November 7, 2016

Universal Basic Income: Real and Ideal

Let’s be blunt. The prospects of the United States moving to a true Universal Basic Income or Negative Income Tax are, today, pretty slim. Conservatives are deeply skeptical of cash transfers not tied to work. And progressives are naturally anxious to give up on targeted programs they have fought for years to expand.

But more fundamentally, the U.S. republican system of government is simply not set up for big overhauls of multiple programs, much less the entire tax and transfer system. That’s by design. Divided government and limited party discipline are recipes for political gridlock, and make formulating large multi-stakeholder bargains next to impossible, even when they are in the direction of more limited government. The first full-scale implementation of a UBI or NIT will therefore likely be in a country with a parliamentary system, like Canada, Finland or the UK. Parliaments routinely overhaul entire tax codes and welfare systems due to the coherent and unified powers invested in the governing coalition. The U.S., in contrast, does comprehensive reforms in fits and starts, but mostly just accumulates programs and tax carve-outs with no end in sight.

The concept of a UBI applied to the U.S. can nonetheless be quite useful, if not as a politically realizable near-term goal, than at least as an “ideal type”—a kind of abstraction or construct that we can learn from and orient around even if it’s unlikely to ever become a concrete reality. Consider the key features of a UBI:

  • It has an unconditional structure to avoid creating poverty traps.
  • It sets a minimum income floor, raising worker bargaining power without wage or price controls.
  • It is national and universal in scope and therefore decouples benefits from a particular employer or local jurisdiction.
  • It is in the form of cash, both for efficacy and to respect a diversity of needs and values.
  • It simplifies and streamlines a complex web of bureaucracy, eliminating rent seeking and other sources of inefficiency.

There are many other features one could mention, but my bigger point is that supporting a UBI in this sense doesn’t require holding naive or utopian political views. Rather, supporting a UBI should be seen as shorthand for supporting progress on each of the above policy dimensions, with some longer term conception of how it all adds up.

UBI and Immigration

This informs how I think of the recent exchange between Tyler Cowen and our own Will Wilkinson. Tyler thinks a UBI in full bloom would discourage political support for immigration. Will thinks that a world where a full scale UBI is politically achievable is likely very different in other ways too, including in how we perceive and treat recent immigrants. In other words, thinking about the political fall-out of a full scale UBI requires consideration of it in general equilibrium.

In addition, I ask Tyler to think more on the margin. The options before us are not UBI or no UBI, but whether a move toward a more UBI-like system would improve the functioning of the U.S. system of social insurance while at the same time making it more “migration robust.” I think it would. The opacity and complexity of the current system helps contribute to the cynical view that low skill immigrants are abusing public assistance. A simpler, cash transfer program would be more transparent, easier to monitor for fraud, and not susceptible to the free-riding of many in-kind benefits.

Moreover, to the extent that a minimum income guarantee, on the margin, erodes political support for minimum wage policies, it is clearly a boon for the politics of low skill immigration. Immigration restrictionists have been known to advocate for higher minimum wages precisely in order to price-out foreign labor. A UBI represents an alternative way of bolstering native worker’s bargaining power while allowing wages to be set free—a point Tyler’s Bloomberg View colleague Leonid Bershidsky made eloquently earlier in the year. 

Small Steps Toward a Better World

The world is a messy place. When libertarian economists say they support the “free market,” they aren’t betraying ignorance of the status quo’s political entrenchment. Rather, they use the concept of a free market as shorthand for certain features—secure property rights, flexible prices, liberal contract law—for which there are real and viable margins for reform. Simply dismissing someone espousing the concept of free markets as utopian is therefore a kind of category error. Indeed, libertarian economists know better than anyone how far the contemporary economy falls short of the free market ideal.

Similarly, as someone whose work aims to make real progress toward a UBI or Negative Income Tax, if anything I have above average knowledge of the barriers to its enactment in some sort of pure, idealized form. And yet, as a concept, it has helped me orient around a variety of margins where there is real progress to be made. These include:

  • Promoting programs like the EITC that entrust poor people with cash supplements.
  • Advancing a Universal Child Benefit to create a minimum income floor for children.
  • Eliminating program eligibility tests that penalize low-income workers for accruing savings.
  • Changing rules to make benefits more portable across state lines.
  • Working to consolidate, streamline and simplify existing programs, both for its own sake, and so that they interact together in a more coherent way.

Progress on each of these margins pushes the system as a whole toward being more UBI-like, which is a good thing even if it falls short of the ideal. Maybe someday the U.S. political landscape will shift, or the current accumulation of kluges will reach a breaking point that necessitates a major institutional restructuring. At that point there will be an opportunity for more dramatic and all encompassing reform. In the meanwhile, supporters of a UBI shouldn’t let the tyranny of the ideal get in the way of advancing real progress in the here and now.