UNIVERSAL BASIC INCOME IN THE REAL WORLD
It’s hard to fathom now, but the idea of a guaranteed annual income was mainstream political wisdom in the United States in the late 1960s and early 1970s. Medicare and Medicaid had just been passed in 1965, and the country had an appetite for solutions for social problems. In May 1968, over 1,000 university economists signed a letter supporting a guaranteed annual income. In 1969, President Nixon proposed the Family Assistance Plan, which would provide cash benefits of about $10,000 per family and serve as a guaranteed annual income with some eligibility requirements; this bill was supported by 79 percent of respondents polled at the time. The Family Assistance Plan passed the House of Representatives by a wide margin—243 to 155—but then stalled in the Senate due to, of all things, Democrats who wanted an even more robust plan. A Democratic congressman, William Ryan from New York, instead proposed an income floor equivalent to $33,000 today, and the original bill would be argued and reproposed for years thereafter.
The U.S. government funded a number of studies between 1968 and 1975 to gain insight into how guaranteed income would impact individual families. The primary agenda was to see whether people would keep working if they were getting money from the government with no strings attached. The New Jersey Graduated Work Incentive Experiment gave cash payments to more than 1,300 families between 1968 and 1971 to get above the poverty line. Researchers found minimal impact on work—men worked one hour less per week, while women reduced their work weeks by five hours. Mothers spent more time with their children, whose performance at school improved. High school graduation rates rose substantially over the period, by as much as 30 percent.
Similar studies were rolled out in North Carolina, Iowa, Indiana, Colorado, and Washington. Most of these studies showed results similar to the initial New Jersey population. However, the most rigorous and generous study in Denver and Seattle found work hour decreases of about 9 percent for men, 20 percent for wives, and 14 percent for single mothers. The Denver study also showed an increase in marriage dissolution, which surprised a lot of people and helped arm opponents of the legislation, who defeated it for good in 1978. In 1988, scholars at the University of Wisconsin went through the data and found that the effect on marriage was dramatically overstated based on an erroneous model. Other scholars later questioned the work decrease as based on self-reported hours. But by that time, the debate had passed.
The U.S. studies involved individual families and never tried to measure communal impact. Canada tried it all in one small town. In February 1974, Canada spent the equivalent of $56 million to get everyone in the town of Dauphin, a 13,000-person town northwest of Winnipeg, above the poverty line. One thousand families got a check each month of different amounts with no restrictions. They called it “Mincome,” short for minimum income. It lasted for four years, before a conservative government won control of the government and discontinued payments.
Many years later, in 2005, Evelyn Forget, an economist at the University of Manitoba, tracked down and analyzed the results. “Politically, there was a concern that if you began a guaranteed annual income, people would stop working and start having large families,” recalls Forget. Instead, she found minimal effect on work. The only groups who worked substantially less were new mothers and teenagers, with the latter spending more time in school. Birth rates for women under 25 dropped. High school graduation rates went up. Perhaps most dramatically, Forget found that hospital visits went down 8.5 percent, with reductions in workplace injuries and emergency room visits. Domestic violence went down as did mental illness-related appointments and treatments. Basically, life got significantly better in a town without poverty.
It may be hard to believe, but one state in the United States has had something resembling a UBI for decades. In Alaska in 1976, the state started receiving billions in oil revenue from state-owned land. Governor Jay Hammond, a Republican, had an innovative plan—he pushed to place the revenue in a fund that would then pay out part of its earnings to state residents each year. He insisted that this fund had “a conservative political purpose” by putting a brake on government spending and distributing more of the money directly to people.
The Alaska Permanent Fund accrued earnings and started paying dividends in 1982. Each Alaskan now receives a petroleum dividend of between $1,000 and $2,000 per person per year; a family of four received more than $8,000 in 2015. The dividend reduces poverty by one-quarter and is one reason that Alaska has the second lowest income inequality in the country. Studies have shown that the dividend has increased average infant birthweight and helped keep rural Alaskans solvent. It has also created at least 7,000 jobs due to the increased economic activity each year. The program, now in its 36th year despite numerous changes in government, is overwhelmingly popular. Sixty-four percent of respondents even said that they would accept higher taxes if necessary to fund the dividend.
In 1995, a group of researchers began tracking the personalities of 1,420 low-income children in North Carolina. Then, something unexpected happened—25 percent of their families started receiving $4,000 per person. They were Cherokee Indians, and a casino had just been built nearby, with earnings flowing to tribal members. This development turned into a research treasure trove. “It would be almost impossible to replicate this kind of longitudinal study,” said Randall Akee, an economics professor at UCLA. Akee found that the impact of the extra cash actually impacted the children’s personalities over the years. Behavioral and emotional disorders went down. Two personality traits became more pronounced—conscientiousness and agreeableness. Both correlate strongly with holding a job and maintaining a steady relationship. These changes were most significant among children who started out the most deficient.
