“The economist, like everyone else, must concern himself with the ultimate aims of man.”
— ALFRED MARSHALL, PRINCIPLES OF ECONOMICS (1890)
The relationship between economics and philosophy is a long, winding one. Though economics was conceived at the junction of moral and political philosophy (Adam Smith was chair of moral philosophy at Glasgow University), it’s since revolted, as an angsty child does from its parents, towards something of an objective, value-neutral, “dismal science”.
But segregating philosophy and economics does little more than numb us to the philosophical underpinnings of a capitalist mentality born and bred during centuries bearing little resemblance to our own, thereby promoting values no longer serving collective social interest. By severing economic decisions from philosophical inquiry, we merely substitute thoughtfully chosen values for blindly adopted market values. The absolute dichotomy between subjective and objective disciplines, exemplified by the economics/philosophy divide, is a false one. All methodologies are united in their service to that perennial question: How to live?
Though the philosophical quest - how to live, enquiring into the depths of identity and probing the nature and potentialities of experience - remains relatively taboo in the public sphere, notions of ‘progress' abound. Rising GDP (though, by this point, thoroughly debunked as an indicator of desirable progress), decreasing unemployment, heightened productivity, and greater efficiency; these have all found themselves atop the altar of modern day progress. Society is generally considered on the right track if the economy is growing. But are such markers truly ends in themselves? Does anyone derive wellbeing from merely finding a job? In most cases, no. Jobs are not a holy grail; they are means to greater ends. Wellbeing is derived mostly from the goods or services purchased with the income received from the work, rather than the work itself. But economic literature is now enforcing the common sense notion that the wellbeing derived from purchasing additional goods or services tapers off after a certain threshold. Nobel Laureates Daniel Kahneman and Angus Deaton found this satiation point to be approximately $75,000 per year. More on that study to come.
In his refreshingly frank essay, “On the Phenomenon of Bullshit Jobs”, David Graeber, professor of anthropology at the London School of Economics writes:
“In the year 1930, John Maynard Keynes predicted that, by century’s end, technology would have advanced sufficiently that countries like Great Britain or the United States would have achieved a 15-hour work week. There’s every reason to believe he was right. In technological terms, we are quite capable of this. And yet it didn’t happen. Instead, technology has been marshalled, if anything, to figure out ways to make us all work more. In order to achieve this, jobs have had to be created that are, effectively, pointless. Huge swathes of people, in Europe and North America in particular, spend their entire working lives performing tasks they secretly believe do not really need to be performed. The moral and spiritual damage that comes from this situation is profound. It is a scar across our collective soul. Yet virtually no one talks about it.”
To accept economic progress as indicative of progress itself is to provoke this already gloomy situation. This begs the question: what is progress? Ludwig Von Mises, eminent Austrian economist, writes that progress requires a given framework of goals to mean anything at all:
“The notions of progress and retrogression make sense only within a teleological system of thought…Without reference to some agent’s action and to a definite goal both these notions are empty and void of any meaning.”
~ Ludwig Von Mises, Human Action (1949)
Digging deeper into the relationship between economics and ‘ultimate ends’, Von Mises elaborates:
“It is true that economics is a theoretical science and as such abstains from any judgment of value. It is not its task to tell people what ends they should aim at. It is a science of the means to be applied for the attainment of ends chosen, not, to be sure, a science of the choosing of ends. Ultimate decisions, the valuations and the choosing of ends, are beyond the scope of any science. Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends.”
To consider economic growth as good in itself, without referencing that growth to a rubric of chosen ends emanating from beyond economics, is to render the notion of progress impotent. Economic progress, if it is to be meaningful, cannot be self-referential. It cannot internally supply the measures of progress that would redeem its own worth.From where, then, can we derive notions of progress? This loss of existential vision, of teleological narrative, is among the more dire consequences of severing economics from philosophy. The greats of the economic discipline, beyond grasping the mechanics of markets and institutions, all imbued their work with a guiding vision of human destiny. They did not bend economic sciences to the "choosing of ends”, but employed economics within a greater context of “the ultimate aims of man”. Robert Heilbroner, the late, great economic historian at the New School for Social Research, writes of two such economic philosophers - Adam Smith and John Stuart Mill:
“Smith's whole worldly philosophy was shaped by his view of human history as a stagelike process in which societies progressed from one level of material and cultural achievement to another until humankind finally realized the conditions needed to achieve a society of ‘natural’ liberty...Mill, too, projects a vision of human improvement as the fundamental teleology of history: his view of a society of self-realizing individuals is more radical than that of Smith, more conservative than that of Marx.”
~ Robert Heilbroner, The Worldly Philosophers (1953), Sixth Edition
Whether “natural liberty” or “self-realization”, the economists’ whose thought endures amidst changing times and cultures are those whose economics espoused a larger vision, a “worldly philosophy", with philosophically envisioned ends applied to economics means.Can the same be said of today’s economics? Do we see today’s economists as trusted visionaries of humanity? Or computer-bound statisticians? Towards what ends do American policy and economic thought aspire? Freedom? Perhaps the most common answers are those found in the Declaration of Independence: Life, Liberty, and the Pursuit of Happiness. When a public official declares his purpose to defend or promote the liberty of the American people, we happily nod along, as if there is any agreement on what liberty is. On closer inspection, is there any agreement on any of our three foundational principles?
There is no agreement on “life”, evidenced by the hostile debate on abortion; disagreement on “liberty” is evidenced by the vast chasm separating conservative and liberal economics; and the chaos in what is understood by “happiness” is evidenced by the unwillingness of the statistics - largely the drivers of public policy (other than rhetoric) - to even engage with the subjective idea. We’re a nation founded on, united by, the inalienable rights of life, liberty, and the pursuit of happiness - but don’t agree on any. Shouldn’t this occupy center stage in public debate? Not that unanimity is expected, nor even desirable, but spirited dialogue on our country’s guiding values certainly is. What is liberty? Happiness? How can we get there? Neglecting these ends, we narrow societal vision and debate to end-less means. But we’ve already found that economics cannot be a self-referential discipline if it is to further ‘progress’.
This is the potential of philosophy; to deliberate - first individually, then collectively - upon the purpose of our own lives, and the role of economics in facilitating each person’s own trip. The purpose of economics could be to enable philosophy. Forming a kind of reciprocal, hot-potato relationship that looks something like this:
Philosophy does not become readily available until one’s economic house is in order. Until one is relatively assured of health, security, and shelter, the practice of self-enquiry rightfully recedes in face of survival pursuits. We aren’t concerned with cultivating an understanding of “liberty” when we aren’t sure how to feed our own children, much less ourselves. The “economic problem” - creating sustainable methods of human subsistence - is the paramount task of the human race (Until, of course, it isn’t).
