Tuesday, June 07, 2016

Universal Basic Income: The Economist Drops the Logic Ball

The June 4 issue of The Economist has an article about universal basic income proposals, calling it "Basically flawed" and warning that "Proponents of a basic income underestimate how disruptive it would be." The article does make some good points in need of addressing, but also includes a paragraph of such bafflingly obvious bias, I'm amazed the editorial department let it through.

I generally like The Economist, and can respect its arguments even if I disagree with its opinions (that my household actually pays for a subscription is proof enough of that), and the editorial does raise some valid concerns regarding any guaranteed basic income proposal — particularly the inherent cost of giving money to all adult citizens, plus the fear that certain welfare recipients enrolled in a variety of different safety-net programs might actually wind up poorer, if all of their current benefits were entirely replaced by a single, lower check.

The piece starts off with a thumbnail explanation of why and how basic income proposals are even an issue:
WORK is one of society’s most important institutions. It is the main mechanism through which spending power is allocated. It provides people with meaning, structure and identity. Yet work is a less generous, and less certain, provider of these benefits than it once was. Since 2000 economic growth across the rich world has failed to generate decent pay increases for most workers. Now there is growing fear of a more fundamental threat to the world of work: the possibility that new technologies, from machine learning to driverless cars, will cause havoc to employment.
The piece goes on to discuss the then-upcoming Swiss voter referendum on a basic income (which failed), discusses the high cost such a program would have in America, and also points out that certain current welfare recipients might actually end up poorer if all their current benefits were replaced by a single low guaranteed check.

But after these and other sensible-sounding pro-and-con arguments, the article falls into this:
A universal basic income would also destroy the conditionality on which modern welfare states are built. During an experiment with a basic-income-like programme in Manitoba, Canada, most people continued to work. But over time, the stigma against leaving the workforce would surely erode: large segments of society could drift into an alienated idleness. Tensions between those who continue to work and pay taxes and those opting out weaken the current system; under a basic income, they could rip the welfare state apart.
Translation: when a guaranteed basic income was actually tried, it did not result in the mass workforce defections its opponents fear ... but surely, that's bound to change. The same logic is often used by still-fervent drug warriors who insist that the war on drugs is a good and necessary thing because if intoxicants other than alcohol were legal, society would collapse because everyone would just sit around getting stoned all day: “When Portugal experimented with decriminalizing drugs, most people continued to not-become drug addicts. But over time, the stigma against being an addict would surely erode: large segments of society could drift into chemically induced bliss.”

Anything could lead to various bad outcomes, and any bad outcome might conceivably happen. But the fact that it might isn't evidence that it will, and I'm disappointed that The Economist resorted to such shoddy reasoning. “A universal basic income scheme went well in Manitoba, but it's bound to go bad eventually” is not evidence or even a supporting anecdote; that's just pure bias speaking. 


Anonymous Dave said...

The Macro problem here is what I like to call the "Disney Ride Allocation Dilemma" (or "DRAD"). Simply put: If everyone has a fast-pass, then no one has a fast-pass.

The real world is more complex than that, of course, but if everyone is issued enough money to obtain housing and food, then it stands to reason that the price of housing and food will rise. After all, in most of the world, price is the mechanism used to allocate scarce resources. If there are four apartments available in an area for less than $300 per month, and six people seeking cheap apartments, then the prices will rise. If those six people are allocated an extra $150 per month each, then I am guessing the price of the apartments will rise to $450.

Disney uses fast-passes as a way to reward their best customers. The fact that it ends up punishing their annual pass-holders is a side-effect (or as Disney calls it, "an added benefit.") If you give any resource (in this case, money) to everyone, then you decrease the value of that resource. Similarly, if you give it to only some people, then by definition, you have to take it away from someone else.

The result is that you are either subsidizing the owners of the apartments, or creating an instant inflation in the amount of the subsidy. Although you might make poor people better off, you are doing it in a way that insures the least possible bang for the buck.

11:07 AM  
Blogger Jennifer Abel said...

That IS a possible problem, Dave, and another anecdote in support of your theory is federally subsidized and guaranteed student loans resulting in HUGE tuition price increases for college students -- I went to a state school at in-state rates for four consecutive years in the mid-90s, and my senior year tuition was almost 70 percent higher than freshman year! And prices have risen at similar rates ever since.

HOWEVER, there's a variable to consider: student-loan money is earmarked and limited exclusively for one purpose: loans are given to students to specifically subsidize their BEING students; primarily tuition and school-related housing and living expenses.

And there are other anecdotes as well: a voucher good ONLY for housing in a given area will result in increased rents in said area. It's possible that "food stamps" result in slightly higher overall prices for food, too. And so forth.

But a UBI/GBI would not be use-specific; it's just 100% fungible cash. Use it to pay for housing in a given area, if you want -- or use it to buy food, or buy your kid some shoes, or blow it all on tattoos and smokes, or stick it in the bank and forget about it -- it's too diffuse and spread out to only impact one aspect of the economy, the way student loans increase tuition prices, or military housing allowances increase housing costs in heavily-military areas.

11:55 AM  

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