDP which is 19.4 trillion. So for the first proposal taxation as a percentage of GDP would need to rise to 39.5%, while in the second it would rise to 42.6%. For reference, Denmark is at 50.8%, France at 47.9%, and Germany at 44.5%. Thus, it is possible to afford a UBI without cutting spending by a cent. The problem with this, however, is that in Europe the working class and especially the middle classes pay more in tax than they do in America, particularly in the form of the VATs in Europe, which everyone ends up paying. Oh, and would you like to pay 6$ an gallon for gas? And also, in Europe the middle classes who pay those high taxes get education and healthcare in return, under this situation, they’d get nothing.(The UBI wouldn’t seem like such a gift if you’re paying 2-3X its value in taxes.)
If I where the Czar, I could achieve a lot by cutting off the various forms of tulip subsidies. I’d reduce the military to a guardian of the nukes,(which I’d use in case of attack) I’d make deep cuts to healthcare and education spending, prohibit employers from discriminating on the basis of education attainment,(it’d be fine to discriminate on the basis of knowledge) undertake an effort modeled on project prevention to reduce social spending, end single-family zoning, ect. But none of that is politically feasible.
There is popular demand for re-distributive measures against the very wealthy which will likely happen sometime in the 2020s, but that won’t bring in nearly enough for a universal basic income. I’d be happy if it were used for a universal non-basic income, and I think that’s what Yang, if he is elected, would end up doing. His election is very unlikely; based on the recent Democratic debate it seems that the money will end up going to more tulip subsidies.
One issue that I haven’t seen addressed is that the cost of living in US is generally quite high, compared to other countries. One can live quite comfortably for 6000$ a year in smaller southern and eastern european countries (think Poland, Romania, Latvia, maybe Greece) – in a capital, renting a small flat, owning a car. Going down to 4000$ requires moving to smaller cities, but not sacrificing anything from life quality.
Then you can probably go down to <3000$ moving from Europe to Asia (Vietnam, Sri Lanka), and still live decently. For comparison, poverty line in Vietnam is 288$ a year – not to suggest that living on that is acceptable, but to point that 1/4th of the proposed 12k is still 10x more than is technically required for *existing* there.
And that 3000$ is still not taking into account possible economies of scale, when – let's say – 100 people decide to move somewhere at the same time. I'd predict it would get down to 2k $.
And suddenly, UBI becomes realistic. One can say that basically forcing US citizens to emigrate is a really bad side effect, but why is that? The countries in question would probably not object to taking people with a guaranteed disposable income, and from the US (since the whole immigration issue basically revolves around fears of immigrants living off social net of the accepting country, plus them coming from a different culture). US citizens might want to not leave their homeland, but then again, everywhere I read about UBI, I see suggestions of "living in a cabin in a middle of nowhere", so how's that different from living in another country?
Basically: what's wrong with that approach?
I think your assessment of the cost of living in Poland is… a touch optimistic, yes?
I actually checked the numbers and in Warsaw, you might get by with a room and a diet of ramen on $6k p.a. Renting a bedsit on the open market would eat up most/all of your income (rents are typically in the $450-$550 range, which works out at $5400-$6600 a year). Bills paid on top. Forget about the car.
By way of comparison, I’m currently earning around $10k after taxes. I can, just about, support two people with this, but mostly because I have a place to live at cheaply (rent at 1/4-1/3 of the quoted market rates) due to family connections. I don’t have a car, eat all my meals at home and have little in the way of entertainment costs. I’m just about making ends meet, but anything extra would probably throw me in the red.
In Prague, you need at least 5000 dollars in rent a year for very, very small apartment in suburbs (center is way more expensive, apparently unlike in US cities).
I haven’t got time to read all of those right now (which I will come back later to do), but I’ll just drive by to say that my stance has always been that UBI only really works in the context of full automation, not only that it’s necessary, but that you can unlock the full capacity of lights out manufacturing so that inflationary effects are minimized by a massive boost in the size of the output gap. Similarly, the size of the pie is increased so there’s more to redistribute.
Okay, I’ve read through it now (can’t edit my original post of course). Depressingly, I can’t find too much to disagree with in this series, but I do think that the third test criteria he supplies for UBI proposals, to be; “politically feasible”, is cheating a bit and bringing in too much subjectivity.
Otherwise, this doesn’t sound so bad:
If we start with something like that (fixing some of the more basic errors) and then see how much automation increases the size of the pie, maybe then we can deal with the other two thirds of child poverty?
If we can go a bit further into the extreme realm and avoid the complicated navigation of the labyrinth tax system, the question here becomes: “how much extra deficit spending can the USA take?”
Since people like Yang think massive technological unemployment is going to happen very soon, couldn’t we increase the deficit a good deal more and just the ride the wave until the problem solves itself? If that sounds hilariously irresponsible, it’s not like anyone has ever done anything about the deficit and the debt it’s building up anyway. The ceiling is ALWAYS raised. Presumably the USA can keep doing this for a fair while longer if the interest on the debt is currently in the $300 billions. It’s about picking your level of irresponsibility. Let’s say we set the basic income at a level that is half last year’s deficit minus the value of the basic income itself, so that if the deficit from other funds was £1 trillion (expected for 2022), then our basic income can be set at $500 billion for the following year. Sure we raise the deficit more, but it’s only half the other components of the deficit again. The interesting thing is that one problem with the Yang plan is that he wants to fund it with a VAT but the Roosevelt Institute study only provides for the $2.5 trillion stimulus if it comes from deficit spending. If we go “fuck it” and just use deficit spending, then if they are right about that (which wasn’t disputed in the article), then the stimulus effects may make it worthwhile.
If we make it all the way to 2050, and the economy isn’t heavily automated then the current trends in automation have drastically deviated.
Re “the hidden costs of work” — Your linked post, Basic Income, Not Basic Jobs, contains a section that isn’t as well thought out as most of your writing.
The short argument against your “Jobs are actually a big cause of poverty” take (from a longer blog post) is:
If you set up your life to never ever need a job, it’s a lot cheaper to live. Also impossible to ever work.
Scott thinks this is okay. When people challenge him on “what about creating an underclass that never ever works” he sarcastically says “oh, yeah, imagine we had such a group,” implying we already have that group, so let’s just go ahead and grow it fat like a pig.
For a basic sanity check, the Bush tax cuts decreased revenue by $180 billion per year.
And 65-75% of the lost revenue was from people making less than 250K.
“Do the Bush tax cuts in reverse” is putting a major tax load on the non-rich.
(Assuming 250K is the cut-off for “rich” which lots of people say for reasons.)
Those people are obviously stupid; it is laughable to claim that someone with 97th percentile income ($195,000) is not rich.
I can guarantee you that somebody making $195k in any major US city is not rich, especially if that supports a family of 3-4.
No, they are rich. Even in a major US city, that’s a lot of income for 3-4 people. In every source I’ve checked, it’s a little bit past 90th percentile of household income for the Bay Area and NYC areas which are some of the richest areas in the U.S. Living next to more rich people doesn’t mean you are poorer in an absolute sense. If someone decides to spend their huge amount of money on living in Manhattan rather than commuting in from New Jersey, that doesn’t mean they aren’t rich.
Unless being wealthier than 9 out of 10 Americans (and by a factor of something like 4 compared to the median) somehow doesn’t count as rich.
“Those people” are the Democrats like Obama who want to exclude the high-earning professionals in urban areas from that classification. In political debates it’s a good Schelling point, even if objectively bonkers.
Stupidity is not limited to members of the stupid party. Just because lots of people believe a stupid thing doesn’t mean you should too.
The Democrats weren’t willing let taxes go up on people making “only” 200K, even though it was automatically set to happen when the Bush tax cuts expired.
It’s a good assumption that when Democrats talk about raising taxes on “the rich” they mean those over 250K.
Again, those Democrats are stupid. They disagree both with income statistics (you would certainly call a 6’2” man “tall” and a 5’4” one “short” — in fact it wouldn’t be outlandish to precede those with “very” — therefore you should call someone with income at the same percentile “rich”) and with the majority of Americans who consider $100,000 to be rich.
So here’s the part of your analysis that fails Scott – you are assuming taxes in our present economy are perfectly applied. The truth is that there are a ton of tax loopholes that are currently exploited by both corporations and wealthy individuals to minimize or avoid taxes entirely.
In other words, if a company manages to avoid taxes entirely due to a writeoff or loophole (for example, the way Amazon avoids paying taxes that brick and mortar retailers pay) then it doesn’t MATTER whether the tax rate is 37%, 50%, or 85%. Your calculations are wrong because your underlying assumptions (that wealthy people and institutions pay all of the taxes that we expect them to) are wrong.
Fix your assumptions, then fix your math, and then we can talk about whether UBI is feasible. Until then, this analysis you put out there is basically wild speculation about stuff that you have no real datapoints on.
WasteFraudAbuse
Pretty much, Ed! I think what a lot of people (including Scott) don’t understand is that very wealthy corporations and individuals have entire departments of people whose entire job is to minimize their tax burden in all sorts of unusual ways. Warren Buffett himself even pointed this out. What this means effectively is that the tax rate doesn’t really IMPACT the mega-rich because they can just circumvent it in ways that the rest of us cannot.
If we close all of these loopholes, I think that would be far more effective than raising taxes, since the class of people that these taxes are intended to target end up avoiding the taxes anyway. At the risk of culture war, this is what bugs me so much about so many liberal politicians. They’re always like “Tax the rich more, tax the rich more” but what they don’t seem to understand is that raising the tax rate has no effect if you can avoid the tax ENTIRELY. So they end up raising taxes, the rich avoid those taxes with the help of their accounting teams, and the taxes end up impacting the middle class. Then they wonder why the middle class dislike them even though they’re just taking swings at the rich. Hey, it doesn’t matter whom you’re TRYING to target with your taxes, it matter whom your taxes actually HIT. If we’re at a bar and you take a swing at the guy next to me, but you end up hitting me instead, I’m still gonna kick your ass because you should have had better AIM. A lot of this disconnect is really the fact that politicians have no skin in the game, so they implement stupid policies that are good in theory but have bad outcomes in practice.
Scott’s entire post reminds me of this same massive disconnect between theory and practice. Scott offers really smart analysis when he’s given good data, but IMO he’s largely a theory guy – he doesn’t stop to apply enough critical thought into questioning whether the data set he’s using is actually VALID. You have to TEST this stuff, not just take it for granted.
On an unrelated note, I really loved some of your other comments here, particularly the one where you offered a potential approach to UBI by phasing it in gradually. I think that this kind of methodology is really important because the road to automation is all about incentives – you have to make sure that companies make enough profit from automation that they are incentivized to keep doing it. If you try to capture ALL of that profit for citizens in the form of wealth redistribution (and let’s not distort the issue – UBI is basically wealth transfer, it’s simply a far more EFFICIENT wealth transfer with less waste and corruption) then companies aren’t incentivized to automate. It’s a delicate balance and I think your gradually sliding scale approach would work much better than a large change to the system.
I think this is wrong. Sure people who owe a lot of taxes are willing to spend a lot of time/money to minimize their tax bill. But all you have to do is look at the proportion of tax paid by various income groups. Middle class tax rates are very low in the U.S. and the rich pay a pretty high proportion.
I’m using the amount that a 37% tax rate currently brings in, then multiplying it by 50/37 to predict what a 50% tax rate brings in – i.e. assuming that it will have the same number of loopholes and tax evasion as the current system. Although a higher tax rate might encourage more evasion, I think it’s close enough that the extrapolation is fair.
Also, please try to phrase your criticism more politely in future comments.
I think Hauser’s Law is at least somewhat robust (so maybe “Hauser’s Very Strong Suggestion”?).
link text
So, I think you’re a wee bit overconfident in your linear extrapolation.
The Laffer Curve is real. Regardless of evasion efforts. Even if you are not yet “on the wrong side” of the curve, linear assumptions have never proven out. Its one (of many) reasons CBO scores have historically been so bad at measuring future deficits caused by tax changes, or any policy.
Most economist think there should be zero corporate income tax. People should pay taxes, not companies.
But see this post.
There is a compromise to be had here. I would be open to discussing 0 corporate income tax, IFF Citizens United is overturned, and we then build on it by levying heavy restrictions on what corporations can spend on lobbying or political campaigns (since we’re zeroing taxes, maybe this should be zero too). We would also need to completely close any loopholes where, say, a wealthy founder/CEO contributes using “his own” money on behalf of the corporation.
There are currently a few successful businesses in Korea which are based on the following scheme:
1) A refugee from North Korea is smuggled to the South
2) He gets financial assistance package from the government
3) He uses a part of this money to smuggle another relative from the North (costs roughly $8000)
4) Repeat steps 1-3
Since it is significantly easier and safer to smuggle people into the US than from the North Korea to the South, this UBI scheme creates a way to smuggle a large fraction of the third world population into the US. How do the UBI proponents think of dealing with this new immigrant population?
Oh, immigration is a giant problem with UBI.
Are the immigrants eligible? The illegal immigrants? Could you answer these questions securely enough that people actually believe your answers?
It’s likely we would see a group of idle natives serviced by hard-working illegal immigrants. The social ramifications are this are significant, and there are various UBI camps who look forward to exploiting these problems, often in conflicting ways.
Haven’t the courts already ruled that illegal immigrants are eligible for all social services?
In New York State, “Whether illegal aliens can obtain state benefits is not clear-cut. The short answer appears to be that they are not legally entitled to most benefits, but do in fact receive them. ”
Also, it seems the legal problem with California Prop 187 was that it was a state attempt to control immigration, but immigration is considered a federal prerogative. If a state deprived illegals of welfare in order to save money rather than affect immigration policy, it might be constitutional. If the US Congress deprived illegals of welfare, it would certainly be constitutional.
I’m becoming increasingly annoyed with how readily people will talk of things that are not, in any way, a UBI under the general discussion banner of UBI.
Scott’s policy proposal here is not only not U, it’s not even a BI. It doesn’t meet any of the elements that might distinguish a true UBI from just another “tax the rich and give it to the poor” re-distribution scheme. While I don’t think Scott himself is doing this, I think a whole lot of people there are very intentionally obfuscating this in a way that is downright deceptive and fraudulent. Probably for PR reasons, because a UBI sounds like a hip, cool, technocratic thing, that all the smart people believe in, and that has never been tried before.
And it’s a lot more palatable to try and sell people on your policy if you frame it as a hip cool thing that has never been tried before. But “raise taxes on the super rich and give the proceeds to the very poor” is pretty much every standard welfare scheme ever. It has been tried before exhaustively.
Agreed. Any UBI that is not universal is a rhetorical deflection. That’s why Scott gets such unrealistic numbers like $240 billion. In reality that’s less than a thousand dollars per American.
AFAIK, “give money only to the poor” and “give (taxable) money to everyone” end up economically identical, because the UBI money ends up getting pulled back through taxation.
To make up some arbitrary numbers to illustrate, let’s suppose we’ve got an economy with 10 people – 1 rich person and 9 poor people. You could take $100 from the rich person, and use it to give out a UBI of $10 to everyone. The rich guy would lose $90 on net, the poor people would gain $10 each. Or you could tax the rich person $90 and give $10 in welfare to the other 9 people. Either way has the same net result, but we call the first UBI and the second welfare.
Given that the cash flow is the same, I would say the big difference between this and the current US welfare system is the lack of work requirements or means-testing (unless you count “The IRS looks at how much money you make to decide how much to tax you” as a form of means-testing).
One of the only things that the UBI has in its favor is that, theoretically, it doesn’t create bottlenecks and welfare cliffs. Your example doesn’t really grapple with that, so it doesn’t really understand the basic appeal of the policy.
It’s not at all identical because of the tax implications. Tax cliffs are a huge problem in welfare design.
Wouldn’t that simply be handled by tax brackets? Taxes go up at each income bracket, but at no point does ending up in a higher bracket result in less total money for you. The same would be true for a taxable UBI.
There are tax brackets, but there are not welfare brackets. So no, the issue is not currently handled.
“Give money only to the poor” creates a huge tax cliff at the line between poor and not-poor. Giving taxable money to everyone and then taxing it as normal does not have such a tax-cliff. That is the difference.
@beleester:
This is not true, due to the deadweight loss of taxation. If the government raises your taxes by $12000 to pay you $12000 this is not a wash, it should be expected on average to make you poorer than you were without the transfer.
This is because taxes are distortionary. Taxes change behavior; the higher the tax is the more it changes behavior. Some investments that would be profitable in a low-tax regime aren’t worth doing in a high-tax regime. Some products that were worth buying in a low-tax regime aren’t worth buying in a high-tax regime. Some labor that was worth hiring in a low-tax regime isn’t worth hiring in a high-tax regime. So when you raise taxes you reduce total economic activity, which makes us all collectively a bit poorer than we would be without the tax increase.
(eg, the Tax Foundation analysis of Andrew Yang’s plan is that it would increase the marginal tax on labor income by 8.6%, which their model says would reduce output by 3%.)
If taxes go up just a little, people just keep doing what they would have done and pay the tax. Paying the tax makes those people worse off but there’s an offsetting benefit from the tax collected – their loss is the government’s gain. But when taxes go up a lot, some people decide *not* to do what they were doing. Since they don’t do the thing, they also don’t pay tax on doing the thing. People lose the benefit – the profit – from their activity and there is no offsetting gain somewhere else – that’s what makes the harm done by that tax a deadweight loss rather than simply a loss.
A “give money only to the poor” plan requires much less tax be collected than does a “give (taxable) money to everyone” plan so it is less distortionary, less harmful to the economy.
Exactly how does it go about doing that?
I wrote:
@thisheavenlyconjugation replied:
Just like I said above: There are deadweight losses that scale in relation to the size of the taxes you’re being charged; a policy that charges you more tax means more deadweight losses, some of which we should expect will harm you in particular.
The precise form of these losses depends on the nature of the tax and what you’re buying, but we’ve been talking about some sort of VAT and certainly that would have this attribute.
Let’s try to make this idea more concrete with a vastly-oversimplified example. Instead of talking about a VAT (which would tax a vague “almost everything you buy, with a few random carved-out exceptions”), let’s talk about a tax on just ONE consumer item. Let’s say the tax is on DRESSES. There’s a UBI funded entirely by taxing DRESSES.
You like wearing dresses and usually purchase about one per year. It’s about time to buy a new one and there’s one you like on sale in the mall nearby.
Let’s consider three options: (1) there’s no dress tax, (2) there’s a VERY SMALL dress tax, (3) there’s a BIG dress tax…and in every case the government gives right back to the people, evenly, the amount collected by the tax.
The dress you’d like to buy is worth $30 to you – that’s how much you’d be willing to pay for it – but is on sale for $25. So if you buy that dress you subjectively gain $5 of “consumer surplus” from the trade. Meanwhile the store made that dress for $20 so when they sell it to you they gain $5 in accounting profit – we call their gain from this trade “producer surplus”. Since the dress is worth more to you than it is to the store, having you buy that dress is efficient; it makes the economy-as-a-whole richer. An economy in which everybody in that situation is free to trade tends to be a prosperous growing economy.
In option 1 (no VAT), you go ahead and buy the dress. There is no tax; you and the store are both better off for the trade.
In option 2 (VERY SMALL VAT), the government charges a tax which makes the dress exactly ONE DOLLAR more expensive to you. You still feel like it’s a bargain, so you still buy the dress. You get one dollar less of subjective value from trade – it’s not AS good a deal at the higher price – but you get that lost dollar back as UBI, so no harm no foul.
Now let’s consider option 3 (BIG VAT). The government charges a tax which makes the dress $100 more expensive. Since there was only $10 of surplus to divide between you and the store, there is now NO PRICE at which you and the store would both be better off with you buying the dress. Buying the dress no longer is the most efficient outcome; this tax has driven a wedge between you and the store, preventing both of you from benefiting from a transaction you would otherwise have engaged in.
So in this case, you DON’T buy the dress. And since the transaction doesn’t happen the government doesn’t get any tax revenue from it – it doesn’t *have* $100 to give to you as a UBI because it didn’t *get* $100 from taxing your transactions. So you are poorer (by a subjective $5) compared to Options 1 or 2, and there’s no transfer payment to make up for it. Right? You’re having to make do patching your old, shoddy dress from last year instead of buying a nice pretty new one and the store lost measurable revenue as well.
Sticking with Option 3, let us widen the circle a bit to consider others. You’re not alone – it seems like HALF of the nation’s dress consumers now don’t feel it’s worth buying an annual dress, when all the dresses have been made $100 more expensive. So what happens to the UBI amount? The tax produced half as much revenue as expected! So what can we do? INCREASE THE TAX RATE! Tax $200 per dress instead of $100! That might totally work except…now even MORE buyers are deterred. Keep iterating on this cycle and eventually we might get to a world where just a few ultra-rich people buy $10,000 or $100,000 dresses to show off, while everybody else goes back to making dresses at home out of potato sacks…and the dress industry collapses, and you’re STILL not raising the amount of revenue that was promised.
