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Four Reasons That a Guaranteed Income Won't Work

Thursday, 05 December 2013 01:03 PM

By Megan McArdle

Tuesday night, I was part of a Wonkblog debate on guaranteed income. The discussion ranged widely, but I thought I'd write up a few of what I think were the most important points:

Cost: Not a few libertarians have embraced the idea as an alternative to the welfare state. Get rid of all the unemployment insurance and just cut everyone a check once a month. There's a lot to like about this: It has minimal overhead, because you don't need to verify eligibility beyond citizenship, and it may reduce some of the terrible incentives that poor people face under the current system.

There are a couple of problems with this, however. The first is that zeroing out our current income security system wouldn't provide much of a basic income. Total federal spending on income security (welfare, unemployment, etc.) is under $600 billion a year. There are 235 million adults in the United States. Millions of those are undocumented immigrants, but that still leaves you with a lot of people. Getting rid of all of our spending on welfare and so forth would be enough to give each of those people less than $3,000 a year. For a lot of poor people, that's considerably less than what they're getting from the government right now.

The problem is that if you try to bring it up to something a bit more generous, the cost quickly escalates. Cutting everyone a check for $1,000 a month, which most people in that room would consider too little to live on, would cost almost $3 trillion. But if you means-test it to control the cost, or try to tax most of the benefits back for people who aren't low-income, you rapidly lose the efficiency gains and start creating some pretty powerful disincentives to work.

Reciprocity: I made the point that while many societies redistribute more than ours does — many hunter-gatherers have practiced something close to communism — that sharing takes place in a strong network of reciprocal obligations. This is not the reciprocity of trading, in which I give you something in exchange for something else right now, and when the trade is finished, so are our obligations to each other. The sharing environment is more like a family, in which the obligations are deep and fairly wide-ranging, but you don't necessarily know who will collect on them or when.

The guaranteed income is often explicitly touted because it obviates the need for reciprocity; why should you have to work some crappy job just to get the basics you need to live? Or jump through hoops for some social worker? Mike Konczal made the point that bankers don't have to pee in a cup to get paid.

I oppose drug-testing welfare recipients, because I oppose the drug war. But I think the broader argument for a guaranteed income has some really deep problems. Some are moral: How can you say that the affluent have an obligation to give a considerable portion of their income to their fellow citizens, precisely in order to free said fellow citizens from any obligation to the people who are paying their bills? Others are practical and political: Such a program would not have broad-based political support, and it would be corrosive to civic society.

I think you can make an argument that society should make it possible for those who are willing to contribute to support themselves; I would not be opposed to a system of guaranteed jobs that paid $10,000 a year, or whatever we think this basic income should be. But you cannot sustain a program that posits huge obligations on the part of one group to people who have no reciprocal obligations at all.

After the talk, naturally, someone asked me about trust-fund babies: Why do people worry about welfare recipients but not about people who live off inherited wealth? I think there are a lot of answers to that: The number of people with sufficient inherited wealth to free them from the need to work is very small, and they do not make ongoing demands on everyone else's monthly paycheck. The broader answer is that I am bourgeois enough to think that trust funds are bad for people, and I have occasionally toyed with the idea of a 100 percent estate tax.

But one thing to point out is that the questioner was actually wrong: The person with inherited wealth usually obtained it by just the sort of nannying that Konczal decried. In order to get the trust fund, they had to submit to many hours of being harangued about their manners, habits and life choices — and if you know anyone in line for a substantial inheritance, or have read a P.G. Wodehouse novel, you know that their elderly relatives often use the money to control the lives of their potential heirs. The reward may be wildly out of proportion to the amount of harassment they have to suffer, but in very few cases is it a free guarantee.

Politics: As I pointed out recently, any sort of guaranteed basic income means ending immigration from poor countries. Giving documented immigrants access to Medicaid and public schools is contentious enough. There is no way that we are going to admit people to this country in order to hand them, and all of their descendants, a check for a thousand or two every month. Yes, we could have guest-worker programs, but the problem remains, because every child that guest worker had on U.S. soil would be a U.S. citizen. Immigration has a lot of support right now, even among people who are not themselves related to recent immigrants. I'm skeptical that such support could be maintained if each of those immigrants, and their children, was guaranteed to cost the taxpayer $12,000 every year for life.

Realistically, zeroing out all the other programs that we're supposed to terminate in favor of the basic income is also hard to see. In-kind benefits have all sorts of problems, and I broadly oppose them. I also have to acknowledge that if we gave people cash instead of food stamps, at least some people would give their kids too little food and spend the money on cigarettes and booze. This might be a teeny-tiny fraction of all the people getting the benefit, but you only need one story on the nightly news, especially because the farm lobby will be allied with the poverty lobby to keep the food stamp benefits flowing. Likewise housing vouchers, Medicaid, etc.

Some people would make bad decisions with their cash, and then we would have to bring back various programs to help the people who make those bad decisions.

There's also the issue of people who don't make bad decisions but simply have greater needs: the disabled, the mentally ill, those with cognitive disabilities and so forth. A guaranteed basic income instead of a welfare state might be attractive, but a guaranteed basic income on top of a welfare state presents a lot of problems, not least that it would nearly double everyone's tax bill.

Work: If you make it possible for some people to live without working, some people will live without working. That decision will be rational in the short term but disastrous in the long term. At any given point, a minimum-wage job may be very unattractive compared with spending more time with your family. But over the long run, it's very hard to get a "good" job if you have been living on a basic income rather than working; employers do not like the signal sent by resume gaps. It is particularly hard if you are not a middle-class kid whose parents have friends with hiring power — and no, this is not fair, but we go to a guaranteed income with the socioeconomic structure we have, not the one we would like to have.

Along with family, work is the defining element of most lives and communities. People who are out of work are much less happy than people who are in work, even in European countries with generous social safety nets. Discouraging people from making the short-term sacrifices necessary to gain a long-term foothold in the job market is not good social policy.

To be fair, some studies seem to show that the negative impact on work is pretty minimal. But these were short-term studies, not a permanent program. Quitting your job if you know that the extra checks will end in a year or so is not smart. But it might be quite rational to quit your job if you know that you can have a minimal basic income even if you don't work at all. In general, I am wary of exciting results from small pilot programs. Most of those programs fail when they're rolled out statewide, either because the result was spurious or because the exciting work of a small, dedicated group just can't be replicated in a gargantuan state bureaucracy.

I will be very happy if Switzerland decides to mail a check for a couple of thousand dollars to every citizen every month; it will be fascinating to see what results this has. But I am skeptical that those results will, on net, be good ones.

Megan McArdle is a Bloomberg View columnist who writes on economics, business and public policy.

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Tuesday night, I was part of a Wonkblog debate on guaranteed income. The discussion ranged widely, but I thought I'd write up a few of what I think were the most important points.
Thursday, 05 December 2013 01:03 PM
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