Guaranteed Basic Income

8 thoughts
last posted Jan. 7, 2014, 4:41 p.m.
get stream as: markdown or atom

I want to like the idea of a guaranteed basic income, but how well do we understand its effects? How do we know it wouldn't just drive up prices?


The rationale is explained by Alan Sheahen:

Job creation is a completely wrong approach because the world doesn’t need everyone to have a job in order to produce what is needed for us to live a decent, comfortable life. We need to re-think the whole concept of having a job. When we say we need more jobs, what we really mean is we need is more money to live on.

One answer is to establish a basic income guarantee (BIG), enough at least to get by on — just above the poverty level — for everyone. Each of us could then try to find work to earn more. A basic income would provide economic freedom and income security to everyone. We’d have the freedom to work less if we wanted to, or work the same amount and save or spend that money. It would provide a direct stimulus to the economy, which would help create more jobs.


Conservative economist Milton Friedman endorsed the idea of a basic guaranteed income in the form of a negative income tax.

You should watch the video, but to sum up: under this scheme, you set a "floor" below which people receive supplements to their income, either on their paychecks (if working) or directly (if unemployed). You also set a rate to apply to the difference between earned income and the floor, which supplies the amount of the supplement.

For example if your "floor" is $40,000 annually and your rate is 50%, then a person earning $20,000/year would also receive 50% of the difference in supplemental cash, in this case $10,000 over the course of a year.


A big advantage of the negative income tax is that it never penalizes you for earning more money. Even with the supplement, you're still always better off the more you earn by working.

Under the example scenario above,

  • An unemployed person makes $20,000 a year
  • If he gets a $20,000 job he makes a total of $30,000 a year
  • If he were to get a $40,000 job, he'd be making $40,000 a year

The feared inflation-scenario looks something like this (using the example amounts above):

Day one: People wake up on the first day of the legislation's effect. Those who had been making $15k a year working minimum wage at Walmart now make $27,500. A large number of these people quit, deciding to live on the basic income of $20,000, which, for them, is still a raise.

Day two: Businesses are faced with rising demand for goods now that lower-class people suddenly have a lot of extra money in their pockets. They also have fewer workers to meet demand, so they end up raising both wages (in order to convince the remaining workers to stay) and prices (to match demand and cover their increased labor costs).

Day three: Rising wages and prices continue. Inflation spirals.


Obviously the big assumption underlying the inflation fear is that too many people will quit work and decide to live on the basic income.

The equally obvious answer is to ensure that the basic income is just that, basic; thus the incentive for improvement is always there.

By today's standards, for example, I doubt many middle-class people would opt to slash their lifestyles in order to make it on $20k per year and not have to work.


Why We Should Give Free Money To Everyone

An excellent article about some examples of basic income I had not heard of before, such as Canada's 1973 Mincome program, and the small-scale London experiments of 2009.


Swiss to vote on 2,500 franc basic income for every adult

Another example of basic income -- this one not, I think, very likely to have good results overall.

For one thing, it should be suspect because it is purely the result of a popular referendum; the only thing needed to get it on the ballot was to collect 100,000 signatures from the populace. So the amount of the "basic" income was probably picked very arbitrarily based on popular appeal, rather than sound economic analysis.

For another, the amount is too high. As Tyler Cowen of Marginal Revolution notes:

With that, a married couple could piece together more than 67k and simply not work, so this sum appears infeasible.