The VAT can’t simultaneously raise enough money to make whole the people who paid the tax AND compensate the people who were deterred from buying AND compensate the companies who lost customers. SOMEBODY is going to be made worse off here, and given that we’ve just killed an entire industry my best guess is that that somebody…is everybody.
(Although the sewing-machine companies will love it!)
Upshot: if you try to raise revenue by taxing dresses, some people will buy fewer dresses, and that makes them sad. Other people will sell fewer dresses and that generates unemployment and lost tax revenue and makes even more people sad. The dress tax won’t raise quite as much money as was promised so we can’t pay as large benefits as we thought; simply raising the tax doesn’t help much and might even make the problem worse.
Does that all make sense?
Now let’s drop the dress thing and go back to a full VAT. A VAT raises taxes on lots of products so the impact on any one industry isn’t quite so obvious…but it has the same KIND of impact. A large basket of purchases become much more expensive than they were before and the fact that they are more expensive makes trade between people less profitable. So a bunch of trade is either deterred or pushed under the table into the shadow economy. People end up with fewer choices, lower incomes, less legal employment, more crime…compared to a world in which we just…didn’t do that.
Option 1 is what we have. Option 2 is survivable but doesn’t generate much revenue. Option 3 is kind of disastrous and worth worrying about.
I more or less agree with that (although option 1 is not the current situation since sales taxes exist, and that option 3 will occur rather than option 2 is an empirical claim that you haven’t given any evidence for). I (and I think also beleester) was thinking of an income-tax-funded UBI, but VAT is possibly more relevant since that is what Yang is proposing.
I’m not sure what you consider “evidence” here…If you grant that SOME people will change their behavior in response to higher taxes and also grant that the cost of that change isn’t reimbursed, then my point has been made.
A very small tax is option 2 because the harm it does to the economy might be too small to measure…but a very small tax pretty obviously doesn’t produce enough revenue to provide a benefit that is both Basic or Universal.
If the stuff you buy cumulatively becomes $12,000/year more expensive, we should expect that to change the balance of what things you choose to buy versus put off buying or repair or make yourself. When toasters are 20% more expensive people will buy fewer toasters, etcetera.
I was thinking you meant a VAT, though income taxes do have a similar problem. People deciding how much to work are making a tradeoff comparing the value they get from their salary to how much they value their leisure time. Make the after-tax benefit of their salary low enough and people will work less and vacation more. When we raise income taxes we deter SOME people from generating SOME income, which makes the economy less productive. Which maybe reduces your job security and the variety of things you can buy and the chance you could get a raise…but the harm is more indirect, harder for one person to perceive, than the harm done by a VAT.
As per your example, deadweight loss only occurs if the surplus is smaller than the amount taxed. We know the latter, so there is an empirical question about the former. I’m sure that some sales have a surplus of less than 10% of the value, but that’s not really an interesting fact. Some sales certainly have a surplus of greater than 10%, to evaluate the policy we need to know the balance.
Yes, income taxes in general (and increased income tax on some people to pay for a UBI in particular) certainly cause deadweight loss. But increasing taxes by $12,000 on a particular person and then giving them a credit for $12,000 by definition doesn’t change anything, which was the original point.
Consumption taxes are generally preferred to income taxes, because income taxes reduce production. Consumption taxes reduce consumption, which still leaves money to be put into investment.
Note that the US is the only G20 nation without a VAT. I don’t like Yang’s UBI but he’s right to fund it via VAT.
I believe Scott’s proposal was to offer a truly Universal income, but to simplify the math he handwaved “…but the taxes we’ll impose to pay for this will offset the UBI payments to the rich and middle class, so we can calculate the economics by looking just at the UBI payments to poor people”.
This is a legitimate simplification for some purposes. But note that one handwaved implication is that there will in fact have to be a very substantial tax increase on the middle class. If the average middle class wage-earner makes $60,000/year, that would be an absolute 20% tax increase on the middle class, in addition to the marginal 13% tax increase on the rich that Scott proposes will pay for this plan.
In purely mathematical-fiscal terms, a 20% tax increase on the middle class coupled to a $12K/year UBI may be zero net impact. In terms of the political, economic, social, behavioral, and emotional impacts, “We’re going to increase your taxes by $12,000 per year, but trust us, we’re from the government and we’re here to help, so you’ll get it all back”, is going to kill this deader than the Volstead Act.
If we somehow appoint one of them to be God-Emperor of the Americas, sure. If we elect them to be President of the United States, then we run into the problem that POTUS can’t raise any tax on any one. Only Congress can do that.
So, yeah, a Democratic congress under a Sanders or Warren administration might raise the top marginal tax rate to 50%, and maybe even collect it. But that would reflect a compromise between at least 270 individual congressbeings, suiting their various agendas, most of which are not going to be “Make it so that Saint Bernie can be famous for ever and ever as the man who ended poverty!”. And then when it comes time to actually spend that money, you’ve got to run it through thousands of unelected and effectively un-fireable bureaucrats, with yet another set of priorities.
“Raise $X in taxes, spend it all on this wonderful new thing that I want”, is not a realistic prospect under the current US political system, no matter how much POTUS wants the wonderful new thing and how great their electoral mandate. More realistically, you get 10% spent on the wonderful new thing, 30% spent on vaguely similar things that can be run out of the Department of the Wonderful Thing(*), and 60% on completely different stuff. Assuming the vaguely-similar stuff trades roughly 1:2 against UBI, that means you get a quarter of the effective UBI you expected, and you really needed to target a ~90% real tax rate on rich people. I predict this will not work very well.
To actually get the desired result under anything resembling the current US political system, you need not just (or even) a President who wants a UBI, you need an actual UBI Party. Or a socialist party based around the UBI. Having the Democratic party say “yeah, we want a UBI in addition to all the other stuff in our platform” is not a substitute for this; you need elected representatives whose political identity has been tied to the UBI basically since the start of their political careers. You could maybe do that under the masthead of the Democratic party, but you’d have to basically gut and burn the existing party in the process (see e.g. the “Tea Party” attempt at transforming the GOP).
But this goes way beyond the UBI; it is or ought to be the standard rebuttal to anyone who proposes to implement transformative change in the United States by electing a mere president who favors such change. See, e.g., Trumpists. If you’re looking for that sort of transformative change, look twenty years past the part where you see people actually electing congressmen promising that change above all else. And, w/re the UBI, I don’t see anyone even trying to do that.
* In this case, ‘I’ that is not by a long shot either ‘U’ or ‘B’ but claimed as being just a minor necessary tweak on the ‘UBI’ and run by a bureaucracy of that name.
You don’t even have to assume that the miscreants in Congress are going to tack on their own pet schemes to Fearless Leader’s bold, clean-lined design, though of course they will: Andrew Yang wants to do Medicare For All at the same time as UBI. (This is evidently not going to be one of the social-welfare programs where you have to choose between receiving it and receiving the UBI.)
Control-F “wage subsidy” no hits
Please, please, let us do wage subsidy first.
1. It is easier to sell to the people you are taxing. “You are working so other people don’t work” is a hard sell. You can wrangle and guilt-trip and j’accuse and shame and shitpost about them, but lots of people won’t go for this at all. A group of politicians determined to force it down people’s throats could probably succeed in the short-term, until they are voted out by pretty simple messaging.
2. If a small wage subsidy works, you can gradually turn it up into larger wage subsidies. At a certain point, if it gets big enough and everything still works, the requirement to work can be relaxed, and we can ease our way into a UBI.
3. We can start a wage subsidy right now without it being a subsidy. Reduce wage taxes at the low end.
4. It keeps people engaged with improving skills. While you and your fellow elite-school grads might think that it’s normal to study for years, maybe intern for free, and then get a six-figure job as your first paycheck, most people start earning low wages and increase their take-home pay by acquiring and/or signaling they have universal work-skills (show up on time, don’t pick fights with or sexually harass coworkers, be sober). They can’t or won’t (or maybe both) get onto this staircase with most forms of UBI.
5. There is still a lot of work to do. The number of “bullshit jobs” is minimal and if you want to get rid of them, find the specific weird incentive structure that causes it first and then a) fix it, or b) realize the weird Schelling fence incentive structure is there for a reason.
Agree this is good in the current economy, but how future proof is it?
If you listen to Yang (whom I guess is the standard-bearer for UBI now) he sees UBI as our insurance plan against the coming mass unemployment that increased automation will create. A Wage subsidy doesn’t help the now-unemployed truck driver/fast food worker/ any other job that a robot is doing now.
A wage subsidy is making more jobs economically viable.
If there is something I want done, and I value it’s completion at $10, but it costs $11 in labor to do it, it goes unfulfilled. With a $1 wage subsidy [1], it now gets done.
There are lots of things that people want done. Until we hit the singularity, by definition there is always something I want done and would rather someone else do.
The Yang Gang would say that automation creates wealth but destroys job prospects, especially for the unskilled. As you increase the subsidy more and more, lots of things that people would pay for become more viable.
I want someone to pick up trash in the park near my house. I might not want to pay $10/hour to have it done. But if the government is paying $2 of that, it might move over the line to becoming something I will pay for.
If the automation threat is real, we can simply turn up the dial on the subsidy more and more. At a certain point the government might be subsidizing $20/hour and this leads to silliness like me and my neighbor each hiring the other to babysit the kids, at the same time. If we are that rich we can probably relax the job requirements and make it more like a UBI. We have slowly eased into it and grokked a lot of the social issues at play, issues we are just guessing at right now.
[1] Just assume this is a one-hour job.
“3. We can start a wage subsidy right now without it being a subsidy. Reduce wage taxes at the low end.”
Yeah why not just make the first X dollars of income not subject to payroll taxes.
Seems like it is something both parties could get behind.
Wage subsidy doesn’t help the unemployed, doesn’t help with the desperate rush to get reemployed before rent is due that keeps people stuck in bad jobs, and gives weird incentives to corporations.
It does help the unemployed find a job, because people are more willing to employ the unemployed. If you can’t find a job even with the subsidy, sure, that’s not going to pay that demographic.
As hsl2003 says, wage subsidy increases the supply of jobs.
Corporations, by which I think you mean employers, would probably lower wages. But they would not lower them by the complete amount of the subsidy, and there would be new employers that bid up the demand for labor. With enough of a subsidy, you can start bidding up the price, too.
And “employers might pay less” is a complaint that could get applied to any broad-based benefit. If people are newly getting something free from the government to help them live, that means that employers can afford to pay less. If the government starts running health care, employers don’t need to cover it.
I am not claiming wage subsidy solves every problem. But it takes the current system and improves it, rather than replacing with a new system that the best and brightest thought about real hard and decided would work.
Wage subsidies also run into schemes for artificially inflating income. I realize that is probably illegal, but I think it would be possible do something like it while maintaining plausible deniability.
Sure, at some level of subsidy it becomes rational that I hire you to babysit my kids and you hire me to babysit your kids, but the kids don’t swap houses, or do, maybe. It’s probably around that point that we start relaxing the work requirements and it starts to look more like a UBI that we have slowly gotten used to.
At a $1 wage subsidy this is probably unlikely to be worth it. Like with any social program, there will be fraud, and it’s a question of how hard to go after it. People are registered for the wage subsidy so there won’t be double-dipping, at least.
Morgan Warstler has his Uber4Welfare plan
https://medium.com/@morganwarstler/guaranteed-income-choose-your-boss-1d068ac5a205#.1kip2ypwr and while I think it has problems, one way it stops this babysit-swap is that employers and employees need to bid on an open market in order to get a subsidy. This sounds too restrictive for the labor market but maybe someone smarter than him or me could make it work.
One person’s wage subsidy is another’s corporate subsidy that lets them avoid paying a living wage.
See eqdw on SNAP and walmart above.
This is not how wages work. There is no such thing as a living wage. Higher wages tend to increase life expectancy, but there isn’t any sort of discrete threshold that could be classified as a living wage.
Wage subsidies are not subsidies to employers. Worker compensation is determined by marginal productivity, not by the needs of the worker. Walmart is going to employ you iff you produce more for them than you cost, regardless of whether that gives you a “living wage” or not. They can’t pay you much less than your marginal productivity because then it would be profitable for a competitor to offer you a higher wage and Walmart would soon find themselves with a shortage of workers.
Introducing a wage subsidy doesn’t change this analysis. If at first you’re producing $10/h of value for Walmart and you’re paid $9/h and a $5/h wage subsidy comes in, Walmart can’t simply slash your wages. If they did cut your wages by $5 to $4/h to offset the subsidy, some other firm could come in and offer you 5$/h, at which point another firm could offer you 6$/h and so on, until you’re back being close to your marginal productivity.
This is only true if supply of workers is limited and demand for them (at some price) is not. Supply of workers is limited, but demand is also limited and it’s quite possible that the market-clearing price is significantly below worker marginal productivity. Worker marginal productivity only functions as a ceiling above which WalMart won’t hire the worker. Adding a wage subsidy should shift the supply curve leftward (since a transaction once with $9 is now worth $14 to the worker) which should lower the market-clearing price.
I’m not sure what you mean by supply or demand being limited. At any (non-zero) price, supply and demand are always going to be finite.
You can’t just treat demand for labour as independent of worker productivity. Firms will tend to hire workers up until the point where hiring the next worker will bring in less additional revenue than the additional costs associated with that worker, i.e. until marginal productivity equals compensation. This is how demand for labour is determined.
It’s true that a wage subsidy can shift the supply curve
leftwardto the right by bringing in additional people into the workforce, which does act as a (minor) subsidy to employers. This does not, however, refute the idea that wages are determined by marginal productivity as the influx of extra workers decreases the marginal productivity of each worker.I felt that this was too subtle a point to bring up in my original reply where I was responding to someone who apparently believes that wages are determined by what a “living wage” is.
My instinct is that a $1/hour wage subsidy would cause those employers at the low end to cut wages by nearly $1/hour. Those businesses are already on tight-margins so not much would flow to executives or shareholders, but mostly to their customers. (Taxes would go up elsewhere, too. Ideally from a VAT, so it might be a wash for those transactions.)
With enough wage subsidy, non-profits can really start competing for these workers. Want some neighborhood cleanup done? Someone to sort recycling? Employing people to put on a neighborhood play? A lot of these things pay off in warm fuzzies that Walmarts and the like can’t offer so they would have to pay a premium. And I’d say to anyone: if you don’t like how low wages are, you can bid them up yourself.
How would a wage subsidy work with independent contractors, like Uber drivers and other “gig economy” workers?
That is an excellent question and one I ask myself often.
You are still usually hiring yourself out to someone else, so the wage subsidy could be done at that rate per hour. Each hour driving an Uber = $1 from the government (up to some threshold).
Those gig workers are probably easier to account in terms of hours, given the tracking already in the system, than for some other jobs where people do them at their own pace. Maybe $1/unit time is the wrong measure. I’m open to ideas.
Even if I’m not 100% how it would work, we could still do the baby step of cutting the current taxes of those workers, who are paying both sides of FICA.
Maybe this is a minor thing in the grand scheme of flipping around quarter-to-half trillions of dollars, but I don’t think the comparison of college students is very useful. College students largely (1) live crammed in dorms two or more to a room the size of a large closet; (2) get supplements from their families; (3) are single and surrounded entirely by like-age cohorts including potential romantic partners; (4) often eat not-great food in communal dining halls; and above all (5) know that their situation is temporary. They accept and thrive in these conditions (mostly) because they are young, healthy, mentally and socially functional, and the sort of devil-may-care oblivious that goes with being those things (especially young). The poor unable to rise above the poverty line seem like a poor match in their characteristics to your average college student. And now you’re telling them that they get just enough money to live crammed into an apartment, eating institutional food, with strangers of all ages and backgrounds, many of whom are going to have serious mental or social issues, permanently. I mean, on the one hand, it’s kind of reassuring for the problem of “everyone will go on UBI” – it sounds like a recipe for squalor. On the other hand, that probably leads to pressure to increase the UBI to even more budget-breaking levels.
I think the “second order” effects of UBI are way, way more important than you’re giving credit. As people leave the workforce to take UBI, the tax burden on the remaining workforce must rise, making it more attractive for further workers to leave the workforce and take UBI. Whether this is multiplier effect or it goes all the way to economic collapse depends on how strong the effect is (i.e. does 1 worker leaving the workforce on margin cause more or less than 1 additional worker to leave due to this effect).
Murray Rothbard made this very criticism, and I’ve never seen it adequately addressed by any proponent of the UBI.
Agree 100% with firecracker. It is essential to understand the longer term incentives and dynamics of this system. The incentive would be for people, on the margin, to reduce the amount of time they spend serving other people economically (by producing goods and services for others). This increases the burdens on those who continue to work. This increases the incentives of dropping out of the market, delaying entry into the market or just going off to a mountain cabin to live on the cheap. The system snowballs….
Over time, this will lead to fewer people producing value and to more people living parasitic lives off the productive efforts of others. Perversely, if you read what “progressives” write on the topic, this bug is to them a feature. They believe that able-bodied people have a right to live off society without creating value in return. This type of thinking is unstable and longer term self negating.
If someone wants to experiment somewhere smaller and out of the way with a UBI, then I will be very interested in seeing how it plays out over a couple of decades. I suspect it will turn out poorly.
This assumes people will leave the workforce if UBI is implemented. Yang claims that UBI will create jobs and increase labor force participation. He says that there are only two groups of people who work less under UBI, which is single mothers and people in college.
Also, “leave the workforce to take UBI” – isn’t that phrasing nonsensical? You don’t need to leave the workforce in order to take UBI. You can take UBI just by opting in.
He says that there are only two groups of people who work less under UBI, which is single mothers and people in college
How does he know this?
When he says that it’s prefaced by something like “I’ve looked into the numbers” but idk which numbers he’s referring to.
Yang is thinking of people like himself, just slightly poorer or slightly dumber.
20% or so of people don’t even graduate high school. Most of them are taking the $12,000 a year and never looking back.
That seems to be a highly unlikely interpretation of “looking into the numbers” and also inconsistent with Yang’s personality. Whatever he’s referring to, I’d be extremely surprised if it’s just generalization of himself.
In a shocking twist, it turns out that politicians sometimes don’t tell the truth. Being a smart Asian man doesn’t automatically make you right about maths.
As the posts linked by Scott at the top of the article show, Yang’s proposal isn’t even serious enough to survive a few minutes of googling and back-of-the-envelope calculations. Even under very optimistic assumptions, his plan would more than double the size of the deficit.
Do you really want to take on faith the assertions of someone who’s verifiably completely wrong about such basic facts?
See previous level 1 comment I made; also whether the math works out (which it doesn’t) isn’t even related to whether people will stop working.
My point is that you’re putting an awful lot of faith in the words of a man who’s a liar, an idiot, or severely deluded, as evidenced by the fact that the maths on his central campaign promise doesn’t work out at all. And yet you say things like
As if that had any relevance when we’ve already established that Yang’s proposal has more holes than a Swiss cheese.
That is extremely uncharitable. Most politicians, and just about all successful politicians, lie to some extent. The phrase “my heart goes out to victims of XXX” is probably a lie in a majority of cases, and whether or not it is a lie says absolutely nothing about the judgment of the person making it.
I am a self-identified rationalist; I am extremely committed to the truth. In most cases, I would consider cheating on someone to be a lesser crime than lying about it. But even I recognize that politicians have to get some allowances. Because so many people are stupid enough to care about these things, it means politicians have to be allowed to lie about how much empathy they feel. They also have to be allowed to lie about their faith. And if Yang concluded that writing “this would increase the deficit by XX” would be political suicide, then yes he has to be allowed to be misleading about his proposal. It’s not actually a lie since he didn’t write any particular false statement. It’s just intentionally evasive/misleading.
The cases where I would give politicians a pass are still very few. And in the vast majority of cases, Yang seems perfectly honest. I think he seems significantly more honest than most candidates in the race. I don’t think there is any strong basis for doubting his ethics based on his UBI proposal, and I suspect that any principle which would judge it to be a big deal would have fairly extreme and unproductive consequences if you took it seriously.
The fact that most politicians routinely lie doesn’t make Yang any more trustworthy. And yes, politicians maybe should be given a pass on muttering pious platitudes like “My heart goes out to all the victims,” and “Safety is our chief,” and so on. These lies are fairly harmless.
Lying about policy is a different matter altogether. And this isn’t just some minor matter, this is Yang’s flagship policy proposal. It’s the heart of his entire campaign, so I don’t feel like I’m being overly harsh in measuring him by it.
My point isn’t that Yang is more untrustworthy and dishonest than his competitors. I wouldn’t take a statement from Biden or Harris or the others at face value either. And I don’t have any particular animosity toward Yang. I’m actually more sympathetic toward him than any of the other Democratic hopefuls with the exception of Gabbard.