This suggests that the first phase of a life’s trajectory is to ascertain the economics for survival. Whether one is graduating University, and for the first time responsible for generating their own income, or if circumstances require a child to drop out of high school to work and help support a struggling family - among the first necessities of life is to seek out an income to cover the array of basic needs. Many folks are stuck in endless cycles of meaningless work - Graeber’s “bullshit jobs” - to sustain this mere subsistence level of existence; the first red line of the graph.
With the promise of enough income for food, shelter, and a minimum of activities, what is the next teleological narrative - purpose - that will give meaning to economic activity? This is entirely idiosyncratic. To some, it will remain desirable to pursue greater levels of income. Nicer accommodations, more possessions, greater means to more expensive ends, these are all things that some will decide are important enough that they are willing to devote additional labor hours to acquire. Others may be content to live with basic accommodations, devoting all further time to artistic, creative pursuits that may or may not be remunerated. Some may pursue more vibrant social time. Some may toil endlessly at this stage, with neither the creative expression to redeem their modest situation nor the ability to pursue greater income that may enable further pursuits. These varied existential tracks are the work of philosophy to unearth. To remain indebted to economic means beyond the threshold of individual subsistence, without deciding to do so of one’s own volition for the purpose of greater ends, is to squander this window of vital philosophic contemplation on how to live one’s life. This period represents the “philosophy for survival” portion of the graph.
Life’s ‘basic needs’ is not a stagnant term. What is considered basic today could’ve been luxurious just a few decades ago. To many, a basic life today may include: a cellphone, Wi-Fi, means of transportation, a laptop, air-conditioning/heating, and the purchasing power to eat healthier than the cheapest options around - fast food, chemical preservatives, and so on. This rising conception of what a basic life entails is somewhat like inflation for living standards. To meet these needs, further economic activity is called for. Let’s call this threshold “basic comfort”; this, too, is a highly idiosyncratic scale. For some, an annual income of $35,000 may do the trick, while for others, upwards of $70,000 may be required to furnish their conception of a good life.
To give this threshold something of a benchmark, Returning to the study of two Nobel Laureates in economics, Kahneman and Deaton, provides insight. The two ran an experiment to explore the big question: does money buy happiness? They define happiness as well-being, which they break down into two types, emotional well-being and life evaluation:
“Emotional well-being refers to the emotional quality of an individual's everyday experience—the frequency and intensity of experiences of joy, stress, sadness, anger, and affection that make one's life pleasant or unpleasant. Life evaluation refers to the thoughts that people have about their life when they think about it.”
They found that while life satisfaction rises consistently with increasing income, emotional well-being ceases all income-associated gains after ~ $75,000 per year. So what’s going on? Our actual, real-time experience of life derives no further improvement from money beyond the cutoff, but our ideas about how our lives are going continue to rise. We think our lives, on the whole, to be better even if our experience doesn’t follow suit. Interpret that as you will, but it provides an anchor to set the end of the “basic comfort” economic phase at ~ $75,000.
Again, the question arises: beyond this marker, what’s next? How to contextualize further pursuits? Once more, the necessity for philosophy emerges. Economics cannot provide the answers here, and continuing to pursue economic motives without stopping to reflect entraps us to the existentially empty service of means blind to their ends.
Spending a life stunted in the context of economic pursuit (a red line) is an empty, unfortunate scenario. Living in the context of philosophy (blue line), at least, offers an invitation to partake in the confrontation with the unknown that marks the uniquely human experience. To take a stab at ends, rather than spend an entire life amidst means.
Though we don’t really know how to live in the blue lines, that’s the fun of it all. Living within the context of philosophy calls upon creativity, imagination, and wonder. Not that economics isn’t a field of creativity and imagination, but when these acts transpire within the economic context, they’re being performed because you need something else, not for their own sake. This is why serial-entrepreneurs continue to innovate even after their first million-dollar deal. They find stimulation in the very act of innovating, of creative problem solving. This may become one’s philosophy of life, and it’s an incredibly rewarding one (for both the individual, and those who reap the benefits of their innovations).
It’s the ability to choose one’s own vision, to live a life in service of an autonomous narrative, as opposed to one of necessity, which the American principles of Life, Liberty, and the Pursuit of Happiness could embody. The purpose of economics is to render itself irrelevant. That economic concerns will progressively cease to usurp the existential stage, and make way for the creative, imaginative, or even quaintly mundane modes of existence chosen by each individual seems the backbone of any collective truly interested in liberty. Economics is not the ultimate stage of humankind’s life, as Heilbroner writes:
“…the wide spectrum of its underlying visions implies that economics itself is not a final, irreducible level of social understanding…At the root of the matter lies man, but it is not man the ‘economic’ being, but man the psychological and social being, whom we understand only imperfectly. Economic understanding is a marvelous chapter in humankind’s autobiography, but it is neither the first chapter nor the last.”
Transcending economics doesn’t mean the end of productivity or innovation; it means the end of slavery to means over ends. It would further apply a basic rule of economics: specialization.
The more individuals are emancipated to pursue that which is most authentic, vivifying, and animating to them, the better off the rest of us will be. It is in my own self-interest for you to be able to do that which you do best. Further, it is in my own self-interest for you to be able to do what brings most fulfillment to your life. It certainly wouldn’t be a utopia - demons follow us wherever we go, however we live. And there is essential labor that must be performed in order to maintain any society. But it’s a virtuous foundation upon which to continue probing the mysteries of existence, and cherishing the joys of life.
Taking stock of the actionable items from this survey, really, there’s just one. Notice that across the scale of life, divided in Figure 1 into four sections, only one segment has relatively universal markers. Philosophy for survival (2), economics of life (3), and philosophy of life (4) are all highly relative, idiosyncratic scales. For some, economics of life will stretch farther than others, etc. But the economics for survival (4) are nearly uniform across the board. There is no discrepancy as to the necessity of basic food, housing, health, and security. In those subsequent three realms, where preferences vary greatly, government cannot efficiently intervene, as they cannot account for this diversity of tastes and visions. But in the first segment of life’s context, the economics for survival, government can play a decisive role.
Enabling human flourishing is tricky business; this lies in the realms of the latter three segments, and is largely our own individual responsibility. But reducing human suffering resides greatly in the first, and can, theoretically, be addressed socially - politically. If there were a viable method of establishing an income floor, below which no member of society were permitted to fall, the entire first segment of life, the economics for survival - an engulfing, cyclical narrative ablaze with suffering and misery - could literally be done away with overnight.
Of course, this debate is already underway. Talks of Unconditional Basic Income (UBI) are raging, though regrettably with a more rhetorical than pragmatic tone. To move the discussion forward, we should conduct numerous, rigorous reviews of potential funding models for a UBI (Check out Scott Santens' work on this). Shift the conversation from rhetoric, to viability. If UBI can be demonstrated a financially viable (or even desirable) social program, then the burden of proof falls upon UBI’s opposition to give good enough reasons to avoid its implementation on principle. If it cannot be demonstrated fiscally viable, then UBI must retire from the forefront, and retake its place among the currently unrealizable utopian ideas simmering on the back burners until they’re once again called forth.
