Social welfare and equal wealth distribution are a perennial dilemma in contemporary political discourse. In the 1960s, seeking to improve existing social welfare systems, economist Milton Friedman proposed an economic mechanism known today as the universal basic income. In essence, the universal basic income (UBI) is a form of social security, in which the government guarantees monthly unconditional stipends to all legal citizens to help them meet their basic fiscal needs.
Amidst growing wealth disparity and unemployment in recent years, the UBI seems to be the answer to the long-standing social welfare conundrum. Around the world, in countries that especially emphasize social welfare, such as Italy and Finland, the UBI is already a reality. In the U.S, support for implementing the program started to gain traction in the U.S during Democrat candidate Andrew Yang’s 2020 presidential campaign. However, wary of the possible socioeconomic ramifications, politicians on both aisles have been at loggerhead over implementing a state-sponsored UBI in the U.S. Even though a UBI might help reduce poverty, the U.S government should refrain from implementing a UBI because of its disincentivizing impact on work and its exceedingly high costs.
Proponents of the UBI emphasize that guaranteed income is an effective instrument for poverty eradication. This statement is based on the notion that UBI would give everyone unconditional, monthly stipends to provide them sustenance. The UBI’s evangelists claim that in the long-term, the needy would be help to get out of their fiscal crisis with the help of the UBI, citing evidence of supposedly successful UBI trials in several countries. In India, for example, participants of the UBI pilot program funded by UNICEF from 2013 to 2014 noted that the program drastically improved their fiscal ability to afford basic necessities.
Nevertheless, there are two compelling reasons as to why the UBI’s “success” logic is an extreme oversimplification. To begin, considering the UBI’s extremely high costs, the program would invariably result in significant tradeoffs. To pay for the expensive bills of the UBI, the federal government would have to divert funding and investment from other social welfare and infrastructural programs. This is empirically proven true. For example, in Italy, where a UBI policy is enacted, the Italian government is forced to reduce funding in child benefits and old-age pensions in order to support the UBI. This has severe repercussions, because the tradeoff between the UBI and other social welfare programs is not one-to-one. In the U.S, more cost-effective social security programs, such as the EITC, Supplemental Nutrition Assistance Program, and Temporary Assistance for Needy Families, are only at 20-percent of the cost of a UBI. Diverting funding away from existing programs towards the UBI would result in a one-to-five tradeoff.
Critically, the tradeoff would actually skew the distribution of social welfare resources. Because the UBI is designed to provide universal benefits, every legal citizen—whether they are an ordinary person or Jeff Bezos—would receive UBI stipends. By drawing funding away from safety-net programs that are specifically targeted for the needy and redistributing it to everyone in the U.S—including the rich—the UBI would inadvertently skew resources away from the needy and towards those who do not need it. This is statistically proven by a model produced by the University of Bath that found that the negative impacts of a UBI implementation are largely concentrated in the bottom three income quintiles, disproportioning disadvantaging the poor. As a result, this redistribution would go against the founding principle of the UBI: helping those in need. Thus, one should not blindly accept the supposed benefits of the UBI but rather consider whether the social utility outweighs the tradeoff.
Likewise, one should also not blindly accept the UBI’s seemingly optimistic results to be universally true. It is crucial to take into consideration the certain biases in the data of past UBI programs. A report from Anna Coote, head of social policy at the New Economics Foundation, indicates that past UBI trials, especially those conducted in India and Kenya, focused on cherry-picked samples of the extremely low-income population. In other words, UBI researchers specifically selected samples of participants who are well below the poverty line. For instance, the UBI trial in India merely covered rural villages.
Hence, the success of these programs proves little about the actual benefits of the UBI in the bigger picture. Giving money—or literally any form of social welfare—to the needy who have next to nothing is going to yield obvious success results. Therefore, it is fallacious to assume that the success of a skewed sample would yield equally optimistic results when applied to the populace. Especially in an advanced economy like the U.S, where people are generally much better off than the poor in emerging economies, the success of a UBI would be greatly mitigated.