Akee surmised that the impact was due in part to less stressful environments. Relationships between spouses improved. Alcohol consumption went down. “We know that the thing poor couples fight about the most is money,” said Akee. Removing that source of conflict resulted in “a more harmonious home environment.”
“There is a lot of literature that shows in order to change outcomes among children you are best off treating the parents first,” said Emilia Simeonova, an economics professor from Johns Hopkins who studied the same families. “[The money produced] clear changes in the parents.” She concluded, “Now we have a sense of what even just a little money can do to change these things, to change their lives.”
In 2008, Michael Faye and Paul Niehaus were graduate students at Harvard studying international development and doing fieldwork overseas. They visited Kenya, and everywhere they looked they saw misspent aid dollars in the forms of abandoned water pumps, unused clothing, and the like. They became convinced that more than food, bed nets, schoolbooks, sports equipment, cows, water jugs, or anything else, the people wanted cash. That summer, Michael and Paul gave a few thousand dollars of their own money to poor villagers and started to measure results. They found that among cash recipients, domestic violence rates dropped, mental health improved, and people started eating better.
They stuck with the idea and expanded it. In 2012, a friend introduced them to Google.org, which contributed $2.4 million to further their efforts. The more the pair measured, the more dramatically positive the results were. People started businesses. Children weighed more. Girls went to school more often. Women had more independence. It turns out that giving cash is very effective. Unlike most organizations, they documented all of their results and brought them back to show the world.
Since then, GiveDirectly has raised more than $120 million, in part to enable new ways to distribute money in developing countries. In 2016, they announced a $30 million 12-year basic income trial in a region in western Kenya. “GiveDirectly… has sent shockwaves through the charity sector,” posited one article in the Guardian. “[Organizations] that ask for money on behalf of the poor should be able to prove they can do more good with it than the poor themselves… [for most NGOs] this is a compelling challenge.” Basically, the global poor would be better served if most aid organizations got out of the way and handed them the money.
Today, economic inequality, frayed job markets, and the early signs of automation have produced a massive surge of enthusiasm for UBI worldwide. Finland started a two-year trial in 2017 in which 2,000 unemployed people between 25 and 28 receive a basic income of about $660 a month with no strings attached. India is actively considering implementing a modest basic income nationally in the next year after studies showed it would be more efficient than their existing programs. Canada is giving 4,000 participants in Ontario grants of up to $12,570 for individuals and $18,900 for couples from 2017 through 2020 and measuring results. The Netherlands and Scotland are each running a small trial.
Iran implemented a full-blown equivalent of UBI in 2011 of approximately $16,000 per year in response to heavy cuts to oil and gas subsidies. Economists measured labor rates and found no reduction in hours worked—if anything they found people in the service industry expanded their businesses. This is hugely indicative because of the enormous sample size—Iran has 80 million people, equivalent to the combined total of New York, California, and Florida—over an extended period of time.
Most recently, a small trial launched in the United States. Starting in early 2017 in Oakland, California, Sam Altman, the head of the technology firm Y Combinator, is giving 100 households in Oakland approximately $1,000 to $2,000 per month for about a year to measure the impacts on recipients. The goal is to roll out a larger five-year trial afterward. Sam and his friends are giving away $2 million and hiring researchers just to see what will happen. I love the fact that Sam is putting up the resources to study this problem. He’s demonstrating the kind of leadership and vision that, in an ideal world, our government would be capable of.
Enthusiasm is building for a UBI based on both its intellectual and moral appeal and its real-world success thus far. The main counterarguments generally go something like this:
“We can’t afford it.”
Money has to come from somewhere. We’re used to the government spending billions wastefully to no great effect. Trying to raise taxes is a tough assignment in any climate.
What’s fascinating is that a UBI doesn’t actually grow the government. It’s almost cost-free to administer. It doesn’t build a new bureaucracy. It is less an expenditure and more a transfer to citizens so they can use it to improve their lives, pay each other, patronize local businesses, and support the consumer economy. Instead of hiring a new army of government employees, every dollar will be put into the hands of an American citizen and then largely spent within the American economy.
By definition, none of the money would be wasted because it goes to citizens. It’s analogous to a company giving dividends or moneys to its shareholders. No one regards that as a waste of money, because the shareholders theoretically are the owners of the company.
Are we not, as the citizens of the United States, the owners of this country?
As a country, we are easily wealthy enough to manage even a full UBI. Our economy has grown by more than $4 trillion in the past 10 years alone. The U.S. dollar remains the global reserve currency. We are the most technologically advanced society in human history, and increased automation will allow our economy to continue to grow well past its current level.
