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Why a Universal Basic Income Is a Terrible Idea

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Why a Universal Basic Income Is a Terrible Idea

National Review June 15, 2016
EconomicsIncome Inequality

A UBI would only entrench our misconceptions about the relationship between the individual and the state.

If you have not heard any proposals for a “universal basic income” (UBI), you will soon. Under a UBI, the federal government would send each American (including children, in some plans) a monthly check of, say, $800 or $1,000 to cover basic needs. A couple would receive $20,000 per year, regardless of other income earned; a family with children would get more. The bloated welfare state? Streamlined! Poverty? Solved! And all of it supposedly paid for by eliminating safety-net programs that would no longer be necessary.

Universal basic income is a logical successor to the worst public policies and social movements of the past 50 years.

Columnists are intrigued, “data journalists” excited, “explainers” cloyingly enthused. Technologists, certain that their breakthroughs in artificial intelligence and robotics will leave everyone else unemployed, see a UBI as critical to their utopian future; some are even funding a pilot program. But others think the time for a UBI has already arrived. Finland and Canada are experimenting with UBIs, and Switzerland has just held a national referendum on creating one (it was rejected by more than three to one). Andy Stern — the former head of SEIU, America’s largest private-sector labor union — has just published a book arguing for a UBI here. Charles Murray, a prominent scholar on the right, has also made the case for a UBI. Former labor secretary Robert Reich, plugging Stern’s effort, says, “America has no choice.”

Actually, we do have a choice — one that goes far beyond safety-net details to reach the very heart of state and society. A UBI would pose severe practical challenges, which will be discussed later in this article. But even if it could work, it should be rejected on principle. A UBI would redefine the relationship between individuals, families, communities, and the state by giving government the role of provider. It would make work optional and render self-reliance moot. An underclass dependent on government handouts would no longer be one of society’s greatest challenges but instead would be recast as one of its proudest achievements.

Universal basic income is a logical successor to the worst public policies and social movements of the past 50 years. These have taken hold not just through massive government spending but through fundamental cultural changes that have absolved people of responsibility for themselves and one another, supported destructive conduct while discouraging work, and thereby eroded the foundational institutions of family and community that give shape to society.

In The Dream and the Nightmare (1993), his masterly account of the social currents that produced the entrenched poverty of the underclass, Myron Magnet wrote: “When it behooved mainstream culture to assert traditional mainstream values with conviction, the Haves refused to assert to the poor and the black the most fundamental of those values: the worth of the respectable working life, however humble.” Why would we want to repeat that mistake with a UBI?

Clearly defined responsibilities, from educating children to caring for the elderly to fighting in wars, are fundamental to a society’s character. They establish the terms of relationships, the scope and role of civil society, and the expectations against which people judge one another. And few are as important or pervasive as the responsibility of providing — for oneself, for one’s family, and for future generations.

Over the past century, America has shifted some of that responsibility from family and community to government. The elderly and disabled now receive regular cash payments and health coverage. For a time, single mothers received cash support as well, though welfare reform significantly curtailed that assistance. Most low-income households can receive a variety of in-kind benefits, such as food stamps, housing vouchers, and Medicaid.

Work by definition would become optional, and consumption would become an entitlement disconnected from production... work would instead be an activity one engaged in by choice, for enjoyment, or to afford nicer things.

The government’s assumption of such obligations has helped to mitigate severe hardship, but it has also changed economic incentives and cultural norms in ways that promote dependence over self-reliance and replace accountability with entitlement. Debate continues over whether this shift has gone too far or not far enough. But through it all, even if diluted, a crucial principle has survived: If you are able to work, you should work. The safety net ensures that no one starves, freezes, or dies on the hospital steps, but it does not typically offer a full substitute for employment.

Even when the economic value of safety-net benefits might approximate the earned income of a low-wage job, those benefits arrive with constraints on how they can be spent, and with the weakened but still potent stigma of welfare. Yet more important than the stigma is the inverse praise: Those who work to provide for themselves and their families know they are playing a critical and worthwhile role, which imbues the work with meaning no matter how unfulfilling the particular task may be. As the term “breadwinner” suggests, the abstractions of a market economy do not obscure the way essentials are earned.

A UBI would undermine all this: Work by definition would become optional, and consumption would become an entitlement disconnected from production. Stripped of its essential role as the way to earn a living, work would instead be an activity one engaged in by choice, for enjoyment, or to afford nicer things.

For many proponents of the scheme, this is the point. Releasing people from any responsibility to support themselves or their families represents the zenith of a hyper-individualistic culture. The goal is to maximize freedom and satisfaction by minimizing obligation and constraint. As the slogan of the moment proclaims: “You do you.”

This should give pause to anyone who believes that the good life entails more, or that a free society requires its members, as Yuval Levin writes in his new book The Fractured Republic, to “commit ourselves to more than our own will and whim. It requires a commitment precisely to the formative social and cultural institutions that we have seen pulled apart from above and below in our age of fracture.”

