Just Give Everyone Money

We’re spending the month of October around these parts diving into politics and policy and how they affect our lives.

One policy idea that I’ve found intriguing in recent years is the Universal Basic Income. It’s a concept that has been laughed off as utopian in many circles but has gotten more and more traction among policy wonks lately.

I decided that an article on UBI would be an interesting and thought-provoking piece for the personal finance community. As I was doing my research, however, I came across a major problem.

A thorough look at UBI would require far more information than I could reasonably put into one article.

And so this article today will start a mini-series exploring the ins and outs of Universal Basic Income. Today we’ll cover the basics and the competing visions for UBI. The next few articles will dive deeper into the pros and cons, addressing concerns, and figuring out how to pay for it.

I’ve gone back and forth over the years with whether I support the idea. Over the next few articles I intend to give you all the pros and cons so that you can come to your own decision.

Whichever side you fall on, however, it’s time we start taking the idea of a Universal Basic Income seriously.

Give Everyone Money

The premise behind Universal Basic Income is simple: Just give everybody money. Specifically, an unconditional periodic cash payment to everyone.

Beyond that, though, there’s all sorts of disagreement over what it should entail.

How often should it be given? Monthly? Annually?

Does “everyone” mean literally everyone? Or all adults? All citizens? All permanent residents?

Where does the cash come from?

And, most importantly, how much should the payments be?

Broad Bipartisan Appeal

UBI proponents love to point out that it has appeal across the political spectrum.

Everyone from Friedrich Hayek and Milton Friedman to Martin Luther King, Jr. have endorsed universal basic income.

Thomas Paine threw his support behind the idea way back when the United States was founded. Bill Gates was a more recent convert.

Richard Nixon actually proposed a Universal Basic Income when he was president. It was supported by Congressman George H.W. Bush. Young policy nerds like Don Rumsfeld and Dick Cheney helped run UBI trials.

These days UBI is popular among the Silicon Valley crowd. Mark Zuckerberg and Elon Musk have claimed that it is the best way forward. Sam Altman, head of the startup incubator Y Combinator, is so convinced of the benefits of UBI that Y Combinator is running a pilot program giving cash to people in Oakland.

The Silicon Valley crowd gets the most attention, but they are not the only group currently pushing Universal Basic Income. Another major proponent is Charles Murray, a long-time Libertarian political scientist and current fellow at the conservative American Enterprise Institute. Murray is the loudest voice in a Libertarian push for UBI

Still another locus of UBI support comes from progressive activists in the left wing of the Democratic party.

With such a diverse coalition across the political spectrum, this might seem like an easy lift in Congress.

The problem is that each group has a very different vision for UBI.

Libertarian UBI

The Libertarian support for Universal Basic Income is based mainly on how simple it would be to administer.

There are dozens of different programs run by the federal government to aid the poor in the United States. Each of these programs requires federal employees to make and enforce rules and eligibility requirements and other employees to distribute the benefits. Many of the benefits are not well known and require spending on awareness campaigns to try to reach the people that they target.

That’s a lot of bureaucracy.

A simple way to cut through all of that would be to just give people money.

The staff required to set and enforce the rules of a UBI would be minimal. We also already have systems in place to delivery Social Security payments that could be adapted for UBI purposes. The overhead would be tiny.

For this reason, the Libertarian vision for UBI includes eliminating the vast majority of aid programs, including Social Security, and replacing them with a Universal Basic Income of a roughly equal value. One analysis by the American Enterprise Institute went a step further and wiped out pretty much every method of redistribution, including veterans’ benefits, Medicare, the standard deduction, and every itemized deduction.

The specifics matter here. The overall effect of a program like this would depend on how much of the current system was gutted for funding. The AEI analysis would give a big boost to the middle class and a small boost to the poor at the expense of a massive cut to benefits for the elderly and a large tax increase (due to the loss of deductions) on the rich. Proposals that don’t touch tax deductions or Medicare would result in a decrease in aid to the poor, distributing that money among the rest of the country.

UBI as Robot Insurance

Silicon Valley supports UBI for a very different reason. Namely, to protect the American people from Silicon Valley.

Tech leaders see how quickly automation and artificial intelligence are taking hold because they are the ones creating them. They see these trends leading to mass unemployment in the near future.