From a socioeconomic standpoint, the foremost concern regarding the UBI is its corrosive effect on labor incentives. With the exception of those who find personal pleasure in their work, it is widely accepted that the universal incentive for people to work is to earn income in order to meet their basic financial needs. With regards to the UBI, Charles Wyplosz, Professor of International Economics at the Geneva Graduate Institute, critically noted that “if we pay people to do nothing, they will do nothing”. The apparent criticism directed at the UBI is that it would eliminate individuals’ incentives to work, given that their incomes and subsistence would be guaranteed. Consequently, the implementation of a UBI may lead to a sharp decline in work effort, which could take the form of one’s reluctance to find job, reliance on welfare dependency, or refusal to advance one’s professional career.
The ramification is vindicated by empirical researches and literature over decades. To list one, from 1968 to 1980, the U.S government conducted five Negative Income Tax (NIT) trials, in which participants received a guaranteed UBI for three years. The experimental results indicated a drastic decrease in working hours as a result of guaranteed income. One experimental group, in particular, saw a decrease in their work effort by around 15% to 30%, translating to a reduction of 0 to 166 working hours annually.
In response, proponents of the UBI may argue that the program, in fact, would stimulate work incentives by reducing the risk of losing social welfare benefits when entering paid employment. However, after receiving a UBI, most people are reluctant to work at all, simply because there is no longer as much of an incentive. In an empirical study of Finland’s UBI program for the unemployed—the world’s first ever government-sponsored UBI system—from 2017 to 2018, Finland’s minister of health and social affairs concluded that the anticipated benefits of the UBI on improving work incentive and employment.
As a result, by decreasing labor participation, the UBI’s detrimental impacts on society’s work incentives have serious repercussions. This is because an economy’s prosperity is determined by its gross economic output. By definition, a shrunken labor force, combined with the effects of decreased work effort, would drastically reduce economic and labor output, thereby crippling the economy in the long-term. Statistically, public policy analysts at the Stanford University conclude that introducing a UBI could potentially decrease aggregate labor supply by 0.7% and, consequently, result in a permanent GDP decline by 0.4% annually. Therefore, if introduced to the U.S economy, the UBI could serve as a work disincentive, posing adverse socioeconomic impacts.
On the other hand, the UBI’s proponents have turned a blind eye to the program’s expensive price tag. A monthly UBI stipend of $1000 for every adult in the U.S would cost the U.S treasury at least $3 trillion per annum, which is around 75% of all federal expenditures and 90% of federal tax revenue (Hoynes and Rothstein). This simply not an economically-viable policy and two significant implications.
First, with UBI possibly exceeding 75% of federal expenditures, the U.S government would have to levy significant more taxes to counterbalance the increasing spending. The Hoover Institution at the Stanford University projects that with the addition of a $1000 monthly UBI payment for each adult, the federal government would have to increase taxes by 74%, adding more burden for both taxpayers and the federal government.
Second, if the federal government does not intend on raising taxes to counteract the increasing expenditures, implementing a UBI would naturally accumulate more federal budget deficit, fueling the U.S’ acute debt crisis and decreasing market confidence. This is why Wharton’s budget projection model estimates that a UBI implementation would increase federal debt by 81.1% and decrease GDP growth by 9.3% by 2032.
Moreover, empirical examples of countries reverting its UBI policy demonstrate that the UBI is simply not an affordable option. Mongolia, for example, once had a national UBI system from 2010 to 2012 . However, acute fiscal problems quickly surfaced when the Mongolian government had to borrow money to support its UBI program and drastically cut its UBI cheques to the point where the program became meaningless. Arguably, an advanced economy like the U.S would be much more capable of paying its bills than Mongolia, but when taking purchasing power into consideration, the example regardless shows that it is fiscally unaffordable to have an effective UBI.
With the expanding prominence of the UBI across the U.S due to COVID-induced economic decline in recent years, one should remain vigilant of the UBI’s possible socioeconomic impacts on American society. While the UBI should be praised for its attempt at offering a solution to the social welfare debate, its projected benefits are overly optimistic. Despite its promise of providing financial assistance to the needy, its long-term results may ultimately backfire by causing a redistribution of federal funding. Given the UBI’s unaffordable costs and its disincentivizing effects on labor, the program’s real-life viability and effectiveness remain nebulous. Hence, the U.S should not implement the universal basic income.