Even if a UBI represents just one more slip in our culture’s long downward slide, that is no argument in its favor. Only after halting the slide and regaining its footing can the culture hope to reclaim lost ground.

But UBI proponents themselves recognize the radical nature of the shift they suggest. Writing at the leftist website Jacobin, Shannon Ikebe observed that “a UBI has been embraced in particular by the post-productivist left, which carries a strong feminist and ecological bent and rejects the traditional left’s valorization of labor and the working class.” Ikebe quoted other scholars describing universal basic income as a “capitalist road to communism” and a “postwork political project.”

In the New York Times, columnist Farhad Manjoo explained:

One key factor in the push for U.B.I., I think, is the idea that it could help reorder social expectations. At the moment we are all defined by work; Western society generally, but especially American society, keeps social score according to what people do and how much they make for it. The dreamiest proponents of U.B.I. see that changing as work goes away.

Manjoo’s comment illustrates how support for a UBI fits neatly alongside the widely held belief that technological advances will make work “go away.” But when prior technological revolutions made a large share of farm and then factory labor obsolete, people continued to find new and productive vocations. More than four in five employees now work in the service sector.

The present technological revolution shows no signs of following a different course. The U.S. labor market has kept pace with population growth, adding 80 million net jobs since computers started coming on the scene in the 1960s and more than 25 million since the Internet became mainstream in the 1990s. Approximately 60 percent of the working-age population remains employed — slightly above the post-war average.

Certainly, as has happened before, technological change poses both great opportunity and great challenges for the labor market. But work itself remains both necessary and valuable. Undermining it because it might hypothetically someday end would be a senseless act of preemptive self-sabotage.

What about poverty? Proponents say a UBI would end it, because each American would receive a check lifting him above the poverty line. But poverty is not only, or even primarily, a matter of material well-being. If it were, the $20,000 in safety-net spending per person below the poverty line, the presence of air conditioning and cable television and cell phones in the majority of such households, even the obesity epidemic ravaging low-income communities would all be signs that the war on poverty is nearly won. But we care about social as well as material conditions, and we care about upward mobility. By these measures, a UBI makes things worse.

The greatest crisis facing less educated and lower-income Americans is social, not economic. As Charles Murray’s Coming Apart (2012) documents in harrowing detail, measures of social health that once looked roughly equal across economic classes now show gaping disparities, from family formation to employment to civic engagement to basic levels of trust. In 1960, Murray reports, more than 95 percent of white children were living with both biological parents when the mother turned 40, regardless of class. By the 2000s, the upper-class figure was 90 percent but the lower-class figure had declined to barely 30 percent, a level “so low that it calls into question the viability of white working-class communities as a place for socializing the next generation.” The story for other races is similar.

The greatest crisis facing less educated and lower-income Americans is social, not economic. 

Appreciating the status of work in these communities is critical to understanding their decline. Work gives not only meaning but also structure and stability to life. It provides both socialization and a source of social capital. It helps establish for the next generation virtues such as responsibility, perseverance, and industriousness. Yet of the lower-class  households Murray studied, the share with a full-time worker declined from 81 percent in 1960 to 53 percent in 2010.

Facing that trend, society cannot afford to withdraw its remaining expectation that able-bodied people try to make ends meet and its remaining respect for those who do. Yes, a UBI might flood these communities with additional resources. But a similar flood has already occurred over the past 40 years, with safety-net spending increasing eightfold. The result has been ever greater social erosion.

Many UBI advocates deny that a UBI would produce any great discouragement to work, but their claims are undermined by a vocal subset who embrace this result. Good riddance, they say, to lousy jobs taken only out of need. “I think it’s a bad use of a human to spend 20 years of their life driving a truck back and forth across the United States,” Albert Wenger, a venture capitalist, told the New York Times. “That’s not what we aspire to do as humans — it’s a bad use of a human brain.”

This attitude recalls the investment banker quoted by Myron Magnet who lamented “the man and his wife slogging away in menial jobs that are dead-end jobs, with three kids, trying to deal with an environment that is very depressing, . . . living dead-end lives.” Why, asks Magnet, does this family, working to support itself and raise upstanding citizens who will start families of their own, represent “a dead end rather than a human accomplishment worthy of honor and admiration”?

This dead-end message is especially toxic for upward mobility because it tells prospective low-wage workers that, in Magnet’s words, “the first step they once could have taken toward achieving [respect] — putting a foot firmly on the bottom rung of the job ladder — has had respectability withdrawn from it.” Young people with limited skills and education are already too disconnected from the labor force. A UBI that reduces the perceived importance of work while putting cash in their pockets can only reduce the likelihood of their making the daily trek to low-wage jobs. And a subculture composed of their peers would presumably become less rather than more supportive of the choice to seek work. For unemployed workers of any age, the UBI’s guaranteed paycheck would only reduce the pressure to find work or relocate in search of opportunity.