Tim Ferriss writes that “…most people choose to be unhappy rather than uncertain”, and this fear of uncertainty confines us into narrow political imaginations that breed a reactive, rather than proactive, nature of political change. Echoed by Milton Friedman:
“There is enormous inertia—a tyranny of the status quo—in private and especially governmental arrangements. Only a crisis—actual or perceived—produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable.”
~ Milton Friedman, Capitalism and Freedom (1962)
Heilbroner’s survey of Great economists returned not a single one who believed economics would, or should, remain a fixture of human life in the long-term. The question, then, is at what point will we collectively decide we’ve amassed enough economic ‘progress’ to move on? To renovate our cultural alter of progress, dedicating any further economic activity towards lifting everyone to the point where they, and we, can no longer rely on economics to tell us who we are, or how we should live.
The purpose of this document is to facilitate sense-making on what’s become a complex, tribal, and absolutely vital subject of debate: universal basic income (UBI).
Think of this as a not-so-brief policy brief. A policy long, if you will. What policy briefs offer in brevity and distillation, they sacrifice in complexity and nuance. UBI’s surging popularity is producing an abundance of briefs, but a scarcity of longs. Briefs present fixed ideas, whereas longs reveal the flux and uncertainties beneath them.
Ironically, I only encountered UBI after receiving a degree in economics. I spent the next 5 years studying UBI, and the broader terrain of economic thinking that’s usually left off university curriculums.
Regarding UBI, I’ve occupied every position along the spectrum. I’ve been the starry-eyed supporter enthralled to its promises, and I’ve been the disillusioned skeptic, dismissing UBI as a well-intentioned, but naive lurch for utopia.
My hope is to provide an easy-to-navigate document that offers exposure to the many questions and conflicts driving the UBI debate. Hopefully, by offering the depth so many UBI puff-pieces lack, this policy long might help unsteady some of our fixed ideas, and lead us deeper into the labyrinth of considerations a UBI provokes.
Here’s a map of what’s covered below. Feel free to click & jump around to whatever interests you:
After exploring each of these areas in relative depth, I’ll conclude with a broader sentiment: economic insecurity has a dampening effect on human consciousness. The world is far more mysterious, wonderful, and stimulating than human perception can grasp, but economic insecurity further inhibits our capacities, like a horse with blinders on.
Despite being surrounded on all sides by enchantments, our lives are too often squandered in forms of suffering and anxiety that, in the 21st century, are preventable. The motivation behind UBI is one we all share: it’s time to build a better world. The motivation behind policy analysis is to ask: would UBI move us in that direction?
I recently published an in-depth exploration of the impact UBI might have on human development, consciousness, and social complexity. You can read that essay here.
UBI is an unconditional cash payment provided to all citizens, in an amount sufficient to meet their basic needs, on a (minimum) monthly basis. Most proposals include a reduced rate for minors.
Universal: Given to every individual, regardless of employment status, earnings, or demographic.
Basic: Sufficient to meet basic needs
The most common UBI amount - $1,000 per month - is based on the federal poverty line. The 2019 poverty line was $12,490, or $1,041 per month. Equating “basic” with the poverty line is consistent with the work of seminal economists and philosophers such as Amartya Sen and Martha Nussbaum.
Pinning the UBI amount to the poverty line requires adjusting the payout level for both inflation, and changes to how we define poverty.
UBI has two relevant costs, gross and net. The gross cost reflects the total revenue the government must raise to fund the program. The net cost reflects the actual expense to taxpayers.
Since funding a poverty level UBI requires progressive taxation, an upper portion of recipients will wind up paying more in new taxes than they receive from UBI. This creates a canceling out effect, where one receives $12,000 in UBI, but pays $14,000 in higher taxes. The effective cost to them is $2,000, rather than $14,000. The cost of UBI that takes these cancellations into account is the net cost.
The gross cost of a UBI equal to the poverty level in 2019 ($12,490) for all citizens above 18 would’ve been $3.2 trillion. Adding a 50% UBI for minors would increase the gross cost to $3.6 trillion.
Moving from gross to net cost is difficult to forecast, as it depends on the specific taxes used to fund it. But we can establish a range for the net cost from existing estimates. Political philosopher Karl Widerquist used a series of simplified assumptions to calculate the net cost of a $12,000 UBI for adults and $6,000 for children, totaling a gross cost of $3.42 trillion. His estimates yielded a net cost of $539 billion, or 15.7% of the gross cost.
For a similarly designed UBI, Scott Santens estimates a $900 billion annual net cost.
On the upper bound of the spectrum, economist Philip Harvey estimated the net cost of a similar - though not identical - UBI at $1.69 trillion.
Elsewhere, I’ve written on the philosophy of UBI, exploring it as a means of decommodifying time and diversifying human development. But in popular discourse, there are at least six categories of motivation for UBI:
I. Immediately ending official poverty in the US
II. Reducing the imbalance of power & wealth between labor & capital
III. Boosting demand by raising purchasing power of lower income groups
IV. The threat of automation & detaching a basic amount of livelihood from labor
V. Improving markets by providing for basic needs outside of markets, making remaining exchanges more voluntary
VI. Beginning to implement the cultural conditions for 'post-scarcity'
“There is no reason why in a society which has reached the general level of wealth which ours has…that the security of a minimum income should not be guaranteed to all without endangering general freedom.”
— F.A. HAYEK
Automation is simultaneously the easiest narrative to stir up support for UBI, and the weakest one to build it upon. There is no critical consensus as to whether impending waves of automation will be any different than ones we’ve witnessed throughout history. Whether or not automation lives up to the hype, the case for UBI remains.
But there's a nuance in this argument worth pulling out. How will automation benefit society? How can we distribute and democratize the gains? How do we keep society from devolving into a class struggle between those who own the robots and those being replaced by them?
The question of who benefits from automation is firstly a question of power. If we’re concerned with power dynamics within firms, we can explore policies like codetermination, where worker representatives are given direct seats on company boards. This gives workers’ interests direct voting power in company decisions. Democratizing decision making power changes how productivity gains are implemented and realized in the first place, rather than relying on redistribution to take care of those who are left out of the gains.
But the sentiment of detaching labor from livelihood goes beyond automation. Since at least the 1800’s with Henry George’s Progress and Poverty, the stubborn tendency for wages to remain at the minimum that affords subsistence despite massive gains in capital accumulation has raised questions. As our accumulated wealth increases, why can we not guarantee a basic degree of livelihood irrespective of labor?
The case for UBI in this dynamic is best presented by a dialogue across 150 years, between George and the great novelist Marilynne Robinson. In 1879, George asked: “Why, in spite of increase in productive power, do wages tend to a minimum which will give but a bare living?” A century and a half later, Robinson ventures an answer: “because they can, neither ethics nor laws intervening.”
