The pros and cons of UBI

One suggestion in the previous post, titled “Is the federal government too big? Will Medicare become insolvent? What can we do better?” was #4. Create and fund Social Security for all Americans of all ages at generous enough levels to end poverty in America

It’s functionally the same as UBI, Universal Basic Income.

I call it “Social Security for All” partly because we already know how to do Social Security, so setting it up won’t be intimidating.

There are a few differences from what UBI backers suggest, most importantly, paying it to everyone, not just the poor.

Recently, I read a Scientific American article that I would like to discuss with you.

But before getting into the article, I asked my AI to give me the pros and cons of UBI.

PROS
Reduces Poverty: UBI can help lift people out of poverty by providing a guaranteed income, ensuring everyone has enough to cover basic needs.

Improves Health: Studies have shown that UBI can improve physical and mental health outcomes by reducing stress and anxiety.

Simplifies Welfare: UBI could replace or streamline complex welfare systems, reducing administrative costs and eliminating the stigma associated with receiving benefits.

Encourages Entrepreneurship: With a financial safety net, individuals might be more willing to take risks and start new businesses.

Supports Unpaid Work: UBI can provide income for non-working parents and caregivers, recognizing the value of traditionally unpaid roles.

CONS
High Cost: Implementing UBI could be extremely expensive, potentially requiring significant tax increases or reallocation of funds from other programs.

Potential Work Disincentives: Some argue that a guaranteed income might reduce the motivation to work, although studies suggest this effect is minimal.

Inflation: There is a concern that UBI could lead to inflation, as increased purchasing power might drive up prices.

Political Feasibility: Gaining political support for UBI can be challenging, as it requires a significant shift in public policy and mindset.

Implementation Challenges: Integrating UBI with existing social programs and infrastructure could be complex and difficult to manage.

Here are excerpts from the Scientific American (11/2024) issue. The article discusses the “Pros” without addressing the Cons, which I will do at the end of this post.

Basic Income Gives Money without Strings. Here’s How People Spend It
Pilot programs across the U.S., including new research funded by OpenAI, offer a glimpse of how a universal basic income could improve lives
By Allison Parshall

In 2020, amid widespread layoffs and economic turmoil brought on by the COVID pandemic, 1,000 low-income people in Texas and Illinois were selected to receive $1,000 per month—with no strings attached—for three years as part of a study on guaranteed income by OpenResearch, a nonprofit research organization funded in part by OpenAI and its founder, Sam Altman.

Sara Kimberlin, executive director of the Stanford Center on Poverty and Inequality said Founding father Thomas Paine advocated for it in The Rights of Man. Martin Luther King, Jr., called it the solution to poverty.

Even economist and free-market capitalist Milton Friedman suggested basic income in the form of a “negative income tax.”

Kimberlin says, pointing to a “large body of research” that participants increased spending to meet their basic needs and to help family and friends.

A separate study published online in July in the Journal of the American Medical Association also found that cash benefits reduced emergency room visits.

Evidence suggests that when people’s most basic needs are met, they start to build a firmer financial foundation for themselves and their family. 

If you don’t have access to stable, safe housing, health care or food, that interferes with your ability to be a productive workeror to take care of your family.

And if you’re a child, that interferes with your ability to concentrate in school.

When food stamps are introduced in a particular area, the outcomes for the families improve.

Children whose families received the Earned Income Tax Credit when they were young had more positive long-term educational outcomes.

Why provide cash, as opposed to food stamps or rent assistance?

Cash is flexible. People can use it to meet whatever their most pressing need may be.

It’s an efficient way of addressing people’s needs, and it also gives people a lot of dignity and autonomy in deciding how they’re going to use it.

Rather than having a Washington bureaucrat determine the needs of strangers living far away, trust the people to understand their needs and address them if they can.

It helps to avoid situations where someone may already have resources designated to pay for food but needs, for example, emergency child care.