But just because Yang likes to cultivate a persona of serious policy guy (“Asian man who likes math”) doesn’t mean he’s actually honest or serious. If anything, it makes his dishonesty even worse since it’s more likely to deceive. When Trump makes some grandiose promise, none but his more diehard supporters actually believe him since most people are aware that he’s a lying liar who lies. When Yang lies, most people believe him.
“If you like your welfare program you get to keep it.”
Right.
I’m arguing that there is no negative evidence on him being trustworthy because politicians should be given certain allowances. I would further argue that there is positive evidence based on hearing him talk, but that’s kind of a separate point.
If he’s a lying politician, what possible reason do you have to believe his statement that a UBI would result in more people working? Surely you should give this little or no weight at all as evidence when you already know and accept he lies about policy issues. Why not look for some research to decide for yourself if you care to know?
I’ve also never seen good evidence for this.
At the very least, I don’t see why (particularly under Scott’s plan) you don’t drop out of the real workforce, and work under the table, even if you are making 50%.
Scott’s proposed basic income is dependent on income, so leaving the workforce to benefit from his plan makes sense.
Even under genuinely universal income, however, similar incentives exist.
The second order effects I’m more concerned about are cultural.
In basic income grant experiments, labor force participation tends to drop just a bit, but then again everyone in the trial program knows that they are in a trial program and if they don’t want an awkward resume gap in 2 years time, they need to keep their jobs. Also, they live in a culture in which most people work for a living and in which there is a stigma to being out of work.
What about when the BIG has been a permanent fixture of the economy for 20 or 30 years, expected to continue forever, and living off the BIG is seen as acceptable way of life?
Why do you suspect people would leave the workforce to take UBI? People already have the option of quitting their jobs and receiving unemployment benefit, and they choose not to. I don’t understand why that situation would change when we offer a UBI instead of an unemployment benefit, it only seems to do away with high marginal tax/benefit rates at low incomes that are a disincentive to work?
You don’t get unemployment if you quit, you have to be fired for a reason that is protected (e.g. you cant just go around groping women until you get fired). They also run out. The welfare system is currently set up such that an able bodied person without children has a harder time exploiting it, and there can be a large gap in payment before you get the money.
Oh, is this really how it works in the USA? I didn’t realise that. In my country, unemployment benefit is available to anyone seeking employment (there might be an asset test, not quite sure about that).
So does this mean that introducing a UBI might be expected to play out quite differently in the USA compared to other of, say, the Western democracies?
Probably. I’ve only been on unemployment one time for a month or so.
In America its a joint federal/state program. You get paid based on your previous salary (a %, and obviously capped), and basically you get it only: 1) After being employed full time for a sufficient number of months; 2) Can prove you are seeking employment; 3) Win the hearing that you were not terminated for an unprotected cause (being incompetent is protected here, but being a thief or harasser is not), often this is uncontested in layoffs, as was my case at the hospital.
For other welfare programs, you submit means tested evidence and get them or not. I am not personally knowledgeable, but in the US you basically only get vouchers, not money, under these programs.
Right way to implement UBI is imho via gradual expansion of currently existing tax funded retirement cash benefits to younger people.
The main problem I see with the UBI is that it’s a drastic change to a problem for which a drastic change does not yet seem justified. There is no clear reason to assume that a brand new UBI is a better solution to any problem than an expansion of existing welfare systems. In fact, the whole debate about the UBI resembles a bunch of programmers debating the correct way to implement a new back-end functionality that no end-user ever asked for.
If transfer payments are generally preferable to means-tested welfare distributions, then why not test this out on just one welfare office? Let recipients opt-into the transfer payment system and compare the results, not on the whole country, but on a single thing like “food stamps” or “medicare.” If the transfer payment out-performs traditional welfare, then expand the transfer payment program to another office. Go slowly, test carefully, and implement the idea only in those areas that show promise.
If someone proposed that sort of plan, I might be on board. Instead, we’re left debating a nationwide, UBI versus no transfer payments at all. Why? Why the dichotomous thinking here? Why are health care debates all about socialized medicine versus status quo? Why do people who think about these things no longer have any appetite to discuss one, single, small, but potentially beneficial reform?
You’re not going to solve complex problems with a single grandiose idea. Nothing about that reflects sane thinking IMHO.
Whether UBI is economically feasible is a question of whether poverty line times population is sufficiently exceeded by GDP. Perhaps we can assume the economists are right about inefficiency or deadweight losses or whatever, and assume the latter has to exceed the former by quite a margin. What would that margin be? 10%? Double? Many orders of magnitude? I would think double would be enough, but I’m a human nature optimist.
Given that it’s economically feasible, whether it’s politically feasible is an entirely separate question. “But if it was that easy to end corporate welfare, wouldn’t people have done it already, for non-UBI related reasons?” Which people would like to volunteer to bell the cat? Since I take “politics” to be another word for (de facto, not de jure) “power”, the political question concerning UBI is whether powerful (that is, wealthy) people can be sold on it. By that yardstick, a UBI that is politically feasible is one which creates a lot of opportunity at the top, perhaps one with a lot of consumer spending lock-in, somehow make it hard to live like a monk. The liberatory potential of that lifestyle, if it could be paired with the cash flow stability offered by even a small UBI (assuming the guarantees are strong) is the main thing that makes UBI appealing to me.
Here’s a “simple” way to fund a UBI in the United States: remove the cap on the amount of income subject to Social Security taxes.
Social security is going to stop working within
Tax Policy Foundation scores removing the cap on the amount of income subject to Social Security taxes as raising $129 billion/year in revenue. That’s enough to fully fund a UBI of about $50/month once you spread it out across 200 million American adults. How are you going to fund the other $950/month for a Yang-style UBI?
I’m commenting as I go, and did not read the linked articles, so apologies if this makes no sense in context
One thing I have seen repeatedly referred to as “corporate welfare” is the idea that eg. Walmart employees are on SNAP. I have seen people accuse the food stamps of being ‘corporate welfare’, on the grounds that if Walmart employees did not receive benefits, then Walmart would be forced to pay them more (or something to this effect; the specifics aren’t as relevant).
Given that the above described situation is considered to be corporate welfare, I don’t see how ‘end corporate welfare’ and ‘UBI’ are compatible. There is a subset of the population that would definitionally consider UBI to be corporate welfare.
There are clearer cases of industries getting direct subsidies and favors from government, which is what I usually think of a corporate welfare. All those K Street lobbyists are not doing fundraisers for senators to get EBT increased.
I’m not sure whether to count the military/industrial complex as receiving corporate welfare or as just having become part of the government.
I mean, Wal-Mart’s lobbyists might very well be.
Putting their own employees aside for a second, the type of person who uses EBT is quite likely to be a Wal-Mart customer, while the type of person who pays really high taxes so that others can use EBT is not.
I wrote about UBI after chatting with Andrew Yang last year at an event. I think the most important cutoff is between the poor and the middle class, but measured not in how much money they make but in what they spend the money on.
My basic model is that poor people spend money mostly on life necessities: a car that doesn’t break down, food that isn’t Taco Bell, basic bills. A marginal dollar increase buys them a better car, better food, more slack.
In contrast, middle class Americans (also known as the global 1%) have the necessities covered: a good car, the latest iPhone, Whole Foods. They spend most of their money on housing, healthcare, and education (HH&E). These three suck up every spare middle-class dollar but don’t provide any more value when money is poured into them. Once everyone has the basics covered, HH&E is just a zero-sum competition for good neighborhoods, impressive doctors, prestigious schools. Giving all middle class Americans (I’m one of them) extra money just diverts that money to landlords, monopolists, and Harvard’s endowment.
The border between the two group is not based just on income. A healthy childless rancher couple in Arizona can make a lot of money but spend almost none of it on zero-sum HH&E, while a sick family in a big coastal city would spend almost all of its money on them. This suggests a solution for targeting this cutoff: fund UBI by massively taxing land, higher education, and non-essential healthcare. This will alleviate poverty in the US while diverting spending from rentiers to productive businesses. It also has a snowball’s chance in hell of being even breathed about in the current political climate.
I thought you were going to go in a different direction, given the recent discussion of cost disease on SSC. I thought we wanted those 3 sectors to be cheaper?
Not clear to me that you aren’t giving with one hand and taking away with the other. Poor people need places to live and healthcare, and although I know we’re feeling a bit skeptical about higher education these days, it still seems like a part of how poor people stop being poor.
No kidding. In a topic where virtually everyone’s proposed solution is politically infeasible, this one may be the most politically infeasible of all.
I’m not even sure that you’re wrong, but I am sure that nearly everyone believes that those three things are in fact absolute essentials, and that the government needs to be doing much more to make them cheaper…
I thought we wanted those 3 sectors to be cheaper?
The way you get $10,000 tulips is by the government giving tax breaks trying to make them cheaper.
I get his argument feels backwards, but as a society if you want us to reduce spending on something, tax it.
I know. It feels so wrong. Ergo $10,000 tulip.
I think this post is very insightful. if education and housing is people paying more for the prestige, it doesn’t matter if the extra money is going to yale’s endowment fund or into the tax base. The point of buying it is to show you can afford it.
That being said, I don’t think the cost of medicine is prestige based.. and taxation would lead to poorer care.
Definitely politically impossible though
Some economists argue that Americans consume more healthcare that is good for them. Meaning, you could achieve better health outcomes by spending less. Here’s an old Robin Hanson article:
https://www.cato-unbound.org/2007/09/10/robin-hanson/cut-medicine-half
This wikipedia article has more recent references
https://en.wikipedia.org/wiki/Unnecessary_health_care
I find it very plausible.
The point of UBI is two fold from my perspective.
First to create a new form of corporate taxation that income taxes fail to capture,
second to replace bureaucratic budgets with direct transfers.
The way our country collects and disburses money is deluded at best and Yang seems to understand that.
I’m what you might call a lukewarm supporter of UBI – I think it’s a good idea but share many skeptics’ concerns about the politics and implementation.
Setting aside politics for the moment, because I fully agree that getting it passed into law will be politically nightmarish, I do think the mathematical argument can be made.
Using $1,000/month for every adult citizen, trying to get to $12,000:
– Start with the EITC, which should/would have to be eliminated to make a UBI work IMO – that gets you, conservatively, $75B or $326/adult/year.
– Next approach other federal welfare spending such as cash assistance, unemployment, and housing assistance for another $385B or $1673/adult/year – that gets us to ~$2000/year
– Veterans’ income security gets you another $100B – $434/ad/yr – up to $2434/yr
Now the really hard choices start… Social security provides the biggest bump at over $1T but is that politically possible? Not sure… If social security ISN’T replaced by UBI, a significant tax increase becomes unavoidable to reach $12k/year.
– Nevertheless, we press on with social security, which gets us $1.05T or $4,565/ad/yr – up to $7000/yr
Which leaves a mere $1.15T to raise somehow – fortunately for the basic income argument, we just had a tax cut that costs $1.5T a year, so I’d say that’s a good place to look.
Taking it out of social security would be a nightmare. you have 62mm people on social security, each getting between $771/month – $3,300/month on a fixed income. You simply can’t tell millions of people who have been out of the workforce for decades that you are reducing their income by, in come cases 60%
There is simply no way using SS to pay for UBI wouldn’t result in tens of millions of seniors losing their homes
The true top marginal tax rate is much higher than
37%(Edit: The top marginal federal income tax rate is 35%, not 37%, which means that you need an 11.2% state tax to get to 50%, rather than 9.2%). The Medicare tax adds another 3.8% on top of that, and state income taxes can add up to 13.3%* on top of that. So in some of the grabbier states, the top marginal tax rate already clears 50%.Incidentally, this is why removing the Social Security tax cap is more Modest Proposal than modest proposal. Adding 12.4% on top of a 50% marginal tax rate reduces marginal take-home pay by 25%. People would lose their houses over this. And yes, people with incomes that high should have a comfortable safety buffer, but still, people would lose their houses over this.
*To be fair, the 13.3% rate in California kicks in at over $1M/year. But the 9.3% rate starts at $54,000.
The top federal rate is still 37%. IRS 2019 inflation rates.
“Get rid of the SS cap” moves the US beyond Europe in taxing the rich, and only solves a tiny problem.
There is more government revenue to be had by taxing the rich. But not as much as people think. Certainly not enough to fund a European-style welfare state. You have to tax the middle-class significantly more than they are now.
And the poor. Most European countries have a VAT. The VAT taxes everything (except sometimes food).
Sure, it would reduce marginal take-home pay by 25%, but it would reduce overall take-home pay by less than 25%, until you get much higher than $500k income.
For example, if your income is $600k, your take-home is $338k. If the top federal tax rate were increased to 50%, your take-home would be $325k. So these people won’t be losing their homes.
If your income is $2M, your take-home is $1M. If the top federal tax rate were increased to 50%, your take-home would be $800k. So yes, these people if they do not have a buffer, cannot cut back elsewhere, and cannot refinance their mortgage would have to lose their $5M homes and be forced to move to $4M homes or something.
Note that I was talking about removing the social security cap, which would add an extra 12.4 percentage points to all wage income above $133k. Someone earning $600k would lose about $60k in higher taxes and reduced wages, which is (wild guess) maybe a 15% cut in total take-home pay, assuming a 33% effective tax rate now.
Again, you should have more than a 15% safety buffer if you’re making that much money, but you know some people don’t.
Anyway, my main point is that this really is a huge tax hike, not this little tiny thing its proponents treat it as.
The Tax Foundation looked at Yang’s plan and adjusted it a bit to be what they saw as revenue neutral. I think their analysis is a lot more thorough than squareallworthy’s which seems to be not very well researched as far as I can tell from all the missing details.
Personally I think they’re being a little bit pessimistic about for example the effect on reduced economic activity, but if you just want to see a sober UBI plan that’s realistic then there you go. Since they’re upfront about their assumptions and the associated dollar values they’ve assigned to them you can always adjust them yourself to whatever you think is more likely.
Somewhat a tangent, but have any of these plans outlined how they would protect people from unscrupulous financial institutions? Suppose JG Hemmsworth offers to pay you a set amount of January 1st in exchange for your year’s worth of UBI payments. It’s almost certain that a percentage of people would take this offer, likely the people this plan is most aimed at helping.
Doing some quick research, it looks like current annuity payout companies normally charge somewhere between 10-20% on these services. Even assuming competition drives these costs down to around 5-10% that is still potentially billions of dollars that the US government would be directly transferring to an industry a large number of people think is evil.
For a start you could make it illegal to use a UBI as collateral, which of course wouldn’t wipe out the practice, but it would act as a roadblock and make it more difficult for unscrupulous lenders to do and make it so that they aren’t able to do it in the open. It also would mean that they have no legal recourse to collect from their debtor’s UBI money should the person fail to make their payments. If the person has other assets that can be liquidated to pay their debts, then those might go, but presumably you could engineer the situation such that the UBI money was more difficult to get at.
Right, I get that it’s possible, but are any of the plans up-front about this risk and ready with the countermeasures? I feel like failing to address these potential risks in advance contributes to the overall under baked feeling most of the current UBI plans have.
How do you do that? Make it illegal to lend to UBI recipients? How do you prevent me from borrowing and repaying using UBI without just preventing me from ever borrowing?
Saying I can’t use UBI as collateral seems slightly misleading. If I have significant real income but nothing to put up as collateral, I can still get a loan. Credit cards are usually unsecured by collateral. So collateral is not always required to obtain a loan.
But say we can wave our magic wand and make it so, UBI can’t be used for collateral. We are now discriminating between UBI recipients who have no property and those who do. Do UBI recipients have to divest themselves of all other property that might be used as collateral? if not, then those with such property can make loans and pay them back using UBI, while the others can’t.
Somewhat a tangent, but have any of these plans outlined how they would protect people from unscrupulous financial institutions?
Already happened in the UK with the pensions mis-selling scandal. Government had the bright idea of putting pensions responsibility onto the public, so they unlocked access to ‘pension pots’ and said ordinary Joe Soap can now control and decide for himself where he will invest his lump sum to get a pension. Warnings about “but how will ordinary people decide amongst the range of pension instruments available, and how can an individual have the same bargaining power as an institutional investor, and what about unscrupulous businesses targetting ignorant investors?” were all pooh-poohed, and it turned out that a lot of people did listen to advisers and buy bad schemes, and now the compensation payouts have to be paid.
Fortunately for us in the US, we have social security which is completely financially sound.
I hope my tone is not too snarky for the context.There is indeed a problem here, but government seems inclined to solve it with mediocrity at best, and in the case of US social security, just by making it a transfer (read Ponzi) scheme.
With Social Security, either we all float or we all sink. Realistically, we will all “float” but at a lower level than in the past. This level will be determined not by the government’s level of competence but by basic demographic factors: how long people work, how productive they are, and how long after retirement until they die.
With individuals investing their pensions, some people do well and other people go bankrupt – and need bailing out a second time. This entirely removes the function of Social Security as insurance. And for what gain?
“What am I missing?”
Nothing. Your proposal is the right way to do basic income. You cannot peg a basic income to an amount that people “need” to survive or do well or whatever. It has to be pegged to the amount the country is actually making, as your proposal is. In that way, and only in that way, can it ever work.
Some back-of-the-spreadsheet calculations suggest that if GDP growth is at about 4% (somewhat optimistic, eh?) and population growth is at about 0.7% (which is the current value) you would just about achieve your $10,000 in 2030, assuming that you are distributing 1/3 of GDP growth. Unfortunately, if inflation stays at about 2%, it would only be worth about $8000 in constant dollars. (A 3% growth in GDP pushes your target out to 2039 or 2040, at which point the $10,000 is worth somewhat over $4000 in today’s dollars.)
I think “distribute one third of all GDP growth since 2020” is wildly implausible, though.
Will you be announcing your candidacy any time soon?
Not convinced on UBI. I started liking it as a response to an economy heavily automatized and … have remained in that camp. Even then it’s prolly not a solid idea.
The main problem is that UBI will most likely be captured by certain economic groups. Landowners seem the most obvious one. Of course a heavily automatized economy will have the same problem, but it also would have vasts swathes of the population outside of the work force so that’d be an incentive against inflation, even if some capture happens.
Not sure if it’s a good idea to use UBI to start cutting other social programs either. Society and the economy are complex systems. Maybe we need complex solutions. I identify as leftist but may side with the libertarians on this one.
How could a UBI be “captured”?
In his example, rents going up by $UBI.
In a free housing market, housing cost sinks to the cost of constructing housing, so I don’t see how this could happen.
Where is there a free housing market? Does someone have a plan to bring that about too? Because that, I would be on board for!
I haven’t run the numbers on this, but I’ve recently begun to consider that, instead of a UBI, the following plan might be more effective.
The government distributes some amount of money to people
That money is exclusively to be used for stock market/bonds investment.
Any dividends can be pulled out, but the principle needs to remain secure.
Cons:
Massive upfront cost
People could squander the money on dividend traps
If the money is squandered society would presumably still pay for welfare
Pro
Government doesn’t have massive unfunded liabilities, caused by UBI
The money is immediately invested in the economy
Improvements to economy will hopefully offset economic displacement caused by AI and automation
Could eventually be used to replace social security. by reinvesting dividends long term, the money can grow to a sizable nestegg
The money can’t be cut off based on social stigma
So if the economy is growing, poor people can support themselves from dividends? But if the economy is in a recession and no dividends are issued, poor people starve?
“poor people starve” is a little extreme, poor people would handle a recession under my scenario the same way they handle it now.
In a perfect world the country would be able to provide everyone a good standard of living even in a massive depression. In reality, if the country doesn’t have money, it can’t provide any sort of basic income.
My big concern with Yang’s version of a UBI is that it makes a massive guarantee that the USA may not always be able to honor. This plan explicitly decouples the idea of minimum universal income with a government guarantee.
Nowadays, the US continues to make welfare and social security payments in recessions. It is hard to imagine it doing otherwise. If the US can afford this now, there is no reason it couldn’t make payments on a moderately larger amount of UBI payments.
Remember, the US can print money whenever it wants.
I think you and I have a perspective difference far exceeding my initial impression.
I disagree with the characterization that UBI would be moderately larger.
But more importantly I disagree with the central claim that basically reads to my like “If the US can afford X, it can afford X+Y” This seems so inherently untrue that I feel like I’m strawmanning you. Maybe I’m misunderstanding your perspective?
I mean, in a certain sense, sure.. but that sort of thing seems to me like it will work great until it suddenly and catastrophically doesn’t.
Some people will borrow (from the legal or illegal market) based on their expected future dividends so they can spend it all at once.
That is a good point, and one I hadn’t considered.
Sadly, I think that part of having freedom is the freedom to make bad choices. hopefully, making it illegal would stop most people, as well as educating people on how to be good stewards of their dividend fund. But you’re right that some people would squander any windfall. Its unfortunate, but the government shouldn’t be in the business of nannying it’s citizens.
I suspect that UBI will cause rapid increase of demographic that doesn’t work, never worked and have political action as the only way to increase their lot in life. A normal working person would generally try to get a raise though increasing their value in some way – and even if they can’t, they would have little time for politics, but UBI recepient won’t be able to do so, but they would be able to vote or petition. If their demands aren’t met, they will protest and riot, since they have all the time in the world.