If livelihood is to untether itself from labor, it will not occur as a natural outcome of economies informed by neoclassical economic theory. Rising tides may lift all boats, but without explicit interventions, the distance between working class wages and subsistence levels in society will remain minimal.
UBI, whether as a response to automation, global pandemic, or whatever other shocks unsteady the economy, strives to ensure a basic dimension of survival security to all. By instituting an earnings floor in the economy that lifts the bottom up, it increases the distance between the lowest wages and the subsistence level.
“The association of poverty with progress is the great enigma of our times...From it come the clouds that overhang the future of the most progressive and self-reliant nations.”
— HENRY GEORGE, 1879
In the 21st century, domestic poverty in the US is a choice, rather than necessity. It is an outcome of policy choices (and lack thereof), rather than an enigma of progress, as it was in George’s day. And yet it rages on.
The cost of directly ending poverty for every citizen in the United States, by simply providing them a tax subsidy equal to the amount that would raise their incomes to the poverty level, would cost less than $200 billion. That’s 29% of the defense department’s budget.
Simply giving everyone exactly the amount they need to reach the poverty line creates all sorts of work disincentive problems. But the closest functional approach to formalizing that logic comes in the form of a negative income tax (NIT).
Rather than giving people the exact difference between their income and the poverty line, NIT’s use a phaseout tax rate that slowly decreases NIT benefits as earned income increases. This helps preserve work incentives and avoid poverty traps.
Incidentally, although NIT and UBI might appear quite different on the surface, the closer you look, the more difficult it becomes to tell the difference between NIT and UBI.
Economists agree that NIT and UBI would have the same net transfer effects, meaning the overall redistribution of income is identical either way. UBI gives everyone the full poverty-level amount, and then taxes some of that payout back - known as the clawback rate - from those higher in the income distribution. In UBI’s case, the clawback rate is implicit.
NIT, by contrast, adjusts payout levels to people’s incomes, avoiding the necessity to tax it back. The clawback rate is explicit. Studies suggest implicit clawback rates have psychological advantages. But the debate over which policy is preferable, UBI or NIT, is far from settled, and will hopefully come into full bloom as we commit ourselves to the eradication of poverty.
The 21st century US exhibits a confounding juxtaposition of poverty with prosperity. What Henry George wrote in 1879 is all the more true today:
“It is as though an immense wedge were being forced, not underneath society, but through society. Those who are above the point of separation are elevated, but those who are below are crushed down.”
Policies like UBI and NIT seek to reposition the wedge of progress underneath society, so that all are lifted.
But crucially, UBI is not merely a measure to eliminate poverty. Framing UBI as just a countermeasure for poverty sells its reformative potential short, like a grandparent who uses an iPhone for nothing but phone calls.
Prior to the 1960’s, poverty was rarely considered separate from wider inequalities between labor and capital. Poverty is only the tail-end of inequality, a white-cap on the surface of a vast and deep ocean. Narrowing the focus of social reform from inequality to poverty, as sociologist Daniel Zamora wonderfully documents, was a project closely associated with the rise of neoliberal, free-market ideology.
It’s no coincidence that the first serious NIT proposal was made by none other than Milton Friedman, whose edifice of economic ideas supported the rise of neoliberal economics that dominated the period from 1972 - 2008. Zamora writes:
"In his view, a focus on “poverty” was the only reasonable social policy within a free market system. If we followed a policy that tended to reduce inequality we would inevitably affect 'the heart of the dynamism of the market economy.' A program directed specifically against poverty, on the other hand, as argued by Friedman himself, 'while operating through the market' would 'not distort the market or impede its functioning,' as did Keynesian programs.”
But at least since Thomas Piketty’s landmark 2013 book, Capital in the 21st Century (not to mention his more recent, and more ambitious Capital and Ideology), the broader spectrum of inequality is back in the spotlight of popular discourse.
UBI critics on the progressive left are concerned that UBI, on its own, is not only insufficient to combat inequality, but might actually further entrench the forces that generate inequality in the first place.
From this angle, UBI is categorized as merely a redistributive reform, doing nothing to change the underlying dynamics that create wealth inequality, and so power inequalities, in the first place.
These criticisms are important, but partial and often misleading. UBI can be considered alongside reforms that more directly target power dynamics. However there is no reason to use an either/or framework, rather than a both/and. UBI offers a unique kind of power distribution that other reforms such as codetermination cannot.
Where codetermination democratizes power inside firms, UBI increases the bargaining power of labor from outside. This is often referred to as the power to "say no” to exploitative labor contracts. With UBI, workers have a foundation of security that allows them to more readily reject undesirable working conditions. This appeals to a broad base of economic thinking, as it’s in line with Adam Smith’s vision for “perfect liberty”.
For Smith, perfect liberty meant every worker is free to choose what job suits them best, and to change as often as they like in search of the best fit. He writes of perfect liberty as a state:
“…where every [hu]man was perfectly free both to choose what occupation [s]he thought proper, and to change it as often as [s]he thought proper. Every [hu]man’s interest would prompt him to seek the advantageous, and to shun the disadvantageous employment.”
An adequate UBI creates an environment in which workers enjoy greater fluidity between jobs, enabling their search for the right fit. But once they accept a job, UBI’s effects on power subside. Within firms, codetermination can then take over, giving workers greater say over how their places of employment make decisions.
What are the necessary conditions for freedom in a market society? Prior to enclosure movements that began claiming all land under the legal jurisdiction of private property, individuals had a choice. One could participate in 'society’, whatever that entailed. Or, if society was of no interest, you were free to find a plot of land, cultivate the earth, and survive on your own.
But ever since all available land was swept up into private ownership, this ‘exit option’ is off the table. In order to access the resources we need to survive, the only choice available to most people is participating in the market economy and earning enough income to buy what you need.
Effectively, people lost the power to say “no” at a basic level. Participation in market society is the only option, and this creates opportunities for exploitation. UBI recreates the lost exit option. By unconditionally providing people enough to meet their basic needs, UBI empowers people with the means to exit exploitation.
By giving workers the power to say no, UBI provides what political philosopher Karl Widerquist calls the physical basis for voluntary trade. From a different angle, anthropologist David Graeber frames UBI as the safe-word in a safe-word theory of social liberation. By affording people the real option of saying no, of opting out of exploitation, it increases the freedom with which we can say “yes”.
Extending UBI to everyone, the social and labor relations that hold society together would be remade. People could opt out of exploitative relationships without sacrificing their basic needs. The relations that remain, and the new ones that take shape, would be based on increasingly voluntary decisions.
Without these sufficient conditions that assure all transactions in a market economy are voluntary, the entire theoretical justification of market economies collapses. Widerquist writes:
"...when neoclassical economists theorize about the world, they assume voluntary exchange is taking place. Building on this assumption, neoclassical economics goes on to conclude a variety of important results such as that market activity is efficient, that free trade has net positive effects and that markets in which economic agents participate voluntarily make them better off...Although the legitimacy of the market economy is premised on voluntary trade, without a reasonable exit option, the trading system as a whole lacks an acceptable alternative.”