I’ve written about this before. A few times, actually. There are some who argue that robots will permanently replace humans in many jobs and we will be seeing a permanent rise in the unemployment rate to 50% or more.

There are others who argue that technology has displaced workers before and has always created new jobs to replace them. Folks who made their living making horseshoes were put out of work en masse when the motor vehicle came around. They also worked in a time when nobody could have imagined people working as auto mechanics and gas station attendants. So maybe automation will eliminate a lot of jobs, but new ones will pop up to take their place.

I don’t know where I fall in this analysis. I’ve gone back and forth. But the people making the technology tend to be in the first camp.

For them, Universal Basic Income is a way to prevent a huge portion of the country from falling into poverty when Silicon Valley eliminates their jobs.

This vision of UBI sees it not as a replacement of the welfare state, but as a replacement for salaries. As such, it would need to be a much more generous, and expensive, program.

Ending Poverty with UBI

The third major vision for Universal Basic Income is the elimination of poverty.

The thinking behind this concept is pretty simple.

We are the richest country in the world and yet 43.1 million Americans live in poverty. So let’s give them enough money that they won’t be poor anymore.

This is obviously a glib summary, but the gist is right. The United States has a lot of wealth and a lot of poverty. Why not use the former to address the latter?

The underlying question is how much of an obligation we think society has towards those who are struggling. As a society we have already decided that we should provide aid to the poor. We have Medicaid and housing subsidies and SNAP and WIC and Pell Grants and all sorts of other programs.

If we have already acknowledged this obligation, we should take it to its logical conclusion: end poverty. Place a floor under which people cannot fall. No matter how bad things get, you would always have enough to feed, clothe, and shelter your family.

Proposals coming from this family of UBI proponents tend to aim for putting every family right at the poverty line with their monthly checks. The most common figure appears to be $1,000 per month per adult. This would mean an income of $12,000 per year for a single person and $24,000 per year for a married couple. The goal is to provide enough to support the basics, but not enough that everyone will quit working on the spot.

Confusing the Discussion

With these different visions in mind, it is easy to see how this conversation gets muddled quickly and never really gets anywhere.

We talk about Universal Basic Income as if it is a single, specific policy idea. In reality, it is a very broad range of policy ideas that have all adopted the same name.

Someone talking about enacting a UBI could mean anything from keeping spending constant and laying off a lot of government employees to more than doubling the government’s annual expenditures. They could mean replacing your salaries with a monthly check or merely replacing your standard deduction. They could want to provide protection from job loss, protection from homelessness, or just protection from having to jump through hoops to get your benefits.

These are all massively different visions and we cannot discuss Universal Basic Income without understanding the distinctions and specifying what we mean.

The Middle Way

For our conversation I’ll focus mainly on the poverty-elimination approach. This is for a couple reasons.

First, it’s the middle approach. I generally see splitting the difference as a cop out, but it may be useful here. Universal Basic Income is a relatively novel concept for most people and it would be valuable to understand the middle ground.

Especially with regards to thinking through how a UBI would be funded, a discussion based on the middle set of numbers would be more informative than the Libertarian vision of no new spending and more conceivable than the immense costs of addressing permanent unemployment.

Second, and more importantly, I think poverty elimination is the right goal.

Let’s End Poverty

I agree conceptually with the Libertarian approach. Giving people money is more efficient and more effective than our current system. We should not be micromanaging how the poor spend their money. We should not be making them spend precious time jumping through unnecessary procedural hoops. We should not be drug testing and shaming people that are looking for help surviving day-to-day.

But why stop there? The idea that we can only spend on the poor what we are currently spending on the poor is a strangely arbitrary place to draw the line. As far as I know there was no real comprehensive decision-making behind this particular level of support. Different programs piled on top of each other as the government tried to solve one little problem after another and plug small discrete holes in the safety net. It’s not as if a group of economists and policy makers got together, drafted a meta-analysis of poverty research, and decided that this was the ideal level of support.

Instead, I think that it is more valuable conceptually to look at the goal of ending poverty. Maybe when we look at the numbers we will decide it is unaffordable. Maybe when we consider the economic impacts we will decided it is infeasible. Maybe we’ll find other problems that make us think that a UBI at this level would be a bad idea. But it seems like a good place to start our research.