In the end, they will need to be controlled in some way. If you want to experience UBI as I expect it to turn out – it’s easy. Shank someone on the streets and turn yourself in to the police. You’ll have 10 years or so of being fed, housed and entertained for free, with government’s primary concern being keeping you from rioting.
I also suspect that living off UBI would be a great discomfort to most people who would develop “Parasite Supremacy” so to say – shunning honest work as being for suckers and seeing working people as prey, because otherwise their option is to feel like a worthless parasite.
never worked and have political action as the only way to increase their lot in life.
If you think protestors blocking roads was bad now, wait until they can come out to do it every day.
No, no, no, no, no. Don’t normalize shutting down the government. If your part of your plan relies on the workings of the US government completely grinding to a halt, even conceptually, then your plan is bad. I know you’re probably kidding when you said this, but I’m very worried that our political culture might be moving in a direction where shutting down the government is seen as an appropriate response to action we dislike/an acceptable cost to get your priorities passed. It’s not, it’s terrible, we need to inoculate our discourse against it.
Shutting punishes the wrong people (congresspeople have money, 800k federal workers don’t), it prevents the USG from doing it’s important work and finally, the more it happens (or gets discussed as an option in posts like this), the less effective it’s going to be, and the weaker our collective norm of “never shut down the government” is going to get.
“I’ll make things super painful if my plan isn’t followed. That way everyone will follow my plan!”
Narrator: His plan was not followed.
Maybe “if they can’t find the money, it automatically gets printed out of nowhere”? That should get people’s attention.
If the Federal Reserve works to stop inflation, “it automatically gets printed out of nowhere” translates into higher interest rates, which slows the economy, which reduces government revenue, which causes more money to get printed, which causes the Fed to further raise interest rates, which…
“I’ve planted atomic bombs under your major cities, and will detonate one every week until this thing that I want to happen somehow does happen”, also gets people’s attention. “Do what I want, and nobody gets hurt!”, generally gets people’s attention.
It has the slight disadvantage of A: hurting people when it fails and B: making them want to hurt you whether or not it fails. You, and whoever it is you say you were trying to help with this scheme.
A proper analogy to printing money would require many people thinking that an atomic bomb going off in a city would improve the health of residents.
The U.S. has an enormous entitlement crisis. Adding a basic income entitlement on top of this, rather than as a substitute for existing entitlements, seems like economic suicide. We need to be thinking of how we are going to cut net government transfers to citizens as our population ages.
^^^ Yes.
Yang’s plan is a substitute for existing entitlements.
Is Scott’s?
No it isn’t. He explicitly denies that.
According to our local Yang advocate, it’s choose-either-$1000-or-existing-welfare, everyone chooses their own.
I forget what is on the list of “existing-welfare.” Section 8, TANF, food stamps, Social Security, disability, I guess.
The problem is this can’t substitute for existing entitlements. If you need assisted living, you need more than $12k a year. If you have any serious medical condition, you need much more than $12k a year. Scott’s plan (and even Yang’s plan) would replace or reduce some SSI/SSDI/AFDC spending but not much reduce the big entitlements.
My big problem is that we get one “tax the rich” dollop, and I’d prioritize the two apocalypses: global warming and Medicare/pensions. We can’t trot out the same tax hike to solve every problem.
Have we considered kill the poor?
With the current mix of entitlement spending Logan’s Run would be more efficient.
If the singularity doesn’t save us, and politicians put off cutting entitlements until we can no longer borrow sufficient amounts of money, the choice will be to cut off benefits to either the poor or elderly. Likely the Republicans will advocate for the first, and the Dems the second.
Are there any analyses of paying for UBI via wealth tax? It seems like every 1% of wealth tax will pay for something between $3000 and $5000 per year per person. The wealth tax may be a bit progressive as well.
That’s not a 1% tax.
It’s a 1% tax per anum.
Plus it sounds like it would encourage inflation, or something like it.
I suppose technically even if a wealth tax is taking out more than someone can earn on their investments, it’s still worthwhile to invest under a wealth tax in order to prevent your wealth from shrinking even more quickly. But putting it at a level where people are worrying about that is almost certainly politically impossible, and any attempt would surely lead to epic levels of tax evasion and corruption in efforts to escape the tax. The 1% annual wealth tax is probably near the maximum that could be remotely realistically imposed; it’s not something you could triple or quadruple to pay for a $12k+ UBI. Which is not to say it’s a bad idea, just that I think you’ve over-estimated what it could accomplish.
Wealth is a lot easier to hide than income, and its value is less definite. Commodities have a market value, but lots of wealth-things are unique. Local governments deal with that for property tax, but there is a *lot* of overhead. And houses are hard to hide.
A wealth tax punishes people for doing things we presumably like them doing, like acting prudently and taking intelligent risks. Same could be said of income tax, of course.
And I guess it would be out of scope for this discussion to question the assumptions about the moral and practical desirability of redistribution.
Wealth tax is a catastrophe from an efficiency standpoint because it encourages consumption over investment. Consumption uses up real resources, while investment creates real resources and improves productivity.
Wealth tax is the death rattle of people who are running out of other people’s money.
I think the UBI is a bad idea, but I really like the fact that people get it regardless of having to prove they “need” it. The government gets out of people’s business. No big brother deciding if you are spending your money wisely or not.
But paying for it with a wealth tax is creating an even bigger privacy monster. No one is safe. Everyone has to submit for the government to know all their business. Bite me.
A 1% wealth tax on all household wealth with no exemptions will raise about $3,400 per U.S. legal resident ($108 trillion household net worth, ~320 million legal residents), provided no evasion or reduction in the value of wealth (which there will be).
I’m skeptical of a wealth tax, especially one that applies to all people and all wealth. It’s a low rate on wealth, but a high marginal rate on income from wealth. The U.S. stock market, for example, will likely return 5-6%/yr going forward, or 3-4% after inflation. The wealth tax cuts this to 2-3%, equivalent to a 25%-33% marginal tax on capital income. It will likely encourage increased use of leverage and seeking after risky investments in an attempt by investors to bring their returns back up. At the same time, stock values overall should decline, as stock ownership is a very visible form of wealth, in ways that things like painting and wine collections aren’t. This will likely smoke many state and private pension funds, even if they are exempted from the tax (but if they are exempted, that will reduce revenue and likely lead to corporations creating very large pension packages).
We’re not even past the theory stage and already we’ve reduced the UBI to basic welfare. So I think what is missing is looking at how basic welfare is working out. Presumably, we consider it a failure, or we wouldn’t be talking about UBI.
I assume poverty line numbers do not count welfare money received. The question is, how much welfare money does the average impoverished person receive? I can’t find firm numbers on this, but this Forbes article puts it at about $9k/year, and this Washington Post article says the median welfare package is $28k in some states (but look at the chart to see how much depends on what you consider “welfare”).
So we’re already giving those in poverty 90%-280% of your planned UBI. Why aren’t we already seeing the benefits you expect?
(Or maybe my number are just completely off.)
UBI advocates hope to eliminate a lot of overhead. The average cost per welfare recipient is probably a good deal higher than the average amount received in cash, goods or services (or that seems to be the assumption – it’s not like government agencies have to publish profit statements, by which I mean it is not clear how the cost of providing relates to the value provided). Scott’s hybrid will re-introduce some but (maybe?) not all of that overhead.
Hmmm, what will differ? People would no longer have to qualify, I guess, though there will be some overhead dealing with persons who lie about their income. OKay, I am not making sense. I mean, I could quit my job and go straight onto Scott’s plan, I assume I could not do that now, and if I tried the various agencies would waste some energy figuring out I don’t qualify.
Maybe Scott’s hybrid could wring out some efficiencies because most of the government activity gets reduced to sending out checks, and the recipients buy the actual goods and services on the market? But are there lots of goods and services being delivered directly by government now? There are housing subsidies that are indirect and probably inefficient. EBT already uses the market to provide food. Medicare/Medicaid use ordinary hospitals and doctors (though it is a bit fanciful to call it a market). I must be stupid today, I can’t think of a lot of possibilities.
My focus isn’t on the efficiency side at all, nor do I think the post is focused on that. I, like the post, am looking at this from the standpoint of helping the poor, which is presumably the only reasons we would do this at all.
The post is just describing standard redistribution to the poor, with the expectation that this will significantly improve their lives. We have those already, and they seem to be in the same ballpark in terms of the size of their payments. So why do we expect it to be different this time?
Most rich countries have some sort of social safety net, and rich countries also have the most productive workers, highest life expectancies, freest political systems, and highest self-reported happiness. Obviously the causality runs both ways, but outcomes are at least consistent with the existence of a large benefit.
I’m not sure that’s obvious at all.
Most billionaires own fancy luxury cars. There’s no causality in that owning fancy luxury cars helps someone become a billionaire.
My belief is that rich states spend money on social welfare as a luxury consumption good, similar to how the billionaire buys fancy cars.
I think you’re focusing too much on the productivity, or are you suggesting that cutting all social spending would leave life expectancy and happiness unchanged? People have made the argument for productivity as well, especially for spending aimed at children, but as far as I know the goals of a UBI isn’t limited to increased productivity.
I don’t know that I would go as far as to say that cutting ALL social spending would result in ZERO changes to life expectancy and happiness.
But I’d probably bite on “cutting social spending by 95% would lead to very trivial and hardly noteworthy changes to life expectancy and happiness”, sure.
I disagree, as a matter of fact! Here are a few papers that agree with me, didn’t see any that disagreed. The most digestible result is that a 1% change in social spending leads to a 0.16 change in life expectancy (95% would be well outside of where anyone would expect that analysis to work). Don’t really expect this to be convincing, but thought I’d show my work 🙂
I looked at the first paper, seemed like a pretty bad design? I don’t think I could count it as evidence one way or another. It is of course a correlational study of 20 countries and says that “a 1% increase in prior year education expenditures was associated with [Note, no causal inference here] 0.160 (95% CI=0.033, 0.286) of a year gain in life expectancy” which to me appears facially absurd if suggesting causation. What could the mechanism conceivably be?
The thing that worries me most about the first paper is something the author themselves mention in the discussion yet seem to think isn’t that important.
They are regressing life expectancy in a single year (which depends on mortality across the entire range of ages) against social spending in a single year. This is nonsensical because life expectancy depends on life history, but they brush off this issue as if it would merely change the magnitude of their estimate. It could easily flip the sign too. Pretty much anything could happen.
First off, there is the moral question as to whether or not it’s permissible to use the coercive power of the state to redistribute wealth simply because some people are below some arbitrary “poverty line”. I don’t think that’s at all clear, and even if it we’re, a poverty line at $12,000 is extremely generous in my book. I once did a back-of-the-envelope calculation, asking “how much money do you truly need in order to have any supposed basic need met” and I came to something like $600 a year.
But moving beyond that, the big problem with taxing the wealthy is that the wealthy are the most mobile in society. I mean that both literally, that the wealthy can move themselves (and their wealth) from the US much more easily than others. And financially, in the sense that the wealthy can restructure how their wealth is stored, and how they personally obtain it.
So it’s not clear that raising income taxes on the rich would actually raise revenue by all that much, since you would also encourage (on the margin) wealthy people to flee towards lower tax countries, or re-invest more of their wealth in placeholder corporations, etc.
Not to mention that wealthy people also have the largest interest (and ability) in lobbying democratic institutions to oppose such wealth increases. Or, as what use to happen when the income tax was much higher in the US, to add a bunch of loopholes in the tax code that they could take advantage of to lower their tax burden.
If I recall correctly, effective tax rates have, for a long time now, been around the upper 30s to lower 40s percentiles. Even back when the marginal tax rate was significantly higher than it is today.
Did you miss a zero there? If not I am deeply curious about this calculation.
My original calculation:
Food: $132. A years supply of enriched flour based on a 2000 calorie diet.
Water: $0. Move if you can’t find water for free.
Freedom of Movement: $163. Cross country greyhound bus.
Shelter: $30. Walmart tent.
Sanitation: $120. Cheap gym membership.
Healthcare: ~$20. Cheap painkillers, antibiotics, etc. The best healthcare is cleanliness, diet, and exercise. This is really just for something truly debilitating. Get a prescription from a free clinic.
Education: $0. Bookstores are free.
$130 + $163 + $30 + $120 + $20 = $463
This calculation was made a couple years ago, so it might be a little higher from inflation. Furthermore, you could probably convince me to add a $20 or so onto the food category for some extra food too keep people away from nutritional deficiencies.
@ktxy
“Tent” – you know most of the cost of accommodation is the rights to the land rather than the physical structure? Are you suggesting illegally camping on other people’s land and hoping they don’t notice?
“Flour” – are you suggesting literally eating flour as your only food, or cooking it into some kind of pancakes or flatbreads? The former sounds physically very difficult, but the latter requires fuel and basic cooking equipment. Also, eating nothing but flour is hard to square with your comment about diet being one of the keys to good health.
What about clothes and shoes? And washing of clothes?
What about soap and toothpaste – are they supposed to be covered by the sanitation budget, or is that just the cost of the gym membership to allow use of showers and toilets? (It sounds very low even if it’s just the gym membership, and I say that as someone currently on a half-price offer at what I believe is the cheapest gym in my town.)
And what do you write as your address on the gym membership form?
Let me clarify, my calculation was done for the US. This would obviously change for different countries (though I doubt by a large margin, at least for first world countries).
There is a lot of public land you can use to camp in the Western US. Hike out and camp in the evenings, hike back into the city during the day.
Yes, I am suggesting eating only flour (as I said, maybe you could convince me to add a little more for nutritional purposes). And yes, this would be uncomfortable, but once we start talking about comfort, we are no longer talking about a basic need.
You can get donated clothes for free. Maybe you could convince me to throw in $5 or $10 for thrift store stuff.
You can get soap for free in basically any establishment that has a bathroom. To clean your teeth, find a good softwood tree (look up “teeth cleaning twig” on Wikipedia for a list) chew on it, and scrub your teeth with it.
For the address, use a relatives, use a friend’s, go to church and use their’s, use a fake one, or go to the manager of the gym and work something out.
And yes, this would be uncomfortable
It’d be more than uncomfortable, you’d run into nutritional deficits unless you were supplementing your flatbread, even by scavenging or grazing and picking wild foods (and those are an uncertain resource).
If you tried living on only bread, I think you’d be dead within that year. I’ve heard of Eucharistic miracles but this is not a realistic plan for survival!
What you need is the pre-Famine Irish diet – potatoes, cow’s milk, oatmeal for porridge and occasional things like cabbage and onions (or seaweed if living by the sea) 🙂
Rice and pulses is also one of the cheapest nutritionally-complete diets.
Indian Dahl or some Mexican dishes.
Cook it in a billy. Fuel the fire with deadwood and/or dried excrement.
A few questions off the top of my head:
1) How would a person on this budget handle additional medical costs? A decently large percentage of the population requires regular medication in order to maintain a decent quality of life. Any sort of medical emergency, even something fairly minor like a broken bone, would wipe out several years worth of budget. Half of my immediate family would be dead without emergency medical care, and I would be suffering health problems without at least $10-20/month for my medication. Hell, I probably wouldn’t even be here without thousands of dollars worth of medical care during my birth.
2) How do you get from your encampment to a gym, store, bookstore, or anywhere else? I’ll admit that I haven’t investigated this at all, but I don’t imagine there are too many free campgrounds (or at least open areas not patrolled by law enforcement) within easy walking distance of a gym and a bookstore.
3) Are most gyms and bookstores going to allow in a homeless person in unwashed clothes who might be carrying a tent and potentially many gallons of flour (can’t just leave your only food source out in a field where it might get stolen or destroyed)?
1. Health isn’t something that just happens to you. As I said, the best way to maintain health is through diet and exercise. Avoid risky situations if you are still concerned. If you still get sick, that’s what painkillers are for. When you start talking about “maintain a decent quality of life”, you are no longer talking about basic needs. People survived for hundreds of thousands of years, and continue to today, without modern medical care.
2. You walk. If you live in the Western US, I will almost guarantee that there is a national park within 10 miles of you (and yes, 10 miles is daily walking distance in my book). If there isn’t, then move.
3. Wash your clothes in a river, or using the sink/shower at the gym. As I said elsewhere, soap can be found for free all over the place. Also, you’re not going to be buying the flour all at once. At most you’ll be carrying 10-20 lbs on you at a time. I suggest taking $5 out of your travel budget and buy a nice looking backpack at the thrift store.
But you just suggested a flour diet.
@Jiro
I think the biggest problem in modern diets is that people eat too many calories for their size and activity level. I doubt you’re going to eat too much if you are strictly living off of this supposed basic income.
If you’re truly deficient in something, then travel less and eat some fruit, veggies, lean meat, etc (or, as I said, you could probably convince me to add $20 or so for this purpose).
@ktxy
1. You’re certainly correct that you can control health outcomes to some extent, but there’s a fair amount of randomness. My sister developed a serious illness when she was a healthy and fairly athletic 10-year-old. She has required a fair amount of medical care over the last decade, including a surgery. If she adopted your plan, she would have been dead years ago. My mom would also be dead of a burst appendix. I’d make it a bit longer, but I’ve injured my leg my to the point where I couldn’t really walk, so I’d have a decent chance of just starving to death when I couldn’t make the walk into town. If you’d like to make a case for how a diet of enriched flour would have prevented those situations, I’d be very interested to hear it.
Also, it’s important to remember that people were dying in droves prior to the advent of modern medical care. Humanity as a whole survived, but individual people probably had a life expectancy of around 30. If you consider a life expectancy of 30 to be consistent with “people have their basic needs met”, you’re probably talking about something very different from most people.
2. Keep in mind that if you’re 10 miles away from town, you have to walk 20 miles to get there and back. That’s definitely doable if you’re a healthy adult who worked up to it gradually, but it would be a huge ordeal for most of the population, and it would be simply impossible for some. When I was in high school, I used to walk about 10-11 miles home on a fairly regular basis, and that was not a trivial task, despite the fact that I was 18 and in excellent cardiovascular shape (I had been a distance runner for most of high school). Doing that twice a day would have been pretty rough for me at that time, so I can only imagine how someone untrained would fare. I don’t think my mom with bad knees or any of my grandparents could manage that kind of walk at all, but I guess that’s not much of an issue if we’re only shooting for a life expectancy of 30. Also, you’re going to have a hell of a time surviving on 2000 calories a day if you’re going to be walking 20 miles.
3. So our campsite also has to have close proximity to a river, in addition to being within walking distance of a gym and bookstore. I don’t think many gyms would take kindly to you trying to wash your clothes there, but I’ve never tried it myself. You make a fair point about the flour, but I still think you’re going to have to work pretty hard to not give off a homeless vibe that will make many people not want you around.
Ultimately, if you’re trying to make the point that in some parts of the US, a healthy adult could legally live for <$1000/year in circumstances that would probably not kill them, I agree with you. However, I don't think that we can really draw much of a conclusion from that, given that most people are not healthy adults, and "won't immediately kill you" is a pretty low standard to meet.
Food: $0. Soup kitchens, dumpster diving.
Water: $0
Freedom of Movement: $0. Hitchhike.
Shelter: $0. Homeless shelter.
Sanitation: $0. Homeless shelter.
Healthcard: $0. Emergency room.
Education: $0. Library.
If your minimum standard is homelessness, the monetary amount is meaningless.
Yes, exactly. This plan also has the advantage that soup (unlike enriched flour) typically contains vitamin C, and therefore a person who follows it is less likely to die from scurvy.
So you are saying that you can live on $600 a year by eating flour and water? Because there’s nothing in there about “how do I turn this flour into bread?” re: utensils, an oven to bake it in, paying for the electricity/gas/firewood to heat that oven, and so on.
Also how are you going to get free water? You can certainly try finding a river to drink out of, and good luck with that if you find one that isn’t fenced in and you’re willing to run the risks of water-borne disease.
And the rest of it is living off other people’s resources which are costing them more than $600 a year – use the gym other people pay rent and rates on, use the free clinic which has to be funded from somewhere, etc. Plus, you price in money for bus tickets but not a loaf tin to bake your bread? I think this is not costed adequately.
(Bookstores are free? As long as you buy a coffee or something while you sit and read that book you’re not buying. Otherwise, I think the manager will encourage the scruffy guy not buying anything and taking up space to move on after a while).
I did a similar calculation some years back, and came up with a figure of about $500/year. The relevant part of the post is near the bottom.
Probably didn’t include a legality constraint. Perhaps the plan includes having more roommates than are allowed by the lease, or even the fire code.
This is someone who puts “poverty line” in scare quotes and says things like “supposed basic need.” Probably someone who gets off on the suffering of others.