We are left with two choices. Either unconditionally provide everyone with the physical basis for voluntary trade, or abandon the appeal to voluntary trade as a justification for market economies.
Whether UBI would shrink or grow the economy depends on a dazzling web of interdependent factors, making all predictions tenuous at best. As you might expect, economists have constructed models that give all sorts of contradicting reports. Some models predict UBI stimulates growth, while others expect precisely the opposite.
But most models agree on one important element: The lower one is on the income distribution, the higher the likelihood they will spend any additional dollar they receive. Conversely, the wealthier one is, the more likely they are to save each marginal dollar they receive. This has important implications for forecasting how UBI might stimulate economic activity.
Even if UBI does not increase economic growth, and functions as a pure redistribution of income from the top towards the bottom, economic activity would likely increase. Shifting money from those at the top who are more likely to save, to those at the bottom who are more likely to spend, we can expect an increase in aggregate demand. High income inequality, writes John Maynard Keynes, “causes a separation between the power to consume and the desire to consume.”
By redistributing money to where the desire to consume is highest, overall consumption will increase.
The 2008 financial collapse stirred our socioeconomic imaginations. Business as usual lost its appeal. But what comes next? The term post-scarcity is a phrase used to gesture towards a society where scarcity is no longer the organizing principle of human behavior. As the economic historian Robert Heilbroner writes:
“For the introduction of technology has one last effect whose ultimate implications for the metamorphosis of capitalism are perhaps greatest of all. This is the effect of technology in steadily raising the average level of well-being; thereby gradually bringing to an end the condition of material need as an effective stimulus for human behavior”
Reaching all the way back to Keynes, post-scarcity refers to a society where the marginal value of capital goods drops to near zero. Consider a pencil today. We have no problems asking each other to borrow pencils. It’s considered rude, if you have extras, not to give someone a pencil who asks. And most tellingly, if you forget to give the pencil back, it isn’t a big deal.
This is because the marginal value of pencils - a capital good - is near zero. People’s lives are hardly improved by gaining additional pencils. They’re easily accessible at low costs. Keynes imagined a society where all capital goods were as common as pencils, and therefore shared with those who need them without so much as a second thought. He writes:
"The course of affairs will simply be that there will be ever larger and larger classes and groups of people from whom problems of economic necessity have been practically removed. The critical difference will be realised when this condition has become so general that the nature of one’s duty to one’s neighbour is changed. For it will remain reasonable to be economically purposive for others after it has ceased to be reasonable for oneself.”
With material goods receding to occupy a negligible portion of our aspirations (not because we somehow become less materialistic, but because everyone has abundant access to all capital goods they could want), new stimuli for human behavior would naturally emerge. Different forms of immaterial capital (social, cultural, etc) would become the focus of our energies.
UBI, a program that gives everyone a baseline of unconditional income (access to capital), begins to implement these conditions of post-scarcity. In market economies, unconditional income (for which one needn’t trade any time, labor, or money) provides immediate access goods and services we’d otherwise need to trade our time in order to receive. The more unconditional income provided, the less of one’s life-time that must be traded to acquire the goods and services we need.
This lowers the threshold of earnings required for people to meet their basic needs and, should they choose to, devote their time to unpaid activities. Human behavior becomes unbound from the imperative to earn income. Unpaid activities become more viable life-choices.
The theory of post-scarcity has to do with marginal value and rate of return on capital. But the praxis of post-scarcity shows up in the kind of cultural logic that emerges out of a society with wide-spread decreasing returns on capital goods.
As the scholar Robert Chernomas writes: “Keynes’s concern is with achieving the logic, humanity, and culture of a society that could be built only when preoccupation with economic concerns becomes unnecessary."
UBI does not achieve post-scarcity. In fact, some critics suggest the redistributional nature of UBI precludes it from ever being able to fully realize post-scarcity. Since UBI is restricted to redistributing existing wealth, it remains dependent upon a society organized around the accumulation of financial capital. If capital accumulation withers away, no longer the central stimulus driving human behavior, the overall quantity of wealth created will also shrink, reducing the available funding pool for UBI.
These criticisms are important, but not damning. While it is theoretically conceivable that a networked economy with increasing returns could actually skim off enough of those returns to fund a post-scarcity inducing UBI, in practice, this remains beyond immediate reach.
But a UBI can still create spaces of post-scarcity within the interstices of the broader capitalist system. These interstitial post-scarcity spaces allow us to begin experimenting and exploring with new ways of organizing ourselves. These shallows of experimentation, however incomplete and piecemeal, are vital for developing our imaginative capacity to design new systems.
The more radical a proposal, the more scrutiny it should receive. Given the magnitude of UBI, in terms of both implications and costs, it merits abundant scrutiny. I’ll cover a range of critiques, responding to them where possible, and indicating those that remain unanswered.
I. UBI won't change anything
II. Couldn't UBI collapse the economy?
III. We'll all become lazy & dependent
IV. Who will do the ugly jobs?
V. What about free riders?
VI. Won't prices increase?
VII. Won't the majority of net recipients just demand more and more UBI from the rich?
Counter-intuitively, one of the sharpest polemics against UBI comes from the progressive left. In Daniel Zamora’s brilliant The Case Against a Basic Income, he writes:
“UBI isn’t an alternative to neoliberalism, but an ideological capitulation to it. In fact, the most viable forms of basic income would universalize precarious labor and extend the sphere of the market — just as the gurus of Silicon Valley hope.”
This view builds from Luke Martinelli’s assessment: an affordable UBI is inadequate, and an adequate UBI is unaffordable. If all that’s affordable is a UBI well below the poverty level, then these critics argue that nothing will fundamentally change. An inadequate UBI fails to grant workers sufficient means to reject exploitative jobs, fails to eliminate poverty, and fails to establish the physical basis for voluntary trade. Effectively, all an inadequate UBI would do is provide a cash stimulus to existing markets.
Moreover, even an adequate (poverty level) UBI could function as a capitulation to neoliberalism if it’s conceived as a full replacement, rather than supplement, to existing welfare and social programs. When Milton Friedman proposed his guaranteed income in the form of a negative income tax, this is precisely what he had in mind. Same with Charles Murray’s more recent UBI proposal.
The validity of this critique then relies on two factors: the UBI amount, and how we pay for it.
But as Zamora himself notes, funding an adequate UBI is a question of political, rather than economic feasibility. Of course we could fund an adequate UBI. The capitulation critique does not doubt this. Rather, they doubt that it’s realistic that the necessary taxes could make it through the political process.
The capitulation critique, then, does not apply to a poverty level UBI funded by progressive taxation. It merely doubts its political viability. Far from a nail in the coffin, this points to the conspicuous lack of rigor applied to existing progressive funding proposals for an adequate UBI. If we are to overcome this sense of politically impossibility, we need to put forward realistic funding models.
