The coronavirus pandemic has opened the door to radical economic reform, argues FT columnist Martin Sandbu. A no-strings regular cash transfer to everyone could shake up the welfare system, bring new economic security, and create more opportunities for all. Welcome to Free Lunch on Film where unorthodox economic ideas are put to the test. Read more at
If the pandemic proved one thing it’s that our economy is broken the people who do the jobs we most depend on had already suffered wage stagnation and we’re now most exposed to covet on the front lines and to financial hardship in the lockdowns politicians everywhere are promising to build back better so now must surely be the time we try to make our economy work
For everyone one idea for how to do so is universal basic income or ubi it’s sometimes derided as free money for the idea is that the government should give everyone a regular amount of money no strings attached so that they never need to fear for their economic security during the pandemic the u.s actually did this and sent several checks to almost everyone
In the country but checks in the mail forever may sound ridiculous to you and the cost of it even more so certainly many academics and many of my ft colleagues disapprove of basic income we shouldn’t be giving people a handout because ultimately that doesn’t help them it’s really the universality of it that makes me very skeptical but i believe there’s more
Wisdom to ubi than many people think welcome to free lunch on film the series where i take unorthodox economic ideas that i like such as universal basic income and put them to the test so ubi is an income a cash benefit it’s universal so it’s given to everyone and it’s unconditional which means you don’t need to do anything in particular to become eligible
For it this seems hopelessly radical even naive but it’s an idea with an amazing staying power discussed for centuries from the founding fathers of the u.s to today’s silicon valley tech billionaires from u.s libertarians like milton friedman to finnish socialists i see that the universal basic income would be a natural next step for the nordic welfare state
Finland’s government has tested the policy and they’re not alone india and south africa have considered it iran’s tried aversion there have been ubi trials in the u.s canada the netherlands kenya and many more places but there’s one place that gives a better idea than all of these and that’s alaska when oil tax revenue started coming in 40 years ago the state
Set up a permanent fund to prevent politicians wasting the money every year it pays out a dividend between one and two thousand dollars to every man woman and child living in alaska it was important and it was big you know for us especially as a young as a young family alex and kyra stewart live in houma 220 miles from anchorage they started out in fishing but
Now supply wood to restaurants to flavor grills and ovens let me see oh yeah deposit soa pfd division both of them came in very good yep they saved up the dividends they were paid to their two girls we homeschooled both of our children and we used a portion of that savings that the girls had to build their schoolhouse so we could continue to school outside of
The kitchen table and then as the girls got older it was it’s just theirs you know if they had a choir trip to go on or you know they had money the stuarts use their own dividends just as sensibly so quite often in the past we would use our dividend checks or a dividend check to buy winter tires for one of our trucks sometimes if you’re on the margins that little
Bit is enough to pay the mortgage or just give you some breathing room often what we did when we had extra we give to the local non-profits the local museum the library even if it’s a thousand dollars to me if i go and then spend that thousand dollars in homer then that person have got their dividend check but then they just got another thousand dollars from me
And maybe a bunch of other people so it really ripples out across the whole community and they don’t think the cash stops people working i just like to think that people like to work i mean people like to maybe they would work in a different job maybe they would not wash dishes but if they could have the job they want instead of the job they have to have and
If they did have a job that they liked but it wasn’t paying a lot you know then they can still keep that job but they do think a bigger dividend could change that i think there would be definitely a lot more people that would opt to just you know if they could just coast on the dividend if say it was a thousand a month you know and if there was two people and
Then they had all their kids if there’s one thing the stuart’s made clear is that the dividend has given them a greater sense of security and well-being you know a thousand dollars a year is not going to make or break you know most people but knowing that we’re getting it is definitely a psychological you know comfort it’s not that much but it saves your pride
A little bit i guess feels good to get something and i think everybody can say that alaska’s a special case but what the students say goes to the heart of the debate on universal basic income and whether a similar or even larger payment could make sense elsewhere and i think they answer many of the objections people have to ubi what some people think is bad
About ubi is precisely what others think is good about it above all that there are no strings attached to receiving basic income to a conservative thinker like orin kass that is a terrible idea the thing about a ubi is that it’s not how parents want to raise their own kids most parents don’t tell their kids don’t worry whatever you do we’re going to take care of
You and give you enough money to live on every year but they won’t have any say about it whether they want the kids to receive it or not in america it’ll be like having your crazy uncle sam come charging through the door telling the kids don’t worry what your parents say i’m going to take care of you as you turn 18 work if you want don’t work travel and smoke i’ve