Scott sought to address your point by basing this on an estimate of the revenue loss from the Bush tax cuts. Maybe that is a bad estimate, in which case we might try to improve it, but it seems pretty reasonable to think that the amount of income the government would lose with a decrease in the tax rate corresponds pretty closely to the amount they would capture by reversing the decrease. I admit that it might not be so neat, but presumably people had the same incentives and strategies available to them before the tax rate was lowered as they will have after it is raised back to the where it was.
I am sympathetic to your comment about morality, but I also feel tempted to make a joke about mixing morality and politics. I am not in an amusing mood right now, apparently, as I can’t think of any good punchlines. People often do the worst things when they think they are being moral, partly because they have slightly warped ideas about morality and partly because they are good at rationalizing.
The bush cuts brought the top rate down from ~39% to 35%. Sure, maybe reversing this from 35% to 39% would bring in approximately the same revenue that was lost. But I don’t think this logic will then extend another ~11% without changing the behavior of the wealthy.
Apologies in advance if I’m missing something, but isn’t this ignoring the obvious in Yang’s case? He doesn’t propose a larger tax because he doesn’t think it’s politically good, and he doesn’t write that it will increase the deficit because he doesn’t think that’s politically good. The plan, if implemented as-is, would pay partially for itself and would substantially increase the deficit. (Alternatively, it would be implemented with a higher tax.) It seems to be just a reality that having math not work out on the plan is less politically damaging than writing “this will increase the deficit by about 800 billion $”. Yang says openly that he named the plan the Freedom Dividend because that’s what polled the best, so why would he not also optimize his description for what would get the optimal press?
You can argue that it’s unethical / doesn’t make it a serious plan, but it seems kind of silly to just assume he’s unaware that there’s a gap in his numbers. Whatever the reason is, it’s very likely a stratetic move.
Exactly, this. It’s a mistake to look at a politician’s proposals literally. For one, they’ll never ever be implemented the way they want (Congress gets a say, too!). But more importantly, every other politician is exaggerating all the time, hyping up the benefits and downplaying the drawbacks. You have to do the same thing just to keep up.
Basically Yang’s proposal is “give some people a bit of free money, raise taxes a bit, raise the deficit a bit”. The details don’t matter, just the general direction. The other candidates are mostly status-quo on the economy, with maybe a bit of “give tax credits to manufacturers and hope we get the factories to move back here from China” fantasy.
“Estimates of the financial scale of taxes avoided vary, but the most credible have a range of US$100–250 billion per annum. In addition, capital held in tax havens can permanently leave the tax base (base erosion). Estimates of capital held in tax havens also vary: the most credible estimates are between US$7–10 trillion (up to 10% of global assets).”
There’s your UBI money.
But who will bell the cat?
Milton Friedman once said that society pretends that welfare is a process where we take money from wealthy people and give it to poorer people, but in reality most of it ends up helping middle class people who don’t need it as much as the poor do, at the expense of the rich and the poor. For example, consider mortgage interest credits, the regressive social security tax and payment structure, public funding for universities and scholarships, etc. For all the talk of the middle class shrinking or being attacked by some group or another, it’s really the most politically powerful demographic, and you can’t get anything done if the middle class is against it. UBI schemes are thus forced to pander to them if they want popular support.
The main problem with UBI advocates is that they do not understand why there are so many welfare schemes in the first place; including why the types of schemes you find is roughly the same across all high-income countries, despite cultural and political differences.
You find disability, work accident, unemployment, old age, survivors´, and sickness schemes almost everywhere (a smaller set of countries have separate schemes for single parents), plus bottom-floor social assistance schemes providing insurance against remaining, unspecified risks.
The reasons there are so many welfare schemes (defined broadly, as all cash or subsidized care programs), rather than one UBI scheme, is because welfare schemes insure the majority of the population against different social risks.
For example, disability benefits are higher than unemployment benefits is all the countries I have checked (I work in this research area). Why? Partly because the moral hazard problem is larger with regard to unemployment benefits, and partly because unemployment benefits may provide stronger incentives to get back in work. The majority of the population qua people demanding insurance against the risk of disability, will vote for politicians who promise to set up a disability scheme apart from the unemployment scheme, since a separate scheme can pay higher benefits while maintaining long-run sustainability & have fewer disincentive effects (activation requirements can also be different).
This logic explains the differentiation of welfare schemes, including further differentiation into sub-schemes within the broad risks outlined above.
In short: insurance against risks is the main purpose of welfare schemes – not redistribution to the poor. This is rather a side-effect of many, though by no means all, welfare schemes.
UBI advocates do not understand this. They think the purpose of welfare policies is redistribution, rather than insurance (in the broad sense of “security against risks”). A UBI scheme does not allow the majority of voters qua “security demanders” to get higher benefits, and fewer strings-attached activation requirements, with regard to some risks than others.
A Negative Income Tax (NIT) scheme, as Scott’s proposal is a version of, has a larger chance if success because it mimics (is a near substitute to) a general, unspecified bottom-floor social assistance scheme.
My hunch is that NIT is politically viable in countries like the US, which does not already have a national social assistance scheme for everybody. But it will not replace all the other, massively more important welfare schemes, for reasons given above.
This misunderstanding of what welfare schemes is about, is why UNI advocates have such a hard time getting their proposals politically off the ground, despite the idea being around for decades. And speculating here: Maybe this is why squarereallworthy did not find any UBI advocate who has bothered to take the weeks of hard work to etch out a real proposal anywhere.
Perhaps deep down they are not serious about their proposals.
This is a good comment and I’d like to read your work on this from which you draw, if you can send some links (e.g. here if you don’t want to publicly link to your pseudonym)?
One question I often ask myself: if it’s all so rational, how come so many of the social insurances we have in Germany penalise working? That is, you work more and instead of the benefits tapering off gradually, so that you maybe keep half of what you earned, you lose everything in benefits that you earn. That leaves only non-monetary incentives to work small jobs and incentives to get a job that pays more than your benefits. I’ve heard some arguments (e.g. the state could end up subsidising employers who pay poorly), but are those really the reason?
Rather than my own work, I would recommend two classic texts that outline the risk perspective on welfare policies, one from an economic and one from a historical perspective. They supplement each other.
The economics classic is NIcholas Barr (1992): Economic theory and the welfare state, in Journal of Economic Literature Vol XXX pp 741-803. Barr worked at the London School of Economics, and this is the classic go-to text on the risk perspective. Barr’s main line of reasoning is that a host of market imperfections prevent voters from satisfying their “security demands” in the market or from civil society organizations, hence they direct their demands to the state, leading to political entrepreneurs taking on their demands to conquer or maintain power. (Barr wrote a whole book on this later, but this article sums up all you need.)
The history classic is Peter Baldwin’s 2009 book: The politics of social solidarity 1875-1975 by Cambridge University Press. The book details the welfare political trajectories of Britain, France, Germany, Denmark and Sweden. Baldwin (a professor at Harvard at the time) spoke all relevant languages and were able to use primary sources, unlike most other researchers in the field. Risk categories, rather than classes, are the main “mover of things” in this narrative (although there are correlations between the two). Ok, the book ends in 1975, but the history of welfare politics casts very long shadows. If you read this book you have a key to understand also later welfare political developments in these countries.
…And in other countries as well. Because if you know the welfare political trajectories of 5 countries, you know approx 60 percent of the welfare political trajectory in all European, North American and Australasian countries. (Today you may throw in Japan, South Korea, Taiwan and China as well.) Since there is not that many ways to set up a welfare scheme.
Given that the insurance industry exists, why aren’t more of these schemes instead implemented as “let people buy their own insurance, and then do the redistribution part directly”?
I mean, obviously that won’t work for disability as it’s something you can be born with, but e.g. SSI was originally sold as “widows and orphans insurance” (cite: someone else upthread), and that’s something people could arrange for themselves (and clearly some people do, since life insurance is a thing).
Which then suggests that the scheme is actually insurance against stupidity: because otherwise people who were too shortsighted to provide for their future / contingencies would suffer the consequences, and We Can’t Have That.
Well, there is a popular product called disability insurance. Presumably it could even be offered for unborn children although it isn’t.
There is a host of market imperfections, but how serious they are varies from one risk to another. Hence private markets, usually in the form of occupational welfare rather than individual welfare, has some role, which varies between the risks.
Barr’s article lists them all, if you want to study this (for starters, there is adverse selection, interdependent risks & incalculable risks, and probabilities close to unity).
Then add the history dimension. The 20th century saw two words wars, punctuated by a general recession and followed by three decades of administered and often negative interest rates in most countries. All of this wrought havoc on financial and insurance markets. Providing even a simple old-age annuity was usually impossible.
There are some exceptions to the devastation of these markets, including the US, which avoided war on its territory. This is one of the reasons for the US deviating marginally from the mainstream welfare political trajectory of high-income countries.
I do not want to stray too far from Scott’s post (on the other hand, what are comment sections for), but let me add that there are some “near substitutes” to welfare schemes proper. They include protectionism, immigration control, widespread subsidies of home ownership, and (historically in Australia in particular) compulsory arbitration. The classic case is Australia before 1964, and arguably Trump has now revitalised parts of the “Australian historical route” to social protection in the US, i.e. protectionism and stricter immigration control. These “near substitutes” are likely to be particularly popular in countries that rely primarily on occupational welfare for the majority of voters – implying that if you lose your job, you lose important welfare rights at the same time.
Adverse selection is only a problem inasmuch as there is asymmetric information. Nowadays we seem to be going out of our way to create as much adverse selection as possible, by endless lists of things insurers aren’t allowed to ask/know about clients. So there may be some scope for improvement here.
Occupational insurance is a form of group insurance, which is a tool used to limit adverse selection; but it is not the only form. Any group with a defined and voluntary membership (from a university cohort to a building society or co-operative) could potentially form such a group, and adverse selection will operate only (a) to the extent that the insurance drives decisions to join the group or (b) on the level of groups.
It is not obvious why interdependent risks are a problem; one could imagine “accumulator insurance” (by analogy to the gambling term) whereby the payout for a combination of events is not the sum of the payouts for each event alone.
If a risk is “incalculable”, that just means it includes some epistemic risk: the risk that the original risk might be more or less probable than whatever estimate the actuaries came up with. I’m not sure “incalculable risk” is a meaningful concept, at least in a Bayesian framework. It should still be insurable.
If something has a probability close to unity, you don’t insure against it, you just provide for it (i.e. set aside some savings to meet that eventuality). One of the reasons the US health market is such a clusterfuffle is that it’s somehow ended up using insurance for things with P near 1.
Okay, I’ll accept that if your country’s financial markets were destroyed (by, e.g., expropriation by a foreign invasion or Socialist revolution) then it’s reasonable for your country to provide for you to the extent that you lost savings in that event (effectively, paying with interest the debt incurred by the expropriation). If you then move to some other country, though, that country’s taxpayers owe you nothing (unless they’re the ones that invaded you).
Not many people who lost their savings in the World Wars are still alive today to be drawing welfare.
As for inflationary monetary policy, sure, the government stole from your savings by inflating them. It also stole from my wages by taxing them. Two wrongs don’t make a right.
That might be a substitute politically, but it isn’t one economically: tariffs save a few visible & concentrated jobs at the expense of many jobs that are spread throughout the economy. Ce qu’on voit et ce qu’on ne voit pas.
Ditto.
Similarly, all these do is push up house prices, which is an easy sell politically (every homeowner feels richer even though they can’t actually cash in) but from an economic perspective makes things worse.
So I guess I have my answer, which is: the insurance approach would work, but politics (as per public choice theory) inevitably produced the welfare state instead (which then crowded much of the insurance out of the market that had historically been there).
EC429 wrote:
So I guess I have my answer, which is: the insurance approach would work
You misunderstand the point of my brief exposition of the risk perspective on welfare politics. It is not a normative theory. It is an explanation of why welfare schemes look they way they do, historically and today, in high-income countries.
It is a positive theory, not a normative theory, as people said in the old days.
As regards your comments on how to get around various market imperfections: I am sure we could have a nice fireside chat on that. I have reservations to many of your statements, but let that lie; that is not the point in this context. But I recommend Barr, also if your interest is normative.
…and eventually also the many articles by the political scientist Frank Castles on the “near substitutes” that characterized the otherwise lean Australian welfare state, in particular up to 1964 – worth reading in order to understand Trump’s success with his protectionist and immigration control agenda, given the occupational welfare – bias of today’s US welfare state.
To get back to Scott’s initial proposal, which after all is the theme in this comment section. Again, my point in bringing up “insurance” (in the broad sense) was not to advocate a risk perspective on welfare policies, but to get across to UBI advocates who believe a UBI is an efficient way to achieve redistribution, that they unfortunately do not understand what the politics of welfare historically has been about – and still is (hence the reference to Baldwin).
Concerning Scott’s revised proposal, which I described initially as a NIT-type scheme. Let me take the opportunity to modify this description. It is not a NIT, since a NIT only gives something to the working poor. The non-working poor are out of it, but they are primary beneficiaries of Scott’s scheme.
Hence the closest real-life equivalent to Scott’s proposed scheme is not a NIT, but the national social assistance schemes characterizing North European countries in particular. They give some money unconditionally to everyone who is poor and destitute, and who do not fulfill the eligibility criteria for any of the security/insurance schemes directed toward specific risks. (Not much – barely subsistence. If you want more, you must accept activation requirements.)
Like these general social assistance schemes, Scott’s proposal face the problem of “marginal tax rates” for beneficiaries who start to work, or who work more (as does indeed also a NIT, hence my initial slip of the pen). That’s just the way it has to be, as has been pointed out by several others in the comment section.
You can tweak how you do the tapering of benefits in many different ways, some less detrimental to work and savings effort that others, but let that lie.
Scott’s proposal, unlike a UBI, has a chance to materialize in the US, since the US at present lacks a general social assistance scheme for everybody (apart from food stamps). That is, there is possibly a place for a US scheme that provides security against loss of income for unspecified risks & reasons, including “bad luck”.
So to end on a normative note, it might be worth a try, since it does not run directly counter to the insurance/security theme dominating real-life welfare politics.
Shouldn’t we keep two things separate: a) to what degree wealth should be redistributed, and b) how this redistribution is organized? UBI is interesting as a /method/ of redistribution, but it isn’t a magic wand you can wave around to suddenly make all poor people rich without an economic impact.
For discussin, I think a hypothetica UBI should target the current level of redistribution, and the question is if this would have a net positive effect on the economy and on people’s lives in general.
This is an abridged history of every communist country.
I think it’s a little unfair to demand that a plan be currently politically feasible. In most cases, the idea is surely “this is how such a plan could be made to work economically”, not presenting something that would pass in the legislature (because _nothing_ is even remotely likely to do that).
That is, if your plan makes economic sense and is not just pie-in-the-sky, it’s worth putting forward even if there’s no way it would actually pass in the current political environment. It’s not as though “Medicare for all” could possible pass either, but that’s not what it should be judged on.
Agreed. “Political feasibility” depends partially on whether people can be convinced is it economically possible. Explaining to people the tangible feasibility is the necessary first step to achieving political feasibility. Almost every good idea starts out as unpopular: that’s why we call them “good ideas” instead of “common knowledge”.
And let’s be real: Concern trolling exists and is an effective rhetorical tactic. Unless someone has already gained my trust, I usually just mentally replace the phrase “political infeasability” with “I, personally, don’t like it” and move on.
LOL, are you trying to sound like an Ayn Rand villain?
The notion that you could legislate something without having a plan for how it’s going to work out mechanically is so cartoonishly irresponsible, that I want to think you were joking, but I’m honestly not sure if you were.
PS. Maybe my country should put it into the Constitution that the national armed forces are invincible. World conquest guaranteed.
+1
Ayn Rand had poorly-written over-the-top unbelievable villains, yet people keep on acting like them.
Perhaps she was just listening to people?
Remember that great quote by Maya Angelou, “When People Show You Who They Are, Believe Them.”
I never managed to actually read Rand, but my impression is that her villains are realistic and believable, it’s her heroes that are ridiculous.
Regarding the comparison to student room and board: I would note that most college students A) don’t have children to support and B) are ridiculously healthy in comparison to a median- or mean-aged adult. Those are not small factors when figuring cost-of-living.
More subjectively, I know very, very few people over 30 or so who would consider typical college food and dorms adequate living conditions: generally less than 150 square feet, shared with someone else, communal restrooms, hilariously thin walls, etc. If that is actually the best you can do with $12000/year (which it might not be, if you’re willing to push relocation hard enough as part of your plan), then it’s not much of a reference point.
The health aspect is one reason why it might be easier to introduce UBI in a country that already has a functioning universal health care.
How about trying universal dental care, or some other universal health benefit?
OT: for the life of me, I cannot fathom why dentistry is a separate degree rather than a specialty of medicine pace psychiatry.
It’s super weird that when it comes to insurance, the body apparently consists of teeth, eyes, and everything else.
How does that relate to Akhorahil’s comment?
One important thing to realise is that the rich’s use of resources is disproportionately small relative to their incomes. The mean income of the 1% is around twenty times larger than the overall mean income in the US. But they don’t eat twenty times as much food, burn twenty times as much fuel, use twenty times as much energy or live in twenty times as much housing (housing is where they come closest).
This means that when you redistribute wealth from the rich to the poor, and the poor start buying more things, those things can’t all come from the rich. Even though the rich have enough money to raise everyone’s incomes above the poverty line, they simply don’t have enough stuff to lift all the poor out of poverty.
So if you take money from the rich and give it to the poor what necessarily has to happen is that the poor buy more stuff and prices rise, meaning that the middle class can’t afford as much stuff. So the actual redistribution is from the middle class to the poor. It has to be, because the middle class is where most of the stuff is. The 1% are rich, but each of them doesn’t have that much stuff and they simply aren’t numerous enough.
I still think redistribution from the middle class to the poor is a good thing. But it has to hurt the middle class. Don’t let the gigantic incomes of the 1% fool you into thinking that they actually have that much stuff that we can take. When a rich person buys a painting for a million dollars the only resources they are using are a canvas, some paint, and a week of Damien Hirst’s labour. So those are the resources you redistribute when you tax them. Hirst can make a million dollar painting in a week, but he can’t produce a million dollars worth of the kind of goods that the poor want to buy. So redistributing his labour doesn’t help anywhere near as much as the $1000000 figure suggests.
When the prices of stuff rise, people produce more stuff to take advantage of those high prices, instead of doing whatever they would be doing otherwise. This could be good if “what they would be doing otherwise” is producing useless positional goods like advertising, or bad if “what they would be doing otherwise” is investment that drives long-run productivity gains.
Because Damien Hirst can sell a painting for a million dollars, there are a hundred starving artists trying to becomes the next Hirst. Redistributing all their labor has a significant impact.
My point is that a lot of those people are paid huge amounts of money by the rich, but could not produce anywhere near that amount of value working for the poor.
People in the 1% recieve about 20% of income earned in the US. Are 20% of the workforce producing (or striving to produce) goods to be consumed by the 1%? I’d say it’s nowhere near that amount. Which means that the benefit of redistribution will be nowhere near the dollar amount.
I agree that the 1% consuming 20% of resources sounds implausible, but where else could that money go? If it’s going to investment, it’s coming back with interest*. Some of it could be spent bringing the 1%’s children into the 1%, but surely not that much. It could be that most of the income goes to tax or charity, and the 1% only actually get (and consume) about 10% of the earned income.
* I’m not confident in this point and feel like I might be misunderstanding something.
It’s invested and eventually consumed but with a substantial delay- as charity or by the beneficiaries of the estate.
Now one of the problems with taxing the income of the rich instead of their consumption is that investment is hard hit, and investment operates to the benefit of the non-rich by improving their productivity.
Are 20% of the workforce producing (or striving to produce) goods to be consumed by the 1%? I’d say it’s nowhere near that amount.
Why not? I don’t think this is obvious (esp if you take into account the need to do some sort of value-weighting of the workforce).
I think it’s generally accepted that consumption inequality is lower than income inequality, which is in turn lower than wealth inequality. I couldn’t quickly find a convenient graphic that shows all three, but this one shows at least income versus consumption:
https://voxeu.org/article/consumption-and-income-inequality-us-1960s
How do people produce more stuff?
Resources can go to three places – investment, consumption or deadweight loss (positional goods, rent seeking). Investment is using up resources today so we have higher productivity tomorrow. Consumption is enjoying resources.
Producing more stuff requires investment. But we’ve already established that consumption goes up. Unless there’s some magical reason a UBI would make deadweight loss go down (people getting money means advertising is less profitable?), investment must go down.
That does not allow us to produce more stuff.
The “cost of work” stuff is consumption that is arguably better considered deadweight loss (your framework uses the term “deadweight loss” in a way that is unfamiliar to my understanding of its typical definition in economics). A simple example: I may have to consume suits by wearing them for work, but if I had a UBI I’d be able to wear shorts all day, which I’d much prefer.
That means that UBI need not increase the total consumption of resources, because reduction in work-related consumption may offset increased hedonistic consumption. That could be a bad thing, though, if you are counting on stimulative effects from the UBI.