If we manage to fund an adequate UBI, won’t we all just become idlers? Won’t we just waste the free time we’re afforded? Is it worth enacting the largest program in American politics simply to enable people to spend more time watching Netflix and going to the beach?
At heart, this is a question of human nature. How would humans behave if they weren’t compelled to act by the threat of starvation and homelessness? Is human nature fixed, or does it adapt to changing social circumstances?
In fact, this is one of the main divergence points between Adam Smith and Karl Marx. Both believed that society thrives by maintaining an artificial scarcity. But Smith believes maintaining artificial scarcity is the only way to incentivize humans to engage in socially productive activities:
"And it is well that nature imposes [artificial scarcity] upon us in this manner. It is this deception which rouses and keeps in continual motion the industry of mankind. It is this which first prompted them to cultivate the ground, to build houses, to found cities and commonwealth, and to invent and improve all the sciences and arts, which ennoble and embellish human life"
Marx held a more adaptive, evolutionary view of human nature. He believed that how we spend our leisure time is inextricably linked to the working conditions and modes of production present in society. He writes that “all history is nothing but a continuous transformation of human nature.”
Both John Maynard Keynes and Henry George side with Marx on this question. The transformation of material and social conditions, they believe, will lead to the transformation of human behavior. George writes, in what I suspect is a direct counter to Smith:
“But it may be said, to banish want and the fear of want, would be to destroy the stimulus to exertion; men would become simply idlers, and such a happy state of general comfort and content would be the death of progress. This is the old slaveholders’ argument, that men can be driven to labor only with the lash. Nothing is more untrue.”
Worrying that UBI would amplify our idleness, our ‘time wasting’ behaviors, is a fallacy that assumes present behaviors would continue unchanged in radically altered social conditions. It fails to account for how economic distress presently weighs upon, and influences, how workers spend their ‘time off’.
As I’ve written about elsewhere, an adequate UBI must be considered in light of its implications for human development. The kinds of humans we become by living in society would likely change.
But there is a deeper assumption that motivates the human nature critique of UBI: that we have a right to judge how others spend their time.
In terms of UBI, this assumption arises because people’s free time would be, in part, funded by redistributing the earned income of some to all. Do we owe this kind of financial support to each other?
This critique is commonly known as the free rider problem.
The free rider problem suggests that even if UBI wouldn’t create “universal basic idling”, it isn't fair to redistribute earnings from hard-working citizens towards those who don’t contribute value to society. By receiving tax-funded income without contributing their own labor income to the tax base that funds UBI, they’re ‘free riding’ off the earned income of others. In this view, UBI gives people “something for nothing”.
A poverty-level UBI of $12,490 is hardly a living wage for even the most ascetic of citizens; most will continue to work and earn additional income. However, it is plausible to imagine at least some percentage of the population who choose to live off their UBI alone. It’s more likely to see a proliferation of full-time workers drop to part-time. UBI could make up enough of the difference so that they can maintain relatively similar lifestyles, while generating fewer taxable wages for the overall pot.
How might this criticism change if we apply it to parents who choose to stay home and raise their children? Does the same sense of unfairness come into play when recipients use UBI to fund socially valuable activities that markets fail to compensate? Surely a devoted parent is worth more to society than an unmotivated office administrator, or insurance salesman?
What about aspiring scientists who use the newfound financial and time freedoms to focus on exploring new theories? Or artists who dedicate their time to creativity? In this sense, UBI functions to extend earnings to those engaged in socially valuable pursuits that markets fail to compensate for.
Where free riding turns problematic is the assumption that willfully unemployed UBI recipients will live in ways that do not create value for society. Receiving “something for nothing”. But this is not only assumed, it stands in direct conflict with empirical studies on how UBI affects labor force participation. Even beyond the question of whether UBI would stimulate or stifle economic activity, a larger question looms: are we comfortable letting markets be the judge of what constitutes value?
Using wages as the prime indicator of value-creation solidifies the market's role in determining social value. But much of the progressive left’s movement is about displacing earnings as sole indications of social value. There are forms of value markets systematically fail to recognize, and forms of socially valuable (usually long-term) investments that markets fail to incentivize. Not to mention the forms of negative value that markets stimulate.
In this sense, the free-rider problem might not be a problem at all, but a solution. It functions alongside the market to stimulate forms of social value that markets leave behind.
Another proposed response to the free-rider problem is to shift the narrative frame of UBI. Since progressive taxes that draw from high-earning sectors of society would fund UBI, some claim that UBI is not redistributing the rightful ‘earnings’ of others, but distributes the portion of collective wealth that’s captured by high private earnings. In this sense, UBI is more of a social dividend that formalizes the collective nature of value creation on modern economies.
Consider how this logic of social dividends applies to raising the corporate tax rate, for example. Mariana Mazzucato has demonstrated how much of the iPhone's signature technology is a result of publicly funded R&D. Although taxpayers effectively socialize the risk of this R&D, the financial returns on that investment are privatized, none of which goes back to the taxpayers who (partially) funded the investment.
Should not a small portion of the financial earnings from publicly funded innovation return to those who funded the initial research? Isn’t the public entitled to share in the financial returns on innovations our tax dollars paid for?
Similar logic is at play for many high-earning sectors of society. From Google, Apple, to Tesla, Mazzucato shows how stories of value creation systematically neglect the role of public investment. Framing UBI as a social dividend formalizes the collective nature of value creation, paying dividends on the public’s investment in innovations that spur private fortunes.
A common example is the Alaska Permanent Fund, which taxes all mineral (primarily oil) royalties a minimum of 25%. They reason that Alaskan oil belongs to all Alaskans, rather than whoever manages to dig it up first. Anyone who uses the oil must compensate all other collective owners for excluding them from using it.
The tax revenues are deposited into an investment portfolio that each Alaskan shares an equal share in, receiving annual dividends that fluctuate with the stock market. Applying this logic nationally, Matt Breunig’s proposal for a social wealth fund makes every American an equal shareholder in a collectively owned portfolio.
Framing UBI as a social dividend only makes sense if the funding mechanisms draw from areas of society where large private earnings are bolstered by neglecting public contributions. To sufficiently appease free-rider concerns, UBI advocates must demonstrate what sectors of society wind up paying for UBI under their funding proposals.
In Zamora’s polemic against UBI, he asks a cutting question: if an adequate UBI gives workers the ability to say “no” to undesirable labor, how can we be sure all the work that needs doing, would get done?
“...a ‘utopian’ [by which he means at least poverty level] UBI raises questions about how the distribution of work — that is, the division of labor — would be determined in a society where we could choose not to work...A “utopian” UBI...simply assumes that in a society liberated from the work imperative, the spontaneous aggregation of individual desires would yield a division of labor conducive to a properly functioning society; that the desires of individuals newly freed to choose what they wish to do would spontaneously yield a perfectly functional division of labor. But this expectation is assumed rather than demonstrated.”