What About Automation?

I do believe that automation-driven unemployment is a problem. I go back and forth, however, on whether I believe it is a long-term problem or a short-term problem. These days I am leaning more towards the short-term side.

That said, even if it is a short-term problem, it is a massive problem for Millennials. Even if there will be new jobs created to replace the ones automation destroys, that means we will need to find new jobs in whole new fields in the middle of our working lives. We will have to learn new skills and start at the bottom of the ladder in our 40s and 50s. We will have to compete with kids fresh out of college for entry-level jobs.

This is a best case scenario. And it isn’t good.

In this situation, a poverty-level UBI would help. It would provide an extra cushion so that you have a little bit of extra time to find a new job or pursue retraining if necessary. If you were close to retirement anyway, maybe it would be enough to push you over the edge so that you don’t need to start a new career if you don’t want to. Maybe it allows you to take a lower paying job and still make ends meet. We can do all of those things without replacing your full salary.

I am intrigued by the idea of a jobless future as a thought experiment. Depending on the policies enacted to prepare for it, something like that could end up dystopian or utopian without a whole lot of middle ground.

That said, I think poverty is the more pressing, and more approachable, problem right now, so that’s where we’ll focus this conversation.

Plus, a UBI successfully implemented to address poverty could be expanded in the future to address larger issues if necessary. Maybe the elimination of poverty is the ultimate goal. Maybe it’s the first step.

Either way, let’s get started.

Join the Conversation!

What are your initial thoughts on Universal Basic Income? Do you fall into one of the three main UBI camps? What do you want to learn about in the upcoming articles? Let us know in the comments!

4 thoughts on “Just Give Everyone Money”

  1. UBI is an interesting concept. The challenge, as I believe you alluded to, is to do it right is a major gutting of the government systems. That means it isn’t something that can easily be tested. Doing a test “right” would be very hard to then recover from if the test failed.

    For similar reasons I don’t think the Silicon Valley tests are useful. It just isn’t an accurate representation of what it would look like rolled out across the US.

    Still, I find it very interesting to ponder.
    Brad – Financial Life Planning recently posted…How to Defer Taxes on up to $55k when Self-EmployedMy Profile

    1. I think there is a middle ground that would work, especially in the poverty elimination model of UBI. Things like housing subsidies and SNAP could be replaced with cash while leaving some of the more targeted or specialized programs in place. Even if UBI fails the poor would be better off with cash benefits than having to jump through hoops anyway, so we could get rid of UBI but keep the cash benefits in place. If UBI works and we want to get rid of other programs to increase its funding, then we can phase them out bit by bit to minimize disruption.

      Any move to UBI would involve some major policy changes but I don’t think we should write it off for that reason. If that was the approach we took to policy-making we would not have Social Security, Medicare, Unemployment Insurance, or any other number of big changes.

      Thanks for the comment, Brad!
      Matt recently posted…Why We Need to Talk About PoliticsMy Profile

  2. I’m note sure why you believe it isn’t important to Drug Test people. Do you believe we should pay people a basic amount so that they can continue to be on drugs?

    1. There are a number of different answers to this:

      1. If someone has a drug addiction, the answer isn’t to cut them off from all money and aid and society and let them die. Every life is valuable. This answer alone should be enough, but I don’t think that it will sway you, so I’ve included others.

      2. Study after study finds that drug testing costs more money than it saves. The vast majority of welfare recipients do not use drugs and cutting off the few that do doesn’t save enough money to pay for the drug testing.

      3. If you support drug testing people that use government aid, then you should support drug testing everyone that uses government aid. You can’t get the Mortgage Interest Deduction without a drug test. You can’t get a monthly Social Security check without a drug test.

      Unless you’re willing to drug test everyone, and I haven’t met anyone that holds that position, then you’re holding the poor to a different standard than everyone else. As there are multiple studies showing that the poor do not use drugs and alcohol at a higher rate than other socioeconomic groups, I have not heard a single rational reason that the poor should have to jump through more hoops than everyone else.
      Matt recently posted…Why We Need to Talk About PoliticsMy Profile

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