Not only that, but we will get a lot of the money back through new businesses and economic activity, better educational outcomes, improved health and preventative care, better mental health, reduced crime and incarceration, reduced services for homelessness, and many other social benefits.
You know what’s really expensive? Dysfunction. Revolution.
Keeping people and families functional will largely pay for itself.
“It will destroy people’s incentives to work.”
All of the available data shows that work hours stay stable or at most decrease modestly with a basic income. To the extent that people spend less time working, they tend to be young mothers and teenagers, whom we might not mind working a little less if they’re taking care of their kids or going to school.
There are two completely oppositional ideas that many people seem to hold simultaneously:
First, work is vital and the core of the human experience.
Second, no one will want to work if they don’t have to.
These two ideas are at complete odds with each other. Either work is a core of the human experience and we’ll do it even if we don’t necessarily have to, or work is something we have no interest in doing and we do it only to survive.
Setting a Freedom Dividend of $12,000 a year would enable one to barely scrape by. Anyone who wants to accomplish anything, buy something nice, or build a better life for their children will still have to work.
Twelve thousand dollars a year is the equivalent of having $300,000 in savings and then living off the passive income at 4 percent a year. Have you ever heard of someone who gathered $300,000 and then just stopped working? I haven’t. I have seen many people who saved some money and then wanted to save more.
Andy Stern jokes that most of the upper-middle-class children he knows have something called “parental basic income”: their lives are partially subsidized by their parents. Cell phone bills, rent guarantees, family trips and vacations, and so on all come out of the Bank of Mom and Dad. This is the norm in most of the wealthy families I’ve seen. And most of their kids turn out fine in terms of work ethic.
Replacing work is going to be a generational challenge. It will require the great minds and hearts of this era. But getting money to live is an independent question. Getting money to live independent of work will enable us to figure out what work we actually want to do, even if that work is not necessarily in an office or store. This is a much deeper and more fundamental question than how one survives month to month.
“Wouldn’t that cause rampant inflation?”
Inflation has been low for years, in part because technology and globalization have been reducing the costs of many things. Even the printing of $4 trillion in monetary easing after the financial crisis didn’t cause meaningful inflation. If the universal basic income were paid for through a VAT as proposed above, we wouldn’t be increasing the money supply, so inflation wouldn’t be expected based on the amount of money floating around.
A universal basic income at the level of the Freedom Dividend would likely result in some inflation as vendors take advantage of the new buying power of the public to raise some prices, but costs would continue to decline for many things because technology would continue to lower the underlying cost of their production. If you reflect on your own costs, most things that are subject to economic competition, globalization, and technology have gotten either much cheaper or much better or both. I can’t believe how cheap clothing has become—$8 T-shirts and $15 pants at H&M make me feel guilty for buying them. Cars cost the same in nominal terms as when I was growing up even though they feel like spaceships compared to my old cruddy Honda. Music, movies, and most forms of entertainment are cheaper than ever, particularly adjusted for inflation.
Of the major expenses that have shown inflation, the most conspicuous are health care costs and education costs, both of which have exploded in recent years. Health care and education are not truly subject to market forces and have thus far been resistant to both automation and increased efficiency. They are also some of the main reasons Americans have become stressed—our wages have been flat, but the cost of the staples we rely upon to provide a good life for our children have been spiraling out of control. Not only would a UBI not cause inflation, but putting purchasing power in the hands of Americans would help address the worst circumstances of where prices have gone up.
“People will spend the money on stupid things, like drugs and alcohol.”
The data doesn’t show this. In every basic income study, there has been no increase in drug and alcohol use. If anything, an improved sense of the future motivates people to figure out a plan for how to improve their lot. For example, many people in Alaska save a significant chunk of their oil dividend each year.
There are true addicts, and some people are self-destructive. But it’s not like a lack of money is presently keeping people from using opioids and alcohol—they find a way to get both money and drugs right now, sometimes illicitly. A UBI would curb antisocial behaviors and give at least some an increased ability to seek treatment.
Here’s the thing—poor people tend to be much more careful with their money than rich people. I’ve never been truly poor. But I remember being young and feeling broke, bussing tables at a Chinese restaurant for $5.20 an hour plus tips as a teenager. I remember how much $50 in cash meant to me then, how careful I’d be with the money.
The idea that poor people will be irresponsible with their money and squander it seems to be a product of deep-seated biases rather than emblematic of the truth. There’s a tendency for rich people to dismiss poor people as weak-willed children with no cost discipline. The evidence runs in the other direction. As the Dutch philosopher Rutger Bregman and others put it, “Poverty is not a lack of character. It’s a lack of cash.”
Scarcity research indicates that the best way to improve decision making is to free up people’s bandwidth. People won’t ever make perfect choices. But knowing that their basic needs are accounted for will lead to better choices for millions of people each day.