Is Universal Basic Income the future?

Martin Luther King, Richard Nixon and Eleanor Roosevelt are figures rarely discussed in the same breath. Yet they all shared one characteristic: support for a version of a concept now known as Universal Basic Income (UBI). As it is still in the trial phase, defining what exactly UBI is, and how it should be implemented, is not straightforward.

Though, most concepts broadly fit the definition of a cash payment that is delivered to every person in society periodically and unconditionally, without a work requirement or any means-testing. Proposals vary from $500 to $1000 a month. Perhaps they drew inspiration from the likes of Thomas Paine and J.S. Mill who, in 1516, advocated something similar. Since then, the idea has faded away into the background with the passage of time. However, the concept is back in vogue, as fears of mass unemployment due to automation and concerns over widening inequality play heavily on people’s minds. These concerns are justified. As the US’s economy has continued to grow since the financial crisis of 2008, wages have been stagnant.

Moreover, out of the 10 richest countries, the US ranks last for mobility and opportunities. This led policymakers and politicians to scramble for a solution. Some have re-energised the idea of UBI.

Whilst UBI asks the important questions of how to deal with poverty, and what happens to swaths of the population who’s tasks are soon to be replaced by robots, doubts have been raised as to its usefulness in addressing structural problems, and the more fundamental question of whether it is practical. Paul Krugman, 2008 recipient of the Nobel Prize in Economics, argues the latter point. The sheer cost, which is estimated to range anywhere between $200 billion to $3.9 trillion, is politically impossible, according to Mr Krugman. However, advocates have pointed out that the Trump tax cut, which cost $1.5 trillion (New York Times), could easily be reversed and provide at least some of the revenue required. He further argues that the more modest estimates may result in the scheme being inadequate to lift people out of poverty, especially if UBI were to replace existing forms of social security.

More targeted social policy, such as Universal Childcare, would be more effective at solving structural issues faced by poverty-stricken Americans. It is pertinent to note that The Alaska Permanent Fund, which distributes profits from oil revenues to all adults and children, was unsuccessful at reducing child poverty or preventing widening income inequalities.

On the flip side, multiple economists predict the newfound freedom from serious financial constraints would allow people to invest in themselves, whether pursuing an educational career, subsequently increasing their human capital; or spending more time with family, increasing happiness and even child development, or following entrepreneurial endeavours.

A relatively new type of work found in the ‘gig economy’, has meant that frictional work and irregular or uncertain income has caused as many as 60 million US citizens to suffer from the unregulated sector of the economy, with limited financial guarantees. This type of employment is partly responsible for one in two Americans being unable to finance an unexpected $500 emergency payment. UBI, then, would provide a desperately needed safety net. Sceptics fear that some employees could quit their jobs due to a guaranteed income. These fears, it would appear, are misplaced, with research and experts citing this as an unlikely outcome. This could further be presumed from the fact that 85 percent of lottery winners remained employed after receiving their winnings.

It is needless to say that question marks loom large over Universal Basic Income, which has never been implemented on a national scale, or been universally applicable. Due to scarce public finances, ploughing large sums into this scheme will present painful trade-offs with important areas of public policy, including health and education. In addition, deep-rooted issues such as class, economic ownership and the productive capacity of the economy are not addressed by UBI, according to the Director of the Institute for Public Policy Research, who decries UBI as a ‘lazy utopian remedy’.

To summarise, the jury is still out. Whilst the blueprint for a ‘no-strings-attached’ cash handout is seen by some as a silver-bullet, possible cuts in other public services could cause outrage among the population. Tax rises for middle-income groups may also be unpalatable to the US electorate. However, until low income Americans begin to feel they are materially benefiting from a strong economy, UBI will remain in the spotlight.


Written by Jack Jones

Sources – The Economist – CNBC – The Atlantic – New Economics Foundation