You are literally describing positional goods (e.g. advertising, a suit for work so you don’t look worse than the next guy, etc), which is the deadweight loss I described.
It’s true that if for some worker, value of labor – resources needed to work < 0, a BI could theoretically reduce deadweight losses by enough to fund consumption.
That's a pretty crazy claim, however – why would employers be paying someone a salary if his labor is so worthless that it isn't even worth the suit he wears?
Producing more stuff requires investment. But we’ve already established that consumption goes up. Unless there’s some magical reason a UBI would make deadweight loss go down (people getting money means advertising is less profitable?), investment must go down.
By that argument, people using Amazon to buy more stuff, which means more people have to be employed making stuff to be sold on Amazon and working in Amazon’s third-party warehouses and distribution centres, thus earning money to buy more stuff, is actually making Jeff Bezos poorer (because paying wages means less money to invest! more consumption is less investment! so thirty thousand extra customers a month consuming goods bought via Amazon means taking money away from Bezos’ business via investment!)
Somehow, I don’t think that’s the case.
Presumably they are just redirecting consumption from other retailers to Amazon?
You’re looking at the spending in isolation while not accounting for the source of the funds.
If you took money from Bezos that he would have otherwise put into building another Amazon warehouse and gave the money to consumers in the form of Amazon gift cards, then yes Bezos would be poorer by the amount (1-profit_margin)*value_of_gift_cards.
Future consumers would not gain the consumer surplus from having another warehouse.
@stucchio: You are using many economics terms in a nonstandard way, to put it politely. That is making it difficult to engage with your argument in sufficient detail.
Hypothesis:
– Redistribution results in more consumption of absolute-value goods and less consumption of positional goods
– This results in more investment in the production of absolute-value goods, and less in the production of relative-value goods
– This causes a net increase in useful investment, even if total investment is reduced
Isn’t this generally given as an advantage of UBI? When money is redistributed from the rich to the poor, that creates a demand increase. It would cause some inflation depending on how much slack there is on the supply side, but it would also stimulate massive economic growth. In your terms, businesses would make more stuff. Some stuff, like housing, is difficult to make or import, but most stuff is relatively easy if there is demand.
Housing is the most unpredictable. Rents would probably increase, but UBI would make people much more mobile so it might encourage people to move to cheaper areas.
The mechanism by which increased demand stimulates economic growth is that inflating away the value of real wages tricks prideful workers into accepting work at a lower real wage. This makes employment go up and the newly employed people produce more things.
UBI did the opposite of this in all the US/Canada experiments: https://www.chrisstucchio.com/blog/2019/basic_income_reduces_employment.html
The mechanism by which increased demand stimulates economic growth is that inflating away the value of real wages tricks prideful workers into accepting work at a lower real wage. This makes employment go up and the newly employed people produce more things.
Okay, disentangle this for me because I don’t understand it.
More demand drives price increases, which drives inflation. Inflation means the value of money/wages/whatever decreases in real terms, e.g. $1 would buy a loaf of bread five years ago, but now you need to pay $2 so your money is only worth half what it used to be. (Have I got that?)
So a stupid worker, seeing that he has a job paying $400 a week and that he can now buy more stuff, does not realise that the ‘real’ value of his wages is ‘only’ $200 in comparison to the pre-inflation rate. That’s the trick, am I right?
But now there are more jobs making stuff to satisfy the demand, so the economy is growing. If we stayed at the ‘real’ value of $200 a week without inflation via increased demand, there would be no growth, no new employment, and that percentage of the labour force would be unemployed.
So here’s where I’m stuck: if the UBI drives down employment, surely that means the ‘real’ value of wages is at the ‘real’ level, that is, the level untainted by inflation due to growth in demand? So where is the trick? Either less employment is bad, which is the criticism of UBI, but it gives you the uninflated ‘real’ value of wages which is good, or more employment is a trick played on prideful workers, plus it inflates the economy which gives you the ‘wrong’ value of wages, which is also bad. What am I missing here?
More demand drives price increases, which drives inflation.
Inflation is a monetary phenomenon, not a demand issue. More demand raises prices, but that typically translates to less purchases of other items, leaving the price level constant.
Here’s the short version:
Before inflation: “I’m so awesome, I won’t work for less than $400.” <- unemployed guy, who's output would be 210 loaves of bread @ $240 < $400, but he refuses to actually bake them.
After inflation: "I got a job for $400 because I'm worth it." <- unemployed guy who's output is 210 loaves of bread @ $420, and who can now be profitably employed.
Economic output has increased by 210 loaves of bread because that guy has decided to engage in productive labor. That's why inflation is a good way to put slack labor to work in an economy with lots of prideful unemployed people. (Eyeballing the unemployment rate, the US is not currently in that situation.)
On the flip side, UBI causes people to engage in less productive labor. The typical amount in the 1970’s experiments was about 10%, which is roughly the same drop in labor supply as the great recession.
Vulgar Keynesianism (the claim that redistribution will reliably increase growth) is the left-wing version of claiming that we’re always on the right side of the Laffer Curve. The standard model is that long-run growth in per-capita GDP is driven by productivity improvements, which are in turn driven by development and implementation of new technology, both of which are made possible by investment. In general equilibrium, redistributing from savers to consumers will reduce growth, not increase it.
What Keynes brought to the table is the idea that, in a recession, savings may not always be translated into real investment, and artificially stimulating consumption can increase economic growth by increasing employment. Note that this is a short-run effect; once you reach full employment no more growth can be achieved in this manner.
But also, we have the Federal Reserve (or ECB, or whatever your country’s central bank is), whose job is to manipulate interest rates to try to make sure that savings get translated into real investment. Generally inflation is more or less where they want it to be. If you try some redistributive stimulus and that pushes up inflation, they’re just going to raise interest rates to bring it back down, cancelling out your stimulus, a phenomenon known as monetary offset.
So when does fiscal stimulus make sense? The standard answer is that it makes sense when unemployment is elevated and the central bank can’t exercise monetary policy because the interest rates are already at the zero lower bound. Recent evidence suggests that zero is not actually the lower bound, and central banks can actually charge negative interest on reserves; and quantitative easing may be an effective alternative to lowering interest rates, but I’m not sure what the consensus is.
Vulgar Keynesianism is the idea that none of that matters, because saving is bad for the economy and consumption is good, full stop, and that the recipe for long-term economic growth and prosperity is to increase consumption and reduce saving. No respectable economist endorses this view.
It’s getting a bit long in the tooth, but Paul Krugman’s 1997 essay, The Vulgar Keynesians, makes more or less the same points more competently.
USA is spending like more than the combined defense spending of the rest of the top 8 military spenders. Cutting that just in half would bring in 325 billion dollars per year. It will still be a comfortable first place.
Add to that 3 quarters (USA incarceration rate more than 4 times the world average. I’m not even striving for the much humane western Europe standards) of the 2.3 million incarcerated people for whom the prison industrial complex is making around 100$ nightly, that’s around another yearly 60 billion I guess? And this will be useful for the economy in other ways as well as it will inject around 1.8 million new people to the workforce.
Redistributing this 765 billion dollars yearly would solve a lot of poverty related problems, and it has trickleforward effects as well from increased spending!
Combine these 3 with the 1% tax you talked about (200 billion) and reversal of the Bush cuts (180 billion)
The US Federal Prison budget is around $7B. That doesn’t include odds and ends like the Marshalls Transportation Service but there isn’t anywhere near $60B to move to a different column (you can’t recover state prison costs under this model).
I also doubt you will suddenly inject 1.8 million new workers into the workforce. To start with, there are only around 177k Federal prisoners in the system. Next only one in five is in for “non-violent drug offenses”, and about 20% of those haven’t reached trial yet. So, you’d be injecting a large number of violent offenders into the population, and why should they work? They get $12k a year plus whatever income they can get from crime (which may or may not be taxed).
One thing I never hear discussed about the UBI schemes is how they would affect Social Security (SSI). First, UBI lowers the pay one needs from a job to cover ones total expenses so being a yoga instructor for $18k a year makes you a yoga instructor for $30k (which might be enough to get by comfortably) but only generating payroll tax on the $18k. Won’t that move the point where the USG had to pay tax revenue directly into SSI OASI fund that much closer? Additionally, under the current model, you pay taxes on 50% of your SSI receipts if you make from $25-34k/year and on 85% of your benefit if you make above $34k. Since the current payout is about $34k/yr, adding another $12k of UBI (which you will have to supply to retirees since their actual benefits will be lower, since many will choose to make less given the free $12k they get each year) puts them in the 22% tax bracket, so they receive $31k/yr at most. Under the current scheme, that’s about the same as what they get after taxes, so one might was well retire EARLIER, since the benefit difference is now subsidized by UBI.
UBI seems entirely predicated on a huge surplus labor force. There is little reason to believe that that will actually be the case, especially with an aging population needing care and little motion in automation to resolve that problem. Of course we could adopt the Swiss model and move our elderly to Thailand for long term care (this is not a joke…)
So, you’d be injecting a large number of violent offenders into the population, and why should they work? They get $12k a year plus whatever income they can get from crime (which may or may not be taxed).
But I have been assured, in other discussion threads about legalising drugs, that once all drugs are legal and the incentive for gangs to engage in drug dealing is gone, that all the gang members will now go on the straight and narrow and take up ordinary paid employment in ordinary jobs! After all, their criminal career is gone, what else are they going to do?
Which is to say, I agree with you that criminals will move to another field of crime if one arena dries up, and if they’re not rehabilitated, there’s no reason to think they’ll turn to honest labour instead of crime.
UBI might at least clear up welfare fraud in those cases; if everyone gets X per year, and Joe Smith is claiming he has no other source of income, then where is he getting the money for new cars, foreign holidays and the like? As it stands now, Joe can claim he is getting social welfare benefit under X, Y and Z and the onus is on the police to prove he’s engaging in fraud and crime. Make UBI a universal payment with no means testing unlike current social welfare, and if Joe goes over the expenditure that’s possible, he has to account for where he’s getting more money. You’re working, Joe? Then we have evidence of your income tax payments, I’m sure?
While obviously saying, “all criminals will become peaceful” is a pretty delusional response to what’s being suggested, “all criminals will immediately return to their violent ways” is equally hyperbolic, wouldn’t you say? It’s not as if every violent offender is habitual – I don’t want a jealous lover turned murderer on the streets before their time is served either but if we’re following this hypothetical to its conclusion we need to consider that at least some percent of violent criminals are at least unlikely to go back to crime anyway, especially if they don’t have a chance to make connections at Club Violent Offenders. Further, how many of those violent criminals were violent for financial reasons? How many petty thugs, offered twelve grand for nothing, would say, “You know, this plus a bit of honest work down at the docks seems a lot more reliable than risking getting shot at by other criminals”?
Again, obviously it won’t be all of them (some folks are criminal for status reasons, some folks won’t have any connections left that aren’t criminal, some need mental health services that America is not currently equipped to provide, etc.), and I certainly don’t actually want to dump these people back into the population before justice is served, but… Considering that America has way more people imprisoned per capita than every other western nation, I can’t help but feel that there’s more than no reason to assume that some criminals offered a UBI might go straight.
But I have been assured, in other discussion threads about legalising drugs, that once all drugs are legal and the incentive for gangs to engage in drug dealing is gone, that all the gang members will now go on the straight and narrow and take up ordinary paid employment in ordinary jobs! After all, their criminal career is gone, what else are they going to do?
I presume one could find out what happens with the folks engaged in the “business” of violating prohibition laws once that prohibition is ended by reading a history book about the end of Prohibition in the US, since we’ve already performed that experiment once.
Certainly, there don’t appear to be many violent criminals involved in the alcohol trade these days. So at the very least, it would probably be a nice gift to our [grand?]children.
The vast majority of prison spending comes from state governments, releasing three quarters of the prisoners would indeed “save” 60 billion a year:
https://eji.org/news/mass-incarceration-costs-182-billion-annually
Of course such “savings” will come at a very real cost in blood, as we saw the last time this experiment was conducted in the 1960s. simbalimsi’s comment reminds me why I will probably be voting for you-know-who in 2020 despite my frustrations with his performance. Sure, it’s possible that the people who say things like that don’t really mean it, as is seen often in politics. But we’ve also seen cases where politicians advocate some radical proposal, are voted into power, and proceed to do exactly what they said they wanted to do.
Which missions of the US military may they comfortably abandon, then, to reclaim this money? Defense of South Korea? Keeping China and Iran from controlling shipping lanes in the South China Sea and the middle east respectively? May we cede Kabul to the Taliban? May we pull out of NATO?
I’m pretty close to being an isolationist so I’m fine with any or all of these things, but for people who want to cut the military budget I just want to know exactly which parts of Pax Americana they want to do without.
Has anyone calculated just how much of the defense budget we get back from having globally secured shipping lanes?
This is interesting and I freely admit my ignorance, I’m looking to be corrected/informed here.
Off the top of my head:
1. South Korea, probably need to keep since it ties with #2
2. South China Sea, keep. Middle East? Might be cheaper ways to ensure shipping lanes that don’t involve 25 years of war. What’s China doing that’s so effective here? I don’t recall them bombing Iraq for two decades.
3. Absolutely cede it. Afghanistan in its entirety isn’t the US’s problem.
4. Tempting, lean toward yes.
Additional items:
5. Fewer shadow wars in Africa and general disengagement militarily here. This may not be a big cost driver though
6. F-35? Whatever the current technological boondoggle du jour is? There’s got to be some slack in the Pentagon’s budget.
F-35 isn’t really pure cost though. I’m persuaded by the argument that the F-35 is America’s Belt & Road. It’s also an extremely multinational project, plus exports. I’m not exactly sure how much money would have been saved if the F-35 project hadn’t been done. Looking around I see the total project cost is over a trillion, but that’s been over decades. But the wiki says:
Assume costs have gone up since 2010. If I’m reading that right, I dunno, if the US had never done the F-35 we’d save less than $500B? It’s not chump change, but that’s still only ~2 years of UBI.
I remember reading that article back in early July. I didn’t agree with it then, and especially don’t agree with it now in the wake of Turkey officially backing out of the program, to no immediate negative repercussion.
Belt and Road is inducing poor countries not historically close to China to move into the Sino sphere of influence. F35 is a partnership between the richest countries already closest to America.
323 billion is a month of UBI, assuming the population of america is ~323 million people.
edit: actually reading the wikipedia page, they report the program will cost 1.5 trillion over its lifetime, so … 5 months of UBI.
Nothing to sneeze at but you won’t pay UBI by cutting off the F-35. Although I have no reason to believe the USA won’t start, say, the F-36 project immediately after the F-35 project ends, and spend another trillion dollars.
@Aftagley But it still makes everybody dependent on the US, which is the what they mean by “belt & road” and Turkey got banned from buying the planes so I don’t know what you mean by “no immediate negative repercussions.”
@JPNunez That trillion isn’t all the US, though. That’s the total cost of the project, which includes about a dozen countries. Unless I misread the wiki, the US cost is probably $400B-$500B. And apparently the project started in 1992? So you’re talking about an almost 30 year long development and production program for a few months of UBI, or 2 years of Scott’s PoorBI.
Right, but if you look at the countries that are customers in the F35 program, they’re all already close to the US. We’re not gaining any new allies with this jet, we’re just deepening the relationships we already have. IMO Belt and road is something unique on the world stage, comparable only to maybe the Marshal Plan in terms of its ambition and scope.
You’re right, this was a poorly thought out claim. I was trying to make the point that the fact that Turkey was even able to consider leaving the plan means that it wasn’t as coercive as something like BRI can be, but I don’t know how defensible that statement is.
squareallworthy more or less covers this sort of proposal as “politically impossible.” The ads write themselves.
Remember that the US military has become a massive special interest group that is unlikely to relinquish its government cheese any time soon. Remember also that much of the military’s current budget is financed by deficit spending that most sane people would call “unsustainable.”
I broadly agree with the ethic of saying, “well, if we’re going to deficit-spend our country into oblivion, it’s better to do it on social welfare than death and destruction,” but in terms of pure practicality, both lead to the same end.
You think that the mission of DoD spending is to defend America from invasion.
It’s not. The US is global cop.
Maybe we shouldn’t be that. Donald Trump certainly wants the US out of this business. But he is an incredible minority and cannot even get his senior staff that he hired to agree with him.
No, it’s to defend American foreign trade. Oil from the Middle East, and consumer goods from Asia.
(OK, the US no longer uses much Middle Eastern oil. But various European and Asian countries, with whose economies the US economy will rise or sink, do use Middle Eastern oil.)
Yes, that’s why I said the US is global cop.
It’s much safer to have one country be global cop than to have multiple countries all using their militaries to be competing cops. It sucks that the US pays the bill, and also gets shit on for doing it, but it’s preferable for those other countries, and may even be preferable for the US.
Maybe, if you are some kind of imperialist beiliving in the Yank Man’s Burden, but let’s ask some Iraqis how do they enjoy the new world order. Or alternatively ask some North Koreans how much good did world police do them.
USA is looking out for themselves and their actions, both in choice of targets and in actual applications don’t scream anything utilitarian.
You’re also planning to ask the Syrians how they enjoy the bit where we let the USSR take over the global-policeman job, I hope.
And I’d suggest asking in one of the places where the EU has taken on the job, but [crickets chirping].
You seem to have very loose qualification for “Police”. I suppose it’s better for America to control the world than to not control the world, but for the world it seems about the same.
Um.. do you mean South Korea?? I guess they did miss out on some sweet, sweet juche
No, I mean North Korea who receive no help from the world police whatsoever.
North Korea is what happens when the World Police limit themselves to containment and ignore what is happening within a nation’s borders. Well, it’s one of the things that can happen in that scenario. But if it’s a thing you want to not happen, you need a more interventionist World Police than we presently have, not less.
On the other hand, the intervention would very likely go nuclear, so there’s a tradeoff there.
I think this kind of bundled proposal – pay for X by cutting Y – is generally misleading. If we’re already spending that much money on Y, then there are probably either pragmatic reasons for it, or powerful political obstacles to cutting funding. Cutting funding for Y is going to be a huge political project in itself, and has to be viewed separately rather than as a footnote to the question of where the extra funds go afterwards.
Part of what’s going on with Europe is they spend more on cops:
https://marginalrevolution.com/marginalrevolution/2019/01/united-states-underpoliced-overprisoned.html
Apparently prevention works better than cure.
Might this simply account for the differences in the costs of people-power vs. stuff? That is, it used to be that stuff was expensive and people were cheap so you could throw people at a problem. But in richer economies that changes.
So, is there a related chart comparing eg. the salary of a police officer to the cost of a unit of installed concrete or some such thing? That is, the use of prisons may be a cost-saving measure substituting lower-cost capital for higher-cost police officers. Or not.
The U.S. could cut its defense budget in half and probably be fine, but it would not be a comfortable first place. The problem is that these sort of spending rankings fail to adjust for purchasing power parity.
The Chinese stealth aircraft known as the J-20 cost $4.4B to develop and the fly-away cost is estimated to be $30-$50MM per plane, we’ll say $40MM. The F-35’s development cost $55B and is still costing $89MM per plane for the cheapest model. The J-20 is a newer plane and probably has more prospects for future cost reduction than the F-35. Also, the J-20 is a larger plane with twin engines, meaning that China should be able to develop an even cheaper small one engine fighter if it wanted to. To develop and buy 1,000 of these modern fighters, China only has to spend $44.4B, whereas America has to spend $144B. Similar ratios probably hold for the cost to train and pay soldiers, sailors, etc. America also has commitments to allies all around the globe, which China is not burdened with.
So as a first approximation, I would say that when China’s spending in dollar terms is 1/3 of America’s, it will be able to fund a military with roughly the same level of power. China’s $175B defense budget in 2018 is equivalent to America spending $525B.
https://en.wikipedia.org/wiki/Chengdu_J-20
https://en.wikipedia.org/wiki/Lockheed_Martin_F-35_Lightning_II
Why are American bombers so expensive? Why wouldn’t they drop if available funds drop? I smell shenanigans. Maybe extra funds are being secretly diverted to a secret space program under the Cheyenne Mountain.
A lot of America’s air force problem has been the old thought that they should build planes, both fighters and bombers, that were suitable for all missions instead of having specialization. This means every bomber is capable of long range (including refueling in flight), capable of stealth, capable of carrying multiple types of payloads, and all sorts of other things you sometimes need, but don’t always.
American bombers are so expensive for the same reason everything else the government buys costs so much: https://en.wikipedia.org/wiki/Cost-plus_contract
IMHO any workable UBI needs to be set in the context of:
A somewhat re-distributive taxation system
A welfare safety net
These are things we have to a greater or lesser extent in the Western world (greater in Scandinavia for example, less in USA). It is quite possible as a starting point to make a UBI structure that makes no difference to anyone. Bear with me on that!
