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Money for Everyone

This fall, a truck dumped eight million coins outside the Parliament building in Bern, one for every Swiss citizen. It was a publicity stunt for advocates of an audacious social policy that just might become reality in the tiny, rich country. Along with the coins, activists delivered 125,000 signatures — enough to trigger a Swiss public referendum, this time on providing a monthly income to every citizen, no strings attached. Every month, every Swiss person would receive a check from the government, no matter how rich or poor, how hardworking or lazy, how old or young. Poverty would disappear. Economists, needless to say, are sharply divided on what would reappear in its place — and whether such a basic-income scheme might have some appeal for other, less socialist countries too.

Annie Lowrey examines “the basic-income movement” in the NYT Magazine’s economics column this week, which is essentially a movement to give all citizens a small guaranteed salary as a way to eradicate poverty. It’s an idea that is in part supported by both conservatives and liberals. The problem, of course, is figuring out a way to fund it, but in theory, it would “replace welfare, food stamps, housing vouchers and hundreds of other programs, all at once.”

Charles Murray of the conservative American Enterprise Institute likes the idea because it would give money to the poor without much of the government bureaucracy that goes into all the individual programs we have now. His suggestion would be a minimum income of $10,000 a year to any American over the age of 21, who stays out of jail. The left likes the idea, according to Lowrey, as an “an anti-poverty and pro-mobility tool.”

It’s not a brand new idea. In the 1970s, an experimental Canadian Basic income project was tried out in a small town in Canada, and the results appeared positive: Poverty appeared to disappear, high school completion rates went up, and hospitalization rates went down.

It’s an interesting idea—especially in light of stagnating wages and the recent slew of protests and campaigns to raise the minimum wage from workers in low-wage industries like fast food, retail, and as we discussed yesterday, the airline and hotel industry.

Photo: Images Money


10 Comments / Post A Comment

jfruh (#161)

Economic theorists, even conservative ones, tend to love the idea of a minimum gauranteed income, because economists in general believe that giving poor people money directly is more efficient than giving them aid with strings attached. One form the idea has taken is a negative income tax, which basically creates a progressive taxation structure in which the lower brackets are negative — so poor people get money back from the government rather than paying it. The idea was proposed by conservative superstar Milton Friedman way back in 1962. And in fact, Earned Income Credits, which were greatly expanded under George W. Bush, are a form of negative income tax, though because you only get them when you file your taxes instead of year round in your pay check they aren’t the most efficient form. (This by the way is why you see so many pop-up tax preparers in lower income neighborhoods — they’re essentially payday lenders for the earned income credit, which most poor and working class poeple in the US get).

The problem is that once the idea gets out of the conservative academic/think tank space into actual conservative politics, people seem to notice that it just involves handing money to poor people and they recoil. Even the half-assed negative income tax that is the earned income credit goes a long way towards explaining the notorious “47%” figure of people who pay less in federal income taxes than they get back in benefits from the gov’t, and we all saw last year what a hot-button issue that turned out to be for conservatives.

deepomega (#22)

I’d be worried about companies reducing pay and benefits, tho. Much like federal loans fuel higher education costs, seems like this would depress wages.

andnowlights (#2,902)

@deepomega It would, probably, because that’s how corporations usually work: spend as little money as possible on as many workers as possible. But reality doesn’t matter to theorists. Makes me nuts. My husband loves metaethics and I can’t talk to him about it because I get too mad, ha ha.

@deepomega Under Marxist economics it would, because companies pay their workers only enough to survive, and the “reserve army of the unemployed” prevents competition from driving up wages.

Under neoclassical economics, though, giving *every* worker (and nonworker) a $10k boost would mean companies would still have to compete for workers on the demand side, and on the supply side the labor force would, if anything, shrink as some number of people on the margin would decide $10k is enough to live on and they don’t have to work any more. So if anything wages would go up.

And that’s not even getting into the effects on aggregate demand of taking ~$1 trillion a year out of the investment accounts of the rich and putting into the hands of the poor and middle class. Between the boost in demand and people falling out of the labor force on the margins I think you’d see structural unemployment fall close to zero, at least over the medium term. (I also expect you’d see interest rates go up and corporate cash piles draw down as a smaller pool of capital chases bigger returns in the real economy.)

The huge question, of course, is whether the minimum income deal would include the complete elimination of the minimum wage. In that case you MIGHT see low-wage service jobs try to cut pay, but I suspect it would be hard to get anyone to work for a whole lot less than the current minimum wage when starvation and homelessness is not the alternative. It’s quite possible that unskilled workers would prefer a lifestyle of $10k/year and ample leisure/family time over $15k/year working full-time at McDonalds, for instance.

There are also a lot of questions about how it would be financed and what would happen to existing programs like Social Security and Medicare. I think we’d still need some kind of disability system for people who can’t work and require expensive, lifelong treatment — the blind, paraplegics — but could probably tighten up eligibility quite a bit, boost benefits for those who need them, and still save many billions. I suppose the SS trust fund could be used as a down payment for the program, or stretched out to provide smaller top-up benefits for retirees, but I don’t know what kind of legal (let alone political) tangles this would encounter. And of course we’d still need to insure the poor against catastrophic medical expenses. And housing would still be a major issue — nobody can afford to rent a private apartment in any big city on an income of only $10k year.

That means (according to my back-of-envelope math) that realistically this program could only be about halfway funded by cutting or eliminating existing programs. $500-600bn in new taxes would be a pretty huge political lift, even with some 70s conservative wonks on your side…

deepomega (#22)

@stuffisthings Yeah I mean setting aside issues of funding (which is pretty apparently impossible in the current political climate) I’m not sure that demand-side econ works here. As you said, 10k is not enough to live on in a city, so at least in major metro areas you’re still talking about people not being able to pay for housing and food on the basic federal income. So you’d still see people taking underpaying jobs as an alternative to a no-paying job. (Kinda like how unemployment doesn’t stop people from taking shitty jobs and getting desperate.)

To really keep people from acting out of desperation instead of economic self interest, we’d have to basically pay for food and housing for a family, which would get closer to 20 or 30k in a city.

That said: I wonder what you could do if you abolished the minimum wage in exchange for this. Definitely more economically efficient, but can you talk the right into it?

jillcool (#2,123)

Has anyone compared this idea to what happens with some Native American tribes? I’d be very interested in a comparison.

aetataureate (#1,310)

@jillcool I didn’t know until right this second that I’m interested in that comparison too!

Eric18 (#4,486)

Interesting idea for a country of 8 million people that is one of the richest on the planet. But not very practical for most countries.

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