Yet for those at the bottom of the economic ladder, there is simply no substitute for stepping onto the first rung. A UBI might provide the same income as such a job, but it can offer none of the experience, skills, or socialization. A nation in which people sitting beside the ladder live more comfortably but are less likely to climb it may be one with a lower government-reported poverty rate, but it is not more effectively combating poverty.

The best argument for a UBI is that, while it may reduce the upside of a job, it also reduces the downside because a recipient does not lose the UBI when he starts to work. This contrasts with a conventional safety net, in which benefits are phased out as a recipient’s earnings increase. On average, in the United States, the phase-out reduces benefits by around 30 cents for every dollar earned. But over some income ranges and for some recipients, a dollar of wages can cost the earner nearly a full dollar of benefits. Some programs, such as disability insurance, can also force recipients into a binary choice: Either work or receive the benefit. So, other things being equal, someone who could keep his UBI would be more likely to seek work than someone who would lose some or all of his safety-net benefits as a result.

Does the UBI’s positive feature of eliminating benefit phase-out exceed its negative feature of making work unnecessary? Unfortunately, a policy whose greatest effects are cultural lends itself poorly to pilot studies, because there is no way to take into account such society-scale shifts: A test group will do artificially well if it experiences the upside of receiving cash without the downside of the transformed cultural norms and social institutions. Better — and deeply discouraging — evidence comes from the effects wrought by the aggressive welfare-state expansions of the recent past.

But the question is academic, because the UBI’s purported advantage is not real. Maintaining a pure, guaranteed UBI with no phase-out for increasing income would require a budget dramatically larger than what is now spent on the safety net. To see why a UBI fails in this way, we must now consider its implementation.

Three key variables characterize a UBI: its size, its rate of phase-out, and its source of funding. Proponents like to describe a UBI in which each person receives a benefit adequate to live on, the benefit phases out very gradually at very high income levels (or else not at all), and the total cost is covered by replacement of existing safety-net programs. But this violates what Professor Kevin Milligan, of the University of British Columbia, has called the “basic-income impossible trinity.” Of those three objectives, a policymaker can choose only two.

UBI advocates observe that the existing safety net in the United States or any other developed nation spends on each person roughly what a livable basic income would cost. But it does this for only a small subset of the population, for whom benefits phase out quickly as their incomes rise. A UBI limited to the budget of the existing safety net could therefore offer either a small benefit to everyone or a large benefit that phases out quickly, but not both, and a UBI that offers a large benefit to everyone would require a massive budget increase.

A UBI limited to the budget of the existing safety net could therefore offer either a small benefit to everyone or a large benefit that phases out quickly, not both. 

Any proposal claiming to overcome the impossible-trinity problem invariably contains a flaw. Take, for instance, Charles Murray’s proposal for a $13,000-per-year UBI paid to all adults over the age of 21, with a partial phase-out (to a minimum of $6,500) beginning when annual earnings exceed $30,000. Murray would fund the program by eliminating not only the entire safety net of anti-poverty programs but also Medicare, Medicaid, Social Security, agriculture subsidies, and “corporate welfare.”

The first flaw is his inclusion of Medicare and Social Security. Medicare already spends more than $11,000 per recipient; Social Security spends $16,000. So Murray’s UBI covers only half of what the elderly’s “earned” entitlements paid. Anyone left to rely on the UBI would be unable to afford both Medicare-quality insurance and other essentials.

Note also that Murray has excluded children. A single mother with two children, receiving a total of $13,000 per year, would be only two-thirds of the way to the 2016 federal poverty guideline of $20,160. And Murray’s plan, having eliminated Medicaid, would explicitly require her to spend at least $3,000 on health insurance. So her disposable “income” of $10,000 would reach less than halfway to the poverty line.

Murray’s plan, designed to attract conservative and libertarian support, underscores exactly why liberals are so wary of proposals that supplant the existing safety net. His effort is caught in a Catch-22: If the benefit is small enough to be funded by eliminating the existing safety net, it is too small to permit the existing safety net’s elimination. Yet a UBI that was designed to coexist alongside a safety net would be so expensive and complex that it would quickly lose appeal for the Right. Murray rather undermines his pitch when he says: “If the guaranteed income is an add-on to the existing system” (as his design ensures it would have to be), “it will be as destructive as its critics fear.”

The same impossible-trinity problem means that avoiding a phase-out cannot be considered among a UBI’s advantages over the existing safety net, because a livable UBI that does not phase out cannot be funded from the existing safety net. A UBI could perform better than the existing safety net only by costing dramatically more, but of course the safety net could also do a better job if given that extra money. For example, it could circumvent the phase-out challenge by simply offering food stamps and Medicaid eligibility for all. That would cost the same as a no-phase-out UBI while avoiding the unconditional cash handouts that most badly damage the respect accorded to work.

The point is not that the safety net should look like a UBI, but rather that a UBI is not good anti-poverty policy. If employment works, then — for any given spending level — safety-net reforms that respect, promote, and even subsidize employment will yield better results than a UBI seeking to supplant it.

This piece originally appeared at National Review


Oren Cass is a senior fellow at the Manhattan Institute. Follow him on Twitter here.