First, it’s worth nothing that by “utopian” UBI, Zamora means a poverty level, or $1,041 monthly UBI. This is hardly enough for even the most ascetic citizens to live on alone. We should certainly expect radical changes to the labor market. But the work incentive, while perhaps marginally dampened, is far from “liberated” by such a UBI.
Liberation aside, Zamora’s point remains. What if nobody chooses to work as a janitor anymore? What if no one is willing to clean the sewers? Unless technology fulfills its promise and automates all of the work humans would rather not do, the full division of labor required to maintain society may include jobs that people, given the means, simply wouldn’t take.
This is one of the greatest fissures in UBI discourse. The ‘work imperative’ is both the glue that holds the system together, and a bleak reality that suffocates working classes. We cannot yet outsource all undesirable jobs to robots. While a work incentive remains even with a poverty level UBI, critical attention must be turned to reflecting on how to maintain the necessary division of labor.
On one hand, David Graeber believes with a UBI, bullshit jobs might simply disappear, because people wouldn’t take them. Alternatively, those unattractive jobs that still require doing for society to function may be forced to offer higher wages. The ways in which wages might respond to UBI lead us into the fascinating territory of the sustainability critique.
We can imagine that huge amounts of people may choose to drop from full to part-time work, supplementing the gap in income with UBI. On the whole, this may lead to a decrease in taxable wages. As taxable wages decrease, so does the pool of money taxes draw from to fund the UBI.
The magnitude of this decrease depends largely on what kinds of taxes are used to fund the UBI. A system that relies heavily on income taxes would face serious issues with a decreasing taxable wage base. But if UBI were funded with land value taxes, carbon taxes, wealth taxes, consumption taxes, capital gains taxes, etc., UBI’s dependence on taxable wages would be lessened.
Still, what if UBI, by dampening the work imperative, succeeds almost too well in allowing people to engage in more unpaid activities? What if the size of the formal economy shrinks, tax revenues wither, and UBI winds up eroding the very capital flows that sustained it?
There’s a relevant concept in economics known as the Laffer curve. It says that as you increase a tax rate, you'll raise more revenue until a certain point, after which the tax rate is so high that it discourages people from engaging in the activity, and the tax revenues begin to decline.
For example, imagine a carbon tax. If a carbon tax increases the price of gasoline from $2.50/gallon, up to $2.85/gallon, most consumers won’t change their behaviors. They’ll consume just as much gasoline, yielding higher tax revenue.
But if the tax shot the price up to $10/gallon, many consumers would change their behaviors to consume less gas, yielding less tax revenue:
We can apply the Laffer curve to UBI, asking how overall tax revenues respond to the level of UBI. Just like the Laffer curve, beginning with a UBI of 0, we’d have today’s present tax revenue. As the UBI increases to $50, $100, $200, we’d expect tax revenues to increase for two reasons.
First, because of the increased tax revenues required to fund the UBI. Second, a UBI funded by progressive taxes redistributes money from higher ends of the income distribution to the lower. The wealthy are less likely to spend each marginal dollar they receive, while lower income groups are more likely to spend any additional dollar they receive. So we can expect that UBI would stimulate economic activity, leading to more taxable revenue.
But as the UBI increases, the imperative to work decreases, and the progressive taxes required to fund the UBI grow steeper. At some point, we reach the peak of the curve, beyond which overall tax revenues begin to decrease as people stop working, and others cease chasing large fortunes that would just be reclaimed by taxes.
In this case, we’re faced with a design project: find the optimal level of UBI that maximizes the payout without decreasing tax revenue.
But the sustainability question can go a step further. What if we find this optimal balance point that provides a sufficiently high UBI to cover people’s basic needs without eroding its own tax base or tanking the economy. How does the economy change? As we explored in the division of labor section, a high enough UBI threatens to eliminate the incentive to do undesirable work.
In a wonderfully provocative 1986 paper - The Capitalist Road to Communism - Philippe Van Parijs and Robert van der Veen explore this question. Assuming a sustainable and adequate UBI, they hypothesize a “twist” in capitalist logic, whereby wage rates for undesirable work will increase to attract workers, while wages for desirable work will decrease, since people have enough to cover their basic needs and are more free to accept more interesting work for lower pay. “Consequently,” they write:
“...the capitalist logic of profit will, much more than previously, foster technical innovation and organizational change that improve the quality of work and thereby reduce the drudgery required per unit of product.”
How will the twist in capitalist logic create incentives that reduce the “drudgery required per unity of product”? Consider the cost of human labor relative to its automatized equivalent. Presently, it’s usually cheaper to hire human workers than invest in the machinery and automation that can perform equivalent work. But already, we’re seeing roaming robots replace supermarket workers, self-driving cars replacing drivers, and tablets replacing waiters at restaurants.
If this twist of capitalist logic drives up the wage rate for undesirable work, the cost relation will flip. It will become more expensive to hire humans at higher wages where machines can do the equivalent labor. The costs of automation will become a rational choice for capitalists when the equivalent cost of labor surpasses it.
These are uncertain speculations, to be sure. And the assumption that there exists an optimal level of UBI that covers basic needs without grinding down its own tax base is little more than an assumption. We have economic models that suggest UBI would decrease growth, while others say just the opposite.
In the face of these uncertainties, we may nevertheless rest assured that UBI would fundamentally change the economy, and in so doing, the kinds of lives we lead. We should speculate as widely as possible, and survey the many possibilities as diligently as we can.
If we can conclude anything from these concerns and speculations, perhaps it’s that moving in the direction of UBI merits prudence. While we must understand that how the economy responds to a $250 UBI cannot be extrapolated to suggest its response to a $1,000 UBI - the two are fundamentally different - we do have the option of moving towards UBI, rather than diving straight into the unknown.
If everyone receives an extra $12,490 annually, won’t producers raise prices to absorb this extra capital? Won’t landlords raise rent, retail stores raise prices, ultimately absorbing the UBI entirely such that no meaningful changes remain?
In brief: maybe a little bit, but probably not much.
Inflation is not so simple as: people receive more money, therefore producers increase prices. Inflation only occurs when aggregate supply is unable to keep up with increasing demand. So long as people’s purchasing power increases, and supply can scale to match, there is no inflation.
Moreover, most UBI proposals do not even propose to increase the money supply. UBI funded by progressive taxes just shuffles existing money around. But even if a UBI were funded entirely by printing the requisite $3.6 trillion every year and adding it to the economy, it’s not clear how much inflation would actually occur.
While prevailing logic assumes such an action would cause so much inflation as to render the idea obviously detestable, the matter is far from obvious. For example, Ellen Brown writes that, by virtue of how money is created, “our money supply is in a chronic state of deflation.” When banks approve a loan, that money is created and assimilates into the economy. But the subsequent interest owed is not created, so money creation always furthers the deficit that divides money owed from money circulating in the economy.
This gap between debt owed and the money supply creates a buffer against inflation. Any increase in the money supply that closes this gap (i.e., UBI money used to pay existing debts) causes no inflation.