Got your back so why give out money unconditionally well one reason is that the welfare systems we have today are just too complex a lot of poor people who are eligible and should be getting the benefits aren’t juana marinesco has studied ubi trials as well as the alaska dividend the one thing that a universal benefit would be able to achieve is to avoid leaving
Behind people who should be eligible but due to administrative complexities were unable to avail themselves of the benefit politicians who support ubi like finland’s social affairs minister hannah sarkidan also believe our welfare systems have to be updated to support more digital and precarious working lives people are not so clearly workers or entrepreneurs or
Unemployed or studying they might be that all mixed together and maybe our current social security system is not really flexible enough not everyone on the left agrees with satkin and socialist party ubi is not finnish government policy at the same time not everyone on the right disagrees it was a previous center-right government that set up a two-year ubi trial
It paid 2 000 unemployed people 560 euros a month the trial showed that people when they have the universal basic income they are more satisfied with their life and they feel that their income is more stable and protected the findings also went against the belief that unconditional money weakens the incentive to work you see from the finnish trial that people
Didn’t work less so having the universal basic income didn’t mean that people would stop looking for jobs and stop being active in their life that finished result has held up elsewhere people don’t seem to use unconditional money irresponsibly or work less in many studies there is no effect on work at all and in some studies there is some decrease in work but
It tends to be very small and what matters isn’t just whether a basic income will keep people working but whether their jobs would be better this times with the experience of the stewards in alaska who described how their dividend liberates people and that to me is one of the greatest attractions of basic income when people don’t live on the edge they enjoy
More freedom of choice and suffer less stress financially and psychologically they can more easily afford to say no to exploitative jobs or have time off to retrain and learn new skills they can reduce paid work to care for young children or elderly parents or even take the risk of starting up for themselves but not everyone is convinced by small-scale trials
The experiments that are run are very short and time-limited for a small number of people so it’s not actually a test of how people would behave in a society where they grow up knowing the program is there and yes knowing basic income will always be there could make people less keen on paid work because the person has more opportunities to do something outside of
Work they might want to work less especially if the job they’re doing isn’t very good being able to leave bad jobs is not a bad thing though it could force employers to treat workers better and remember what the steward said about the alaska dividend which has been around for 40 years when it’s spent it creates jobs all this cash is going to be spent in local
Businesses in restaurants in retail and that creates jobs and so you have a phenomenon where maybe people want to work a bit less but companies want to hire more people and it turns out that these two effects work in opposite directions and therefore you could see no effect once you introduce ubi at scale that’s why i don’t think we need to worry a lot about the
Work incentives over ubi but skeptics have another worry they doubt that those who lose their jobs or are poorly paid because of automation and digitalization can really benefit from a ubi just giving people handouts doesn’t solve the problems that come with being out of work particularly the way ubi is being spoken about in silicon valley they’re saying hey
Let’s just go to the midwest and hand laid off factory workers a check and they’re gonna be fine they can go up and be poets and painters doesn’t work like that guys work has meaning well i agree with that but i still think that if you are out of work you’re much better off with a ubi than without one now opponents still worry that without conditions on the money
Some people will just waste it i think that’s a prejudice not rooted in the facts they just spend it on everyday expenses the rent the food you know just like you would spend any extra income certainly this is what we see in alaska where the cash largely seems to be spent well alex and cairo have used it to buy fuel and winter ties but critics say the alaska
Dividend is too small to draw any conclusions the size of the payment is not something that actually is designed to uh or could support a family that’s a good point so let’s look at another us case with much more money in north carolina the eastern band of cherokee indians gets huge revenues from a casino on their reservation and they hand this out unconditionally
To all members of the tribe just like a ubi it averages four to six thousand dollars a year much more than alaska the effects were quite remarkable first of all increase the educational attainment of kids by one full year among the poorest members of the tribe secondly the dividend reduced mental health issues among the kids and in particular it reduced drug and
Alcohol abuse which i think is very interesting because a lot of people when you tell them about ubi they’re worried that people will spend it on drug and alcohol and this study shows that it’s exactly the opposite well i find all this pretty reassuring people spend free money sensibly and they don’t stop working but there is another objection why on earth would
You want to give it to the rich that’s what bothers melissa kearney an economics professor who studies inequality the idea that we’re going to be paying transfer payments to a universal set of people people all up the income distribution with very little social return for that that’s what doesn’t make any sense to me i could come up with a lot better uses of