Back of an envelope figures for where I live (UK)
If you are on basic welfare you get £3700 per year
Income tax (and National Insurance which is income tax by another name) kicks in at £8600 for NI & £12500 for income tax. Combined rate is 32%
There is ‘working tax credit’ which is a graduated credit given to low earners, it’s reduced since I did my first calculations on this problem a few years ago, but cut me some slack on this & say it takes care of low earners to stop that being an anomaly.
In round numbers, if we completely eliminated the basic welfare payments, and also the tax free allowance (pay tax on all earnings @32%) but created a UBI of £3700, everyone would be exactly where they were.
Why do it? It’s the “unconditional” bit of UBI. Firstly, getting welfare is like trying to get Scrooge to spend money, the relevant authorities try everything not to give it to you, this makes it all a lot more straight forward & reduces admin costs. Additionally, at the moment if you are on welfare & get the opportunity to do a bit of paid work you lose your benefits (high marginal tax rates in effect, the “welfare trap”), UBI instead would encourage the bottom of society to do what they can without penalty.
As it’s revenue neutral, no one would be upset by it, you’re not gouging anyone for the money. Over time, it would be subject to drift one way or the other by voter choice, in which case it looks like your average endless argument over redistributive tax, but we can see it more clearly. As everyone gets it (including Bezos) it’s not ‘money going to other people’ it’s ‘money going to us’
My 2c (taxable @100% then given back to me)
Edit fighting autocorrect
Perhaps the most elegant way of introducing UBI would be with a flat tax that goes into the negative (Milton Friedman-style) for low-to-zero incomes.
Yeah.
I really don’t get the point of taking a million off Bezos then giving him $15k back.
Just take the $985k.
There are some technical reasons to give it to everyone and then tax it back. First off, it’s an easier political sell. Second, there’s no administration to decide who gets it – much easier to just hand it out to everyone. Third, if you have an early cut-off point, this just creates threshold effects and encourages a black labor market.
Or more simply put: a UBI plus a flat tax on income.
Say, everyone gets a $12k UBI, and pays 40% tax on all income. So lower-income people get more money than they give.
“flat tax” by definition means the same tax rate for everything, so talking about a flat tax and negative tax rates at the same time is self-contradictory.
No, you’re simply mistaken there. A flat tax means a fixed percentage of tax, but you could very easily have it start at some particular level – for instance, 40% on all income above $20000, or what have you.
This also means that you can have a negative tax – if you pay 0 taxes at $2000, you might pay -$8000 in tax if you have no income. This is functionally equivalent to a UBI, when this negative tax is paid to you.
This section of the Wikipedia article talks specifically about that.
That section of the Wikipedia article is mathematically equivalent to “$15k UBI plus 50% tax on all income”.
Yes, exactly, that was my point – that you could implement UBI as a negative tax (which is practical because it works within the same system, the tax system) with the same outcome.
Or you could just have the IRS write the UBI checks, in which case it would be the same “system” and also be easy for the average person to correctly understand.
getting welfare is like trying to get Scrooge to spend money
I won’t argue with that, but it’s because the goal isn’t to “spend money,” but rather to help people who deserve help and refuse it to those who don’t. See Doktor Relling’s post lower down in this thread:
The reasons there are so many welfare schemes (defined broadly, as all cash or subsidized care programs), rather than one UBI scheme, is because welfare schemes insure the majority of the population against different social risks.
Most existing welfare schemes are for the most part targeted insurance, not specifically anti-poverty measures. In the US, almost all welfare programs were sold in that way. Social Security was sold to protect widows and orphans, not retirees in general. In fact, when it was first created, the life expectancy for men was low enough that it was fairly accurate demographically.
I think squareallworthy brought this up somewhere: if you design a UBI scheme to replace existing welfare programs, most them actually hurt the poor rather helping them. You usually help the middle class, which is electorally smart but doesn’t address the issue.
My belief has always been that UBI is a signalling proposal, not a serious idea of something to legislate. (I feel the same way about “M4A” and the “Green New Deal.”) The danger is that, as is so common in our system, we will get bits and pieces of a UBI and end up making things worse for the people it’s supposed to help. See “Rent Control” and ten thousand other examples.
The thing economists talk about with UBI is implicit marginal tax rates. By targeting only the poor, you create a tax cliff just like the current welfare system, where benefits lost exceed the income earned. You avoid high implicit tax rates by having a universal benefit and about a 25% tax on earned income. This would help inventive effects, but can quickly make it unaffordable. It works for small populations where the state can extract natural resource rents, but doesn’t add up for a large nation state.
I think for any negative income tax type scheme where you provide money only to the needy, you really need to spell out how the cutoff works.
For example, if you boost everyone’s income to $20K/year, but no further, then nobody making $10K/year has any incentive to work more or get a raise until they can get up above $20K/year. Their marginal tax rate between $10K and $20K is 100%.
For another example, if you give everyone an income supplement of $10K, but cut off the income supplement at $20K, then the guy making $19K never takes a raise or works any extra hours, and you’re back to a poverty trap.
UBI solves that problem by just giving the money to everyone and also raising the hell out of everyone’s taxes to pay for it. As long as the tax system doesn’t get crazy high marginal rates, this at least avoids the poverty trap/100%+ marginal tax rate problems. OTOH, it means that the US federal budget gets many times bigger, and Congress has some level of control over how that money gets disbursed.
It would be quite surprising to me if there weren’t just as many attempts at social engineering and rewarding friends and punishing enemies and making examples out of despised people in the way the UBI checks were disbursed as there are in the existing tax code and existing welfare programs. I mean, surely we don’t give UBI checks to people on the sex offender registry–you don’t like child molesters, do you? And obviously, we’ll need to drug test recipients, because the taxpayers shouldn’t be subsidizing your drug habit. And deadbeat dads will need to lose their UBI checks–that’ll teach the bastards. And….
Right, I think this misses much of the advantages of UBI. It’s basically just welfare. Which, like it or not, is already invented.
Sure, Scott’s version is simpler than welfare usually is, and all the better for it… but Scott’s version won’t be the one to pass, will it?
There’s a straightforward mathematical approach to ensure (first-order) revenue neutrality:
1) Plot the population data with gross annual income on the X axis and the net payment (of any taxes & transfers which would be replaced by the UBI) on the Y axis
2) Ordinary least squares linear regression on the data
3) The intercept is the UBI amount (net payment @ $0 annual income); the slope is the (constant) marginal tax rate.
If you insist on progressive marginal tax rates instead of merely progressive average tax rates, change linear in step 2 to quadratic.
“If you think a world full of people trying to eke out an existence on $12,000 a year sounds dystopian, remember that’s the average cost of room and board at US colleges”
I’m pretty sure a majority of college students are purchasing 9 months of room and board per year and coming home to family for the summer.
This is true, but it makes it possible to get by with informal or seasonal work.
Also, helping family or friends who are out of work becomes more feasible when they can contribute something toward expenses. It would be a particularly dramatic change in families where there are lots of poor relatives.
Scott thinks poor people should have to live two-to-a-room in a dorm without personal bathrooms!
In SF this would be a dramatic increase in standard of living.
Jesus Christ, what kind of god-forsaken pit of despair IS San Francisco?
A major factor this analysis misses is the role of land rents.
If every San Franciscan received an extra $X/month, rents would rise by approximately that amount. You would see similar effects anywhere with a housing shortage, such as LA or Boston, and even in places without significant housing shortages some of that money would be captured by landowners.
The takeaway is that giving everyone an extra $X/month will not result in everyone having an extra $X to spend. I would recommend reading some literature on Georgism, such as Progress And Poverty.
One huge potential of UBI is that it decouples the income source from a geographical place. If you’re making 12k no matter where you are, better to live somewhere cheap (and preferably nice, with views and clean air).
Which is why this kind of not-exactly-UBI falls short. You either add a smart incentive scheme with the money, and the success of the program depends on how smart the scheme is (it can include retraining and job seeking, or it can include relocation and raising children and involvement in community) – and this is called welfare. Or you can give the money without any attached conditions, and then you let things flow naturally – maybe they’ll chose to move to cheaper places and raise children, maybe they’ll chose to stay in the city and find jobs to pay more expensive rents.
The way I read it is something like “give a lot more money to the poor as long as they’re poor”. I… just can’t see it. Maybe I’m reading it wrong.
Most people are not going to leave their existing social circles merely to get views and clean air.
That’s why it’s particularly reasonable to tax the UBI back for people making a decent earning. Otherwise, it’s just an inflation driver, like you say (plus taxing it back means the plan becomes cheaper in the first place).
So in the end, it boils down to a scheme to subsidize people who are less productive by taxing people who are more productive.
Yeah, looking at the incentives of that, an obvious side effect is because you get more of what you subsidize and less of what you tax, you’re going to lose a lot of economic productivity as people choose less productive lifestyles. UBI needs to account for that explicitly, rather than just ignoring it as an “unseen” drawback.
As an aside, the Bush tax cuts were already partially repealed (and partially extended) in 2012. Also, Federal revenue actually increased after the cuts in 2003.
Per-capita inflation-adjusted Federal tax revenues are already 128% of what they were at the time of the Bush tax cuts ($17.3 Trillion to $22.1 Trillion), so it’s not clear that it’s as simple as magically raising taxes and getting more revenue. Increased tax rates tend to be met with increased evasion and decreased income production, while the reverse is also true.
> So in the end, it boils down to a scheme to subsidize people who are less productive by taxing people who are more productive.
Only if you measure productivity solely in terms of taxable income and not include anything else like study or skills acquisition, building a small business that isn’t yet profitable, child rearing, volunteer work or free software development, reducing housing pressure in cities, etc.
Subsidizing things with positive externalities and long-term benefits that exceed their short-term costs can easily be net-positive. And individuals are generally better at finding and doing those things than bureaucracies.
> Per-capita inflation-adjusted Federal tax revenues are already 128% of what they were at the time of the Bush tax cuts ($17.3 Trillion to $22.1 Trillion), so it’s not clear that it’s as simple as magically raising taxes and getting more revenue.
And how much of that was a result of people having more cash in their pockets? Which is what a UBI does for the half of the population with a higher marginal utility per dollar.
Since the idea is to give it out indiscriminately, nearly all of the people living off the UBI will not be using it for any of that but rather for completely unproductive things like getting drunk or high or playing video games all day or having sex with similar people, etc.
And how do you discover which things have those characteristics in order to subsidize them?
The economy is an enormously complicated interacting system–neither the individual nor the government can just look at it and see that there are things that ought to be subsidized, nor does either have an incentive to do so.
The market system is a device for telling people what things are worth doing and giving them an incentive to do those things. It’s an imperfect device, due to externalities and similar issues, but enormously better than “give some people money and hope what they feel like doing with it produces net benefits for the rest of us.”
Reading this sort of argument, I have a picture of someone who notices that his clock is sometimes five minutes fast or slow, so decides to randomly shift the clock half an hour forwards or back whenever he is in the mood.
Of course it’s a welfare program that includes transfers – that’s inherent in the very idea.
The question about UBI is whether it does this better than other methods or not. The upside is getting rid of administration and having a very predictable system.
I wonder if you might be increasing the incentives for builders and landlords to build affordable housing in a world with UBI relative to one without, though. Like, at the moment the poor are notoriously bad tenants, especially in a world where jobs are so precarious for the low-skilled. If you’re a landlord for poor people there’s the constant risk of delinquency and late payments.
But in a world where every single person has a government-guaranteed income of a certain amount, I think that changes the risk factors involved for landlords a fair bit. If a landlord sets the rent low enough they know that any tenant is guaranteed by the government to be good for the rent. Yes, the person could always spend their money on things that aren’t rent, but comparatively that’s a much smaller and tractible problem, I think.
Obviously all the other problems are still the same, for example it does nothing about zoning and the actual feasibility of getting local governments to approve your affordable housing development plans, but I still think this would represent a pretty big shift in incentives.
It’s always going to be true that land is going to be scarce, but if UBI could help shift the usage of that land into more efficient forms then that might actually have a positive effect long-term on the problem of land rents and scarcity, even though short term the extra demand you see from people having more money is going to run up against unchanged supply.
And hey, you could always fund the UBI with an LVT if you’re worried enough about it.
Housing isn’t unaffordable because builders are using higher-quality materials, it’s unaffordable because there’s just not enough of it. If there’s only enough housing stock somewhere for 80% of those who would want to live there, it will be bid up until only 80% can afford it.
That’s what I’m saying though, if you can shift incentives a bit so that it could make more sense to have more units of housing on the same amount of land, then that can help increase supply. You can’t make more land, but you can use the same land more effectively which creates more housing.
In the general case of locales with housing shortages, those incentives are already present but fully acting upon them is blocked by zoning. It’s an important issue, but orthogonal to UBI.
If you’re a landlord for poor people there’s the constant risk of delinquency and late payments.
There is still the risk of delinquency.
People understand incentives. If they don’t pay the cable bill, the cable gets cut off. If they don’t pay the rent. . . a three-month squabble over eviction starts.
If people could direct their UBI straight to their landlords in an irrevocable fashion, that would go away, but the instant anyone heard about such an attempt if would be banned.
I wonder if attitudes towards evictions might change somewhat. If everyone knows you should have the money because you’re getting a UBI, then that makes you a less sympathetic figure if you don’t pay your rent. At least if you lose your job there’s something you can point to and ask for leniency until you find another to catch up, and it’s not necessarily the case for the landlord that they will find someone else more likely to be reliable very quickly for sufficiently low rent housing. But in a world with UBI perhaps the excuses aren’t as convincing and the relative ease of finding a new, more reliable tenant is higher.
This assumes, as discussions (at least in California) often do, that the way you get cheap housing is by building cheap housing, hence the solution is to bribe or force builders to build low rent housing.
In practice, a lot of the way you get cheap housing is when not-poor people move out of their housing because it’s getting old and they can afford something better, and poor people move in. So the solution is to make it easier to build housing in general.
You’re not missing anything in the plan per se. It still doesn’t make it workable, because … the metaphor that comes into my head is that you’re trying to nail molasses. Things will change a lot due to what you’re doing.
First, increasing tax percentage for the rich may increase or decrease the total collected amount – depending on what the tax rate is in other countries and how easy it is to move income. Top 1% have lawyers and accountants – tying to stop this is a whack-a-mole game. Realistically, you’ll end up taxing the middle class because they don’t have smart accountants.
Second, I’m pretty sure I read somewhere on this blog that the best interventions to lift people out of poverty are those that condition money to concrete improvement steps. Looking for a job, for example. Without a very smart scheme attached to it, simply giving money is … well, it is helping them, but it won’t lift them from poverty.
Third, you have at least two obvious side effects that increase the cohorts of the poor – first it’s becoming good to be poor (living the life of a student without worrying for grades is… many people’s ideal?). Also the extra taxes will put pressure on the economy which one way or another will decrease the available number of jobs in the country.
Fourth – this looks a lot like having the disadvantages of welfare and not having the advantages of basic income. Like I said above, just giving money to the poor won’t necessarily change things.
Mandating UBI into law through an increasing yearly amount is at least not trying to nail molasses – it’ll let them flow however best to adapt to the change.
Personally, I’d go the exact opposite way: eliminate minimum wages and provide free child care + extra child services (not a lot of cash, though). Let everybody work the way they can work best.
Lawyers and accountants are just the tip of the iceberg. If any government were to get serious about offshore tax havens they’d almost certainly find soldiers running interference to taxation. At some point there will be a Helvetian War, and I will be among the “hawks.” And among the soldiers (for the pro-tax side), if they’d let me, but I’m probably too old, so I’ll probably have to get a fake birth certificate or something.
“I’d go the exact opposite way: eliminate minimum wages and provide free child care + extra child service”
I thought UBI was supposed to be one of the best ways to eliminate minimum wage and provide free child care/service. If every adult gets enough to survive, then there’s no need for a minimum wage. If every child gets a comparable amount, then they can spend that on child care and child service.
Best in the sense that gold is a great conductor so is the best material for wiring your house. Sure, it gets the job done, but realistically we’re 50 years and an AI away from affording it.
Problems with this include:
— If the government has to decide “are they taking steps to improve themselves”, the government isn’t going to be very good at that, and government failure here can keep someone in poverty.
— Even when the government is competent at determining that you’ve done it, proving to the government that you have done it is going to take resources that a poor person might not have, including transportation, having to visit the government office when it interferes with something else, etc.
— Some people need more resources to improve themselves than others. It may well be that some people (such as single parents) just can’t improve themselves without more money than is being provided. If you deny them money because they’re not improving themselves, you deny money to the people who already need it the most.
That’s all encompassed in the “smart scheme”, which is a whole different discussion. But I distinctly remember that it was a government program that found this, and it was one of the big successes of gov programs. Modern welfare is supposed to be descended from it, diluted by politics as it is. I’m really sorry I can’t think of any googleable keywords…
> Top 1% have lawyers and accountants – tying to stop this is a whack-a-mole game. Realistically, you’ll end up taxing the middle class because they don’t have smart accountants.
As someone in this group, no. It doesn’t matter how many accountants you have, W-2 income simply can’t be vanished in our tax system. Investment returns and the like are another story, though, but that’s a much smaller group (the .1% or so; the 1% is mostly doctors, engineers, etc.).
> Without a very smart scheme attached to it, simply giving money is … well, it is helping them, but it won’t lift them from poverty.
How could this possibly be true? Poverty is about not being able to afford your needs. Surely money helps with that? The only way I can square this statement is by assuming that every dollar we give to poor people inflates their cost of living by a dollar (or more), but that seems like the kind of crazy effect you wouldn’t just assume without mentioning it.
That depends on which needs the poor cannot afford. We’re talking about UBI proposals for the early 21st century United States, where the few people in danger of actually starving or freezing to death are mostly in that position due to mental illness, not absolute poverty and the absolute absence of any sort of safety net. So, what exactly is it that they “need”?
One possible answer is that they need the education and other resources (e.g. clean presentable clothes for job interviews) that would let them climb out of poverty or near-poverty. That’s within some reasonable definitions of “need”, and it might be addressable with money. But it shouldn’t take very much money, unless what’s really holding them back is a credentials or other signalling arms race, in which money won’t help. Probably best to start on this one with public education reform, not a UBI.
Another answer is that they “need” the kind of status that comes from having more money than someone else. Obviously you can’t fix this with money; at best you can shift it from one group to another. And I’d argue that it doesn’t belong in any reasonable definition of “need”, but you’ll hear loud and clear from e.g. the working poor that you need to be paying them more than the “lazy welfare bums”.
And then there’s the answer that they “need” to have the full package of consumer goods that are being advertised to them and their peers and that their peers will laugh at or even ostracize them for not having. This also is a questionable definition of “need” at best, but people pretty much do need to socialize and if e.g. advertising has convinced even the poorest groups to coordinate their social activities via apps on smartphones the poorest people can barely afford, then poor people may kind of need smartphones. But you can’t fix this with money, because the advertisers will always set “everything you can afford and then some” as their target level.
Between type-2 and type-3 “needs”, and the inflationary effects of some UBI proposals, this could well happen.
About 5% of Americans are in poverty after existing transfer programs, which is about 17 million people. Commendably, the U.S., unlike other countries, measures poverty based on the cost of a bundle of “necessities”- food, shelter, etc. So it would probably be like $170B/yr to eliminate unintentional poverty in the U.S.
However, I think many people complaining about poverty are really complaining about the working class, basically, which is a tougher nut although if we can resist expanding government too much, the economy may deliver it.
Fair point about 0.1% vs 1%, with the comment that it’s a sad state of the world when 1% and middle class can be used interchangeably in conversation.
> Poverty is about not being able to afford your needs.
Why can’t you afford your needs? Focus still needs to be on the person, otherwise you go into the trap of treating the people you want to help like handicapped children, by reflex. There are three big places where you can start with that, and I’d guess more thought would just refine those three: not getting a job, having children, and housing.
Sure, giving money will solve all three, but strictly in a give fish, not learn to fish kind of way. You don’t want to replace free market (or do you? in which case it’s a different discussion), you want to correct its weak spots, fix commons issues and so on. Giving money period will just create a generation of dependents, and will probably favor the next generation of dependents as well.
As an aside, I’m actually not opposed at all in the state paying people to have children – as in, a full time job. But if you do this, I’d strongly suggest you do it right, and start by asking the question “how do we want children to be raised” and go from there. I’m guessing the answer would fall pretty far from the current, ad-hoc situation.
It actually can, if the employers are complicit and have enough political clout.
For example: My father was a middle manager at HP in the 1980s and at his level the compensation came to include a company car. See, HP has facilities spread out all over the place and needs some way for visiting consultants/researchers to get from one building to another so naturally the company buys and maintains cars for that purpose. As a business expense. But the cars aren’t needed after hours and on weekends, so employees with the company car perk can check out a car and take it home at night or on the weekend. Like checking out a library book. So dad had full use of a very expensive car he drove to work everyday which while he was at work somebody else maintained and put gas in and washed and paid the insurance on. He couldn’t keep much stuff in “his” car and wasn’t guaranteed to always find it ready in the exact same spot where he had left it, but it was basically his personal car.