If they don’t get it, then they can’t get to their job, which could cause a lot of disruption down the line by making them miss a paycheck, then miss the rent.

You can look at unconditional cash as a potentially very promising way of approaching social support because it streamlines the administrative costs and makes it easier for people to access the support they are eligible for.

The most common uses of the funds were to cover basic needs such as housing, food and transportation. 

(There) was a significant increase in people spending money to help their friends and family.There are some effects of this program that are not fully captured in the results.

There’s a ripple of positive effects that are going out beyond the direct recipient.

Is just giving people money really a viable solution to poverty?

One factor that could change results is the amount of money given as basic income.

I suspect there would be vastly different results if everyone was given, say, $10.000 a month rather than $1,000.

ADDRESSING THE CONS

Every support program has been criticized for supposed high Cost, Potential Work Disincentives, Inflation, Political Feasibility, and Implementation Challenges.

Franklin D. Roosevelt faced these objections when he instituted Social Security, and Medicare has faced the same objections.

These objections were why Social Security was unnecessarily tied to the FICA tax, which doesn’t fund the program but limits it.

High Cost: The federal government has infinite money to pay for infinite benefits. This is Monetary Sovereignty.

In fact, the higher the cost, the more growth dollars the federal government will pump into the economy, benefitting the entire nation, not just the poor.

Potential Work Disincentives: The rich love to ascribe this to the poor. You never hear about someone making $100,000 a year not getting a raise because it would disincentivize him from working.

Only the poor are accused of being so lazy that no longer faced with grinding poverty, they will decide to quit work, perhaps loll about, sleep late, and take drugs.

It’s a phony insult that has had no basis in fact. It has not been the result of other anti-poverty measures.

Inflation: We have discussed this many times before. Contrary to popular myth, inflation is not caused by too much spending. Inflation is caused by shortages of crucial goods and services, mostly oil and food.

The most recent inflation was due to COVID-related shortages of oil, food, computer chips, shipping, metals, lumber, labor, and other essentials. As these scarcities end, so does inflation.

The notorious Zimbabwe hyperinflation was a food-shortage situation. (The government stole farmland from farmers and gave it to people who didn’t know how to farm.)

Political Feasibility: The rich hate any program that narrows the income/wealth/power Gap between them and the rest of us.

So they bribe the politicians (via campaign contributions and lucrative non-political income), the economists (via university endowments and jobs with think tanks), and the media (via ownership and advertising revenue) to spread disinformation about anti-poverty efforts.

The solution is to know the truth, tell the truth, and to find an effective leader to promulgate the truth.

Implementation Challenges: There are no challenges. We already know how to administer Social Security and Medicare (which is a huge challenge) and have already sent checks to the public.

• COVID-19 Pandemic (2020-2021): The government issued three rounds of Economic Impact Payments to help individuals and families cope with the financial impact of the pandemic. These payments were part of the CARES Act, the Consolidated Appropriations Act, and the American Rescue Plan Act.
• 2008 Financial Crisis: Under the Economic Stimulus Act of 2008, the government issued tax rebates to stimulate the economy during the financial crisis.
• 2001 Economic Stimulus Act: The government issued tax rebates to boost consumer spending in response to the economic downturn following the dot-com bubble burst.

SUMMARY

Social Security for All (aka Universal Basic Income), paid to every man, woman, and child in America, regardless of income, is an easily affordable, easily administered program that would address such problems as Poverty and Health while Simplifying Welfare, Encouraging Entrepreneurship, and Supporting Unpaid Work.

It would not exacerbate unemployment, underemployment, or inflation and would stimulate economic growth throughout the nation.

Rodger Malcolm Mitchell

Monetary Sovereignty

Twitter: @rodgermitchell
Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell;
MUCK RACK: https://muckrack.com/rodger-malcolm-mitchell;
https://www.academia.edu/

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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.

MONETARY SOVEREIGNTY