Taxpayer dollars subsidized child care low-income rental support unconditional cash assistance to families with kids but supporters have a reason for giving ubi to everyone including the rich it’s that if you means test the benefit only for the poorest you penalize people just when they manage to do better as they become less poor their benefits get cut off and
So that both provides a disincentive to work but also frankly could be seen as unfair as people are slightly bettering themselves we are clobbering them and so the whole point of a universal basic income is that since the cash is the same for everybody even if you’re working more you’re still receiving your benefit so if we really want to reward work we should
Let people keep their cash when they’re successful even opponents agree with this point you’re right that the case to be made for extending it up the income distribution is then you don’t distort people’s decisions whether or not you go to work you get this check that’s a good thing so it really depends on how much spending we want to put towards this program
So here we come to one of the biggest issues is ubi even affordable a small payment like alaska’s doesn’t make enough of a difference so i’m interested in whether we could have a generous ubi that would provide a real safety net but the headline cost seems terrifyingly high a meaningful ubi something like ten thousand dollars per adult in the us would cost about
2.5 trillion dollars that is more much more than we spend right now on all redistributive programs so if we wanted to pay for something of this magnitude something that could cost five to ten percent of gdp we’d have to give up social security we’d have to give up disability insurance to me that’s a very strange view of what the government should be doing to help
Its citizens well i think we can find better ways to fund a ubi if we see it in connection with a tax system rather than as simply swapping one benefit for another well of course we cannot look at basic income as a separate conversation we would make the changes to the taxation system and take the money away from the rich people let’s work through a hypothetical
Example of a generous basic income suppose we wanted to pay all adults one third of what the average british household has to spend per head that would be about 7 000 pounds a year i would implement this as a deduction from your monthly taxes a deduction that could be refunded so that if you didn’t owe any tax you would get the whole amount paid out in cash on
A gross basis that would cost about 18 of national income but a ubi would allow us to make big savings elsewhere for example the basic state pension is about seven thousand pounds a year if the elderly instead received the same amount as a ubi the government could save five percent of national income and currently people earn large amounts of money before they
Start paying tax and this is worth more to high earners who would otherwise face higher tax rates with a ubi paid as a flat tax deduction to everyone we could charge income tax from the first penny earned in the uk this alone would free up another eight percent so in our example just those two measures would leave us with a much smaller net funding gap of five
Percent of national income that’s still a big amount to be sure but as finland’s hana sarkinen says it’s an amount we could realistically consider raising in taxes what this means is that ubi is not a utopian idea but a serious proposal for social reform that can be seriously debated such a debate will turn not just on the trials and the evidence but on how
You view human nature and the role of government well in my mind ubi is a bad idea because it says it is the responsibility of the government to support everybody instead of people’s responsibility to support themselves we see people as a subject that want to be active want to work want to improve their lives and also i think we trust people more maybe this
Is an ideological divide that just can’t be bridged even so i believe there is more agreement than it appears at first i think in theory if you could say actually implementing a universal basic income would not change how people think about work those would be very good counter arguments to what i’m saying and here’s another idea could we get the critics more
On board if we don’t call it a ubi intended to let people choose not to work but something more like a dividend from shared resources it could be alaska’s oil the cherokee’s casino profits big tech data extraction or a carbon tax i like it and in fact california is in some ways already doing this they’re saying look we are going to tax data collectors and then
We’re going to hand it back to the the individual or via the state to the individual and i think in the u.s given that california tends to lead policy you may see it taking flight nationally at some point and something else everyone agrees to is that we should avoid penalizing people for working more or bettering their situation so people who don’t agree on ubi
As a final destination for reform could perhaps agree on some of the specific building blocks that make up ubi i see basic income as a road and i’m not sure whether we will ever get there but i see that taking steps towards basic income we can improve and renew our our current social security system and make it more flexible make it more simple better for
The people universal basic income is still an unorthodox idea and a lot of people think the proposal just goes too far but the pandemic has made citizens and politicians more prepared to consider truly radical reform i believe the time for ubi is drawing near and finally we’d love to hear what you think so please share your comments
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The case for a universal basic income | Free Lunch on Film By Financial Times