So instead of the company giving dad enough of a raise to buy and maintain a luxury automobile after taxes, they kept his salary low but bought and maintained a car on his behalf, saving dad a bundle on taxes.
Some prior generations of businessmen had the notion of a “three-martini lunch” – companies would pay for arbitrarily expensive meals at very expensive private clubs as a “business expense” because business was allegedly being done during the meal. Or the company would pay for travel to “training seminars” that were basically a vacation, sometimes including first class airfare. Or issue a “clothing allowance” to buy “necessary” nice business clothes.
When tax rates are high, employees are highly incentivized to bargain to have the company pay directly for things they would otherwise have to buy with after-tax income and companies are highly incentivized to research and lobby for whatever tax loopholes let them do this. A high declared W-2 income can then turn into a much lower declared W-2 income with perks that more than make up the difference.
(This mechanism is undoubtedly part of the reason why taxes collected as a percent of GDP haven’t changed much over the last several decades despite large variations in nominal tax rates)
And the one method of compensation somehow excepted from income tax today: health benefits. Which is why so many companies load up on it. No tax!
I starting out not a UBI fan, but my recent experience as an Alaskan resident with the PFD forcing line item vetos of various programs and services has perhaps changed my mind. Once a UBI is in place, there will be a constant pressure from the entire population strata to increase cash payouts to the eventual exclusion of all non-essential government functions. As a libertarian, I don’t appreciate the redistributive effects, but it may be the least harmful form of government politically feasible – pure redistribuion without other distortions, so with that in mind, I’m kinda open to UBI now.
I’ve repeatedly seen the argument that UBI payments will inevitably spiral out of control due to political pressure, but I’m skeptical. Why haven’t Democrats attempted to drastically increase all social security payments in a bid to win the support of retirees (which would inevitably be matched/exceeded by Republicans, repeat ad infinitum)? Perhaps the pressure would be stronger due to the sheer number of people who would benefit from a UBI, but surely adding a sizable number of retirees to the current Democratic base would be sufficient for at least one decisive electoral victory.
There appears to be some sort of tempering mechanism that prevents this type of brinkmanship in existing transfer payments, though I’m not entirely sure how or why this mechanism works.
That’s probably bullshit, agree – it’s what people have said about democracy since forever. The middle class has the political power, and they have no interest in such out-of-control spending.
Isn’t that more or less what has happened?
Social Security costs have risen drastically more than forecast when then plan was originally devised. A lot of that is due to broad refusal to index the eligibility age to increases in lifespan, which has the same effect as raising the payments. Benefits were also increased by 20% in the 1970s, eligibility has been gradually expanded, and there have been a large number of more technical changes that have universally resulted in higher benefits and lower taxes than conventional fiscal prudence would support. The program is in fiscal crisis, represents the primary source of the potentially catastrophic budget risk the country faces, and this has been the case literally for decades.
Medicare’s story is similar, by the way, arguably with some additional complications driven by underlying medical cost inflation (not, however, that there could be a causal connection there).
There’s an interesting argument that seniors are such a powerful electoral force precisely because they push to increase and then defend their transfer payments and other entitlements, to the exclusion of other interests. The standard political narrative frames these issues in a highly sympathetic way (e.g., granny eating dog food, not being able to afford medication). In reality, seniors as a class are the wealthiest demographic, yet their transfers remain sacrosanct because their interests are so consolidated and organized around the issue.
A realistic projection of UBI really needs to either account for significant cost inflation / revenue deflation due to this dynamic or credibly explain how UBI would avoid the same fate.
Ratchet effects. Turning things up is easy, turning them down is very hard, maybe even unconstitutional (in certain schemes like state-run pensions).
Yeah; except for the 20% increase in 1972, I don’t see a pattern of runaway increases; rather, there’s been a refusal to adjust an existing program to new demographic trends. It’s not so much that the public discovers they can vote directly themselves largess out of the public treasury; it’s that they refuse to accept any changes to the status quo that reduce what they’ve come to view as their just deserts.
I don’t think that it is correct to look at the programs individually, if politicians give the populace social security, and then years later give them medicare/medicaid and then years later a UBI without every cutting a program then you have a ratchet effect that is invisible when looking at one individual program at a time. Likewise if you ignore new enrollees you are basically ignoring a ratcheting effect.
A lot of the increased spending was written into law decades ago, Social Security isn’t indexed to inflation after all, because recipients don’t get lower payouts when inflation is negative. This is a ratcheting effect put into law when inflation was high that kicks in when inflation is low, many years later.
Are we talking about wealth, or about effective income? I’m in my early 30s with a high five figure income, and a retiree who wanted to have my effective income for the next ~20 years would need to have a net worth about an order of magnitude higher than mine. A retiree with my level of net worth would probably be homeless without government assistance.
Wealth not income, and you are correct to highlight that there are legitimate reasons to expect seniors to be a more wealthy demographic. But also keep in mind that this is in a world where they all receive government-funded healthcare and income. So it’s not that unfair of a point to make.
Wealth is a really bad way of measuring this. People work a whole career to build up as much wealth as possible to fund their retirement (plus a buffer for unexpected emergencies and supporting their kids). If they ever run out of wealth, they have no way of reacquiring it, unlike younger people. So for a given amount of wealth, they are in a much weaker and more impoverished position.
Social Security is technically firewalled from other government spending (and taxes!), which makes it easier for politicians to say they can’t raise benefits much more without raising taxes. It also mostly makes it harder for people to complain that rich people are getting government handouts, which keeps rich people from complaining about spending that money on poor people.
I suspect there’s something similar going on in Alaska, where the revenue source is technically distinct.
Unless the UBI funding mechanism is separate from general revenue, there won’t be the same political pressures.
As I explained in my comment to Aapje below, people vote to signal caring and virtue, not in their own self interest. So it’s actually not clear that the Democratic party could pick up that many retirees by promising them more cash.
However, in a world where everyone is already receiving cash payouts, what is a good way to signal caring and virtue? To vote for the person promising more cash payouts.
We don’t live in such a world, so the Democrats seem more focused on signalling by attempting to expand the eligibility of current programs (e.g. “medicare-for-all”). But in a world where everyone is already eligible, I think it’s entirely possible that politicians would attempt to garner votes by promising increases in payouts.
So let’s discount signaling and pretend this audience has a bunch of utilitarians and rational altruists.
If you could magically* raise taxes in the United States in order to give money to a bunch of people, what’s the utilitarian/RA case for giving it to residents of the U.S. rather than having a much larger impact on other people’s lives in poorer countries?
I mean, Burundi has a per capita household consumption under $130/year and a population of 11M. For under $1.5 Billion/year, you could double everyone in the country’s lifestyle. Now multiply that out by the next poorest country’s population (and then the next, leveling their consumption out at some improved level) until you hit $200 Billion/year or whatever.
I’m not saying either plan is right, but it seems odd for this crowd to consider the former over the latter.
*(It’s not as easy as suggested to actually increase revenue over the long haul with a tax increase. See others comments as well as my other comment below.)
At the very least, political feasibility. There are tons of people here who think that foreign aid could and should be far, far higher than it is, to the point of raising extra revenue, but that’s DOA among the general electorate for obvious reasons. UBI is effectively a separate discussion: you may as well say “why are we talking about UBI when we could be curing cancer?”. We can approach problems at the same time since they’re both not fully bottlenecked by funding alone.
This basically reduces to stealing from the rich to save the poor. Even from a utilitarian framework (not to mention any other moral framework) it is questionable due to the negative effects on society caused by of making people’s property insecure.
That seems like an argument against UBI in general, but doesn’t address giving it to Americans rather than Burundians. UBI requires making people’s property insecure either way.
I think people are much more likely to be OK with a system they get something out of (even if not exactly the same amount as other people)
…. perhaps a large part of the tempering mechanism is the proportion of population not receiving the transfer?
If the people receiving the UBI couldn’t vote, I might see it working. If I didn’t believe there would not quickly start a movement to restore their suffrage.
You say that like it hasn’t basically already happened. Maybe not ad infinitum, but Social Security is going to be out of money by 2033 or so, and it’s already been a tremendous source of redistribution.
Social Security is currently negative. The government is paying out more than it is taking in, so it has to get that money from taxes or borrowing.
Even worse, at 2-3% return, Social Security pays out less than a third of what people would get if they stuck the same money into an index fund until they were eligible to retire.
So the program is a bad deal for taxpayers in general and social security recipients directly, but it’s worked out great* as a mechanism for funding additional government spending via forced treasury bond purchases.
Too bad every time someone proposes grandfathering the returns in for present retirees and privatizing accounts for the rest of us, that would force Congress to admit the current liabilities rather than just increasing them more and ignoring the situation. Besides, some politicians can score political points off their opponents by making them afraid Social Security isn’t going to pay them anymore.
(*For values of “great” which include taxpayers eventually paying the debt being kicked down the road every year.)
–“Why haven’t Democrats attempted to drastically increase all social security payments in a bid to win the support of retirees.”–
Pretty sure Democrats do want to drastically increase Social Security and Medicare spending, or at least Bernie Sanders does.
But to answer the question, taxes. If voters perceive that increase in personal taxes > increase in personal benefits, they tend to oppose the program. Elderly are a minority of voters, and many younger voters assume they might not see Social Security at all.
Now consider a UBI with a flat tax funding it. The political incentive to raise it will be strong until the next round of increases have as many people hurt as helped.
Let’s do a little math. Say we have a personal income tax base of $15.8 trillion after evasion, etc, paired with a flat tax. A 1% increase in the tax rate brings in about $150 billion, give or take, funding something like a $600 increase in the UBI per legal resident. If you earn less than $60,000 as a single adult or $120,000 as a couple, you’ll always benefit from raising the tax rate to fund a higher UBI, so long as the economy itself isn’t seriously impaired as result.
And a UBI in practice will probably be funded with a progressive tax.
@Nicholas
No, there will be constant pressure by all net tax payers to reduce the UBI, as people like those government functions more than they like subsidizing people who prefer a hobby + UBI over doing (decently) paid work.
In a democracy, each individual voter’s vote is effectively useless, it has basically zero probability of changing the outcome of the election, so people have little incentive to use their votes selfishly.
Instead, people typically vote in ways that signal how caring and virtuous they are. So even if voting for increases in UBI spending isn’t in their self interest, even if it’s not in the interest of society as a whole, voter’s could still very well vote for the increase.
Just look at minimum wage laws. Although there is debate amongst economists as to how much unemployment is actually caused by minimum wage laws, it’s still the case that the unemployment that is caused hurts those most in need of employment. But minimum wage laws are a good way to signal to others that you think lower class people should be paid more, so voters tend to vote for minimum wage laws despite their insidious nature.
I agree that the rational ROI on a given vote is ~0, but given that the US has secret ballots the signaling value of voting also seems pretty low.
I think a (heh) dialectical synthesis of the two would be people having consciousness as members of a class/interest group/identity bloc, and voting in the interests of that class. The polling version of this is ‘how likely is the candidate to care about people like me.’
Even in a closed ballot system, it’s not that difficult to figure out how someone voted. Many people will tell you if you ask. But I often don’t really need to ask, it’s often fairly obvious if you get to know the person, even if they don’t tell you.
But even beyond that, I suspect it’s less “I voted and someone might know how I voted, thus I should vote for the virtuous candidate”, and more “I’m going to adopt this specific ideology that signals virtue, and part of what I need to in order to validate my belief in that ideology is to vote in the appropriate manner”.
Sorry, the over usage of virtue signaling arguments is a bit of a bugaboo for me. The voting cannot be signaling, because it’s secret. And it seems tautological to say that adopting an ideology is for virtue signaling reasons, as the ideology is what defines the virtue. It’s like saying I’m going to virtue signal to a religious group by believing in god. If someone performs a religious ritual without believing in god that seems like virtue signaling, but in this case people continue to perform the ritual while in private, indicating that their belief is sincere.
Given that ballots are secret, the only person a voter is “signalling” to is their own self. So “signalling” in this case basically reduces to “doing what they think is morally right.” Depending on how a voter feels about the morality of the UBI, they might vote for or against it.
Most people really don’t like thinking of themselves as liars. That being the case, actually voting for [X] is just part of the price for saying ” I support [X]” and signalling your membership in the [X] men.
@ktxy
Virtue is not just about caring, though. People get happy by helping those who deserve more than they get, but also by punishing those who get more than they deserve.
For welfare, we see that maintaining sufficient support requires sufficient filtering and harsh rules. It’s simply not the case that people are happy to see lots of money going to welfare that is easily accessible.
So why would they be happy with a UBI?
Two points:
1. I don’t think the downside of the minimum wage is obvious to most non-economists, since most people don’t have a clear idea of the relevant economics. They think of wages as the outcome of bargaining, not as the equilibrium where quantity supplied equals quantity demanded.
How many of those who have heard that the unemployment is the problem realize that the effect on the national unemployment rate is tiny, given that minimum wage workers are a very small part of the labor force—that the issue is the effect on the unemployment rate of the sort of workers who make minimum wage?
2. The U.S. has a secret ballot, but most people are poor liars. It’s much easier to tell people that you voted for an increase, or a candidate who supported an increase, if you did, and if you have persuaded yourself that an increase is a good thing.
I think it is a feel good issue, but for people who have no good reason to know whether the effect is actually good or bad.
subsidizing people who prefer a hobby + UBI over doing (decently) paid work.
Aapje, make it so that all work is decently paid, and you remove the incentive to claim UBI. However, think about all the complaining that goes on here whenever the minimum wage is discussed, how it will wreck the economy and how some people just aren’t plain worth more than $10/$5/$0 in value to their employer.
Most of us work shitty jobs. We’re not working “following our passion, our dream, I’d work for free to do this” jobs, and we’re not working “it’s hard/boring/horrible but I get paid a ton of money” jobs. We’re working “you need money to live, you get money by working” jobs, and most of those jobs are ‘labour is a cost, how can we keep costs down?’ to our employers.
Some people have been lucky enough that their abilities match with a shortage of skills in a desirable job and that has structured the system to pay those kinds of jobs very well with concomitant benefits. And yes, I do mean luck – not “but I’m smart and hard-working and well-educated, I deserve being able to negotiate high salaries” doesn’t count. Yes, you’re a whizz at your coding job – lucky for you that you were born right now right here where that’s a valuable skill. Be born fifty to a hundred years ago, and being able to program in [language] is meaningless, and you need to be able to find a job that you can do. Maybe your best bet will be ending up in a factory on a power loom working in textile production, but you’re not going to be “I’m smart and hard-working and well-educated, I can negotiate better salary and conditions” there with your current skillset. Maybe you’re a fantastic consultant, worth every penny of the high hourly rate, today but back then you’re barely worth taking on as a warm body because you haven’t got what’s of value to an employer in practical/physical skills, and the industry where you will thrive hasn’t been invented yet.
I’m not going to go into my own personal circumstances, but if I could get UBI on top of my current job, I’d take it. If it were UBI but no job, yes I’d quit and live on UBI and do everything else I’m currently doing and need to do, unpaid, outside of working the job. Yes, even if it were “only” $12,000 a year (I’m laughing at the “only” because that’s the kind of pay scale I’ve been on in most of my jobs all my life. Some jobs don’t pay what you guys consider ‘reasonable’ salaries, or even salaries at all as distinct from wages!)
EDIT: But Deiseach, aren’t you in a public service job? Yes, and I can’t get extra hours or a raise because the money just isn’t there, and I know it isn’t there because I know where our funding stream comes from, I do the damn accounts and quarterly returns about it. Even our conditions are different – we don’t get paid over the summer break because we don’t come under the Department of Education, so the people working full-time hours have to claim unemployment benefit for the ten weeks we’re shut down – if you can even claim it now, with the new restrictions. Unconditional year-long UBI? Way better than what I have now.
You can “follow your passion” only if you feel pretty certain it will produce money sufficiently quickly or if you have a good safety network, anyway.
If you have an idea that could bring huge success… let’s say that realistically the chance of success is 10%, because if you believe it is more, you are probably overestimating it… then your rational choice depends on what will happen in the remaining 90%.
When you have a rich family that can pay your expenses while you spend a year or two following your dream, you should go ahead and follow your passion. There is 10% probability of success… and 90% probability of doing something interesting, failing to convert it into a huge income stream, but probably learning a lot in the process. Afterwards you can try to follow a different dream, or give up and follow the Plan B.
When you have a poor family, the 90% probability can mean losing all you have, and irreversibly damaging your quality of life.
Now this is the problem with meritocracy. On one hand, those people from rich families who followed their dreams, worked hard, and succeeded… yes, they deserve to be rewarded for their hard work. (They had an alternative to just spend the money on booze and drugs, and instead they decided to do something productive and they worked hard, although they didn’t have to.) On the other hand, people from poor families didn’t get the same opportunity, or they had to take an incomparably greater risk in the case of failure. So, kinda, the success is deserved, but the failure is not; because you can only succeed with hard work, but you can fail also despite equally hard work.
UBI puts everyone in the “rich family” situation. If you are the type of person who has ideas with 10% chance of huge success, then 10% of people in your category will succeed greatly. That seems like a win for the society in general.
@Deiseach
This makes no sense, since a UBI is by definition (and unlike welfare) given even if you have paid work.
In your comment, you also don’t properly distinguish between passion and skills, even though the difference is very important. Lots of people have well-paying jobs that they don’t have that much passion for. In fact, high pay exists in part to increase the labor pool for certain jobs by encouraging people to choose that job over other jobs that they have more passion for.
Ultimately, the inconvenient truth is that what people want to do and what we want people to do often have a mismatch. Pretty much everyone is better off if people compromise on how they spend some of their own time, because doing so makes other people much happier than what they themselves lose in happiness.
The purpose of salary is not to reward the lucky (although luck does play a substantial role), but to coerce people into behavior that is societally beneficial.
@Viliam
You ignore the rich people who don’t try for (greater) success because they are perfectly happy spending the family fortune.
Rich parents/people have various options to prevent this, for example by indoctrinating their kids with low self-esteem (hi Trump), cutting off or reducing their allowance if they don’t study/work hard, peer pressure, etc.
The risk of a UBI is that you may get many people who don’t try for success, but simply design their life around living on a UBI, even if they have the skills to contribute to society (more). This is already an issue with welfare, with some families never considering work as an option.
A nice illustration of a point I just made in a response to another comment–that most people don’t understand the argument against the minimum wage.
An increase of a plausible level can’t wreck the economy, because minimum wage workers (in the U.S.—I don’t know the Irish figures) are less than two percent of the labor force. The problem is that it can wreck the lives of people who lose a job, or never get a job, because they have been priced off the market. It’s the unemployment rate of the sort of workers who get minimum wage that’s the relevant variable, not the overall unemployment rate.
It’s easy to be morally indignant about arguments if you don’t bother to understand them.
And constant pressure by all net UBI recipients in the other direction.
One of the things I am very worried about re:UBI is that this scenario sounds like the perfect way to start an explicit class war.
> One of the things I am very worried about re:UBI is that this scenario sounds like the perfect way to start an explicit class war.
That’s assuming there is some wide gulf between the net payers and net recipients. In practice the average person is going to be in the middle, paying or receiving something like $500/year on net, and not really be all that excited about whether it’s $500 or $300 or $700.
And the bulk of people would be on both sides of the line at different points in their lives, because you start off a net recipient as a student or entry level employee, become a net payer as you advance in your career, and then become a net recipient again after retirement. With blood relatives like children or parents on the other side of the line from you at any given time.
The average in practice is fairly meaningless as the predictable results of social spending are increased inequality, and big shifts between the median and mean.
Consider what happens if you implement a UBI right now with the top half paying to the bottom half, almost everyone over 50 years old and still working is going to be paying out to everyone under 30. Some of those under 30s will eventually pay for other under 30s, but almost none of those over 50s will be net beneficiaries of the UBI compared to the current system and almost all of them will be large losers. The fact that there is some median age where it is kind of neutral over the short and or long run is immaterial to those for whom it is a massive cost.
Consider further that specific class of people, the over 50 crowd, is right now trying to balance paying for their kids college and funding their own retirements, attempting to tax them to also add in a UBI is likely to get huge amounts of push back once the costs become apparent.
In practice, what you pay is going to be heavily obfuscated and most people will have no idea what it actually is (see: all the people who believe Trump’s tax cuts increased their taxes because the size of their refund went down), while what you receive will be an explicit check with an easy to determine monetary value.
I imagine there will be no small amount of people who will, incorrectly, believe they receive much more than they pay. I imagine this is probably already the case with things like social security.
Net tax payers currently ~ 50% of the voting population, how much pressure can they exert after ubi shrinks that number? And I don’t think they act as a block, income brackets at the low end push harder to expand the benefit so they fall off the net payer side, so the net payers keep eroding. Higher income households start pushing for other programs to be cut to fund ubi expansion, rather than higher taxes (rich people don’t use many government services anyway).