But few UBI proposals rely on deficit spending - most use progressive taxes to redistribute money downwards. In this case, the money supply does not increase, but spending patterns and purchasing power do.
The lower on the income distribution one falls, the higher their propensity to spend each additional dollar they receive. So if progressive taxes redistribute money downwards via UBI, we can expect aggregate spending in the economy to increase. So long as supply can scale up to match increased demand, no inflation occurs.
Inflation only occurs when supply hits its maximum, and increasing demand cannot be matched by increasing supply. So the degree to which the economy can increase its supply also provides a buffer that absorbs inflation.
For example, since 1982, every Alaskan citizen has received a partial UBI through taxes levied on oil revenues. Each year, citizens receive anywhere from $1,000 - $2,000. From the introduction of their partial UBI to the present, Alaska has experienced lower inflation than the rest of the nation. This, despite every citizen receiving an extra ~$1,500 annually.
Similar results were found when the Mexican government conducted experiments across a network of villages. Villages where people received direct cash transfers experienced no statistically significant changes in prices.
Results from the Alaska, or rural Mexican villages can only tell us so much about how the entire US economy would react to a UBI. A more representative study looked specifically at how a UBI funded by progressive taxation (specifically, by progressive income taxation, which is a more distortionary UBI than most proposals that use forms of taxation other than excessive income taxes) would affect housing prices in New York City. They find that a $5,000 household UBI (another departure from actual UBI proposals, that distribute benefits per individual) would increase aggregate welfare of the bottom 50% of the wealth distribution. Most notably, they find that this UBI would actually decrease housing prices.
All models should be taken skeptically, as there always exists inherent limitations in our ability to actually model UBI. Not to mention the varying assumptions required to construct models that often differ from the actual UBI proposals these models are used to evaluate. Nevertheless. Each successive experimental context related to UBI and inflation suggests the same finding: there is no obvious causality between unconditional income transfers and price inflation.
Another common concern goes like this: funding a UBI requires progressive taxes that fall mostly on the wealthy. But the wealthy constitute only a minority in society. If the majority of society are net UBI recipients, meaning they receive more in UBI than they pay in increased taxes, what’s to stop them from leveraging their majority and voting to raise the level of UBI, exploiting the rich minority?
This concern can be handled in the same way we handle voting for presidential impeachment, an event too important to leave up to mere majority rule. For the senate to impeach a president, they require a supermajority consensus. This is just a higher threshold of consensus than other measures require. Requiring a supermajority to change UBI levels can help prevent partisan exploitations and tyrannical majorities.
At the moment, how to pay for UBI is the most important question of the discussion. There’s plenty of theory, there are well-reasoned arguments on all sides. What we need to develop are realistic funding proposals that we can subject to scrutiny.
The relevant question isn’t can we pay for UBI, but should we pay for UBI. Of course we can. We could finance the entire program through deficit spending, just creating the money and handing it out (as banks do daily when approving loans). But that probably isn’t a good idea, because the inflationary consequences of doing so likely outweigh the benefits.
How we pay for UBI determines everything from how economic incentives change, to whether it functions as a floor or ceiling for social policy. A handful of proposals for UBI exist, but they mostly lack the attention to detail that enables a transition from politically impossible to politically viable.
No single tax is sufficient to fund UBI. Raising $3.6 trillion in revenue requires a coalition of progressive taxes. But this also presents an opportunity to meaningfully redesign and update economic incentives for the 21st century.
Here, I’ll gather a list of relevant taxes and strategies, together with revenue projections. There is no agreement on how much a wealth tax, for example, would raise. So I’ll include the range of revenue projections, from conservative skepticism to passionate optimism.
Projected annual revenue: $18.9 billion - $70 billion.
Example: Adding an eighth tax bracket for incomes above $10 million taxed at 70% is projected to raise anywhere from $18.9 billion, if no other tax changes are made, up to $70 billion if a broader progressive taxation system is in place.
Background: According to research by Emmanuel Saez and Gabriel Zucman, 2018 marked the first time the wealthiest members of society paid a lower effective tax rate than the poorest:
The conversation on how to implement a more progressive tax system is now booming. One facet of the broader project of progressive taxation is marginal income tax rates. Marginal income tax rates in America on the highest income groups used to exceed 90% (with effective rates closer to 60%), while today, the highest bracket faces a tax rate of 37% (with far lower effective rates). All incomes above $400,000 are treated to this same rate.
Research by Zucman, Saez, and Stantcheva (2014) attempts to derive the optimal top rate of taxation to maximize revenue, in relation to the Laffer curve for income taxes. They find that a rate of 83% on the highest incomes maximises revenue.
But recent progressive proposals to simply add an 8th bracket on incomes above $10 million leave the space between $400,000 and $10 million unchanged. We need more nuance in how we tax incomes.
A first-principles approach might draw from the idea of a monotonically increasing tax rate that does away with brackets altogether. Every additional dollar earned is subjected to a slightly higher tax rate, achieving a truly progressive tax on income that adheres to Adam Smith’s original guideline:
“The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.”
But to avoid such predictable responses to higher income tax rates as capital flight and fiscal manipulation (realizing earnings as capital gains rather than personal income to avoid higher tax rates), any progressive income tax must be part of a broader program of tax reform.
Projected revenues: $6 billion - $170 billion.
Examples: Shifting to a carryover tax basis is projected to raise $10.4 billion annually, and taxing capital gains of the top 1% on an accrual basis could yield $170 billion. These projections are for changing methodology, rather than raising rates.
Revenue projections for raising capital gains rates are complex, because outcomes depend on the broader system of taxation. As such, models that predict a $6 billion annual raise in revenue by raising capital gains taxes from 20% to 24.2% are tenuous.
Background: Capital gains are the second most prevalent mode of realizing income, functioning in tandem with labor income taxes. This is why considering capital gains and income taxes alongside each other is so important: at upper levels of the income distribution, gains are often transferable between these two categories.
Projected revenues: $118 billion - $375 billion.
Example: A 2% tax on wealth above $50 million, cranking up to 3% on wealth above $1 billion, is projected to raise $275 billion, annually.
Background: Many European countries tried wealth taxes, most proved ineffective. Recent economists advocating for a wealth tax acknowledge that we must learn from these failures to design an effective wealth tax.
European wealth taxes failed for a variety of reasons. Foremost among them was the low bar of wealth subjected to the tax. European wealth tax rates kicked in around $1 million, whereas US proposals kick in at either $34 or $50 million. This alone eliminates most liquidity issues that plagued european wealth taxes.
Additionally, it’s quite easy to switch residency within EU countries, moving wealth into those with weaker tax regulations and lower rates. This kind of residency evasion is much less likely in the US, where changing one’s country of residence has a higher bar.
Projected revenues: $100 billion - $210 billion.
Examples: A tax of $25 per metric ton on most greenhouse gas emissions in the US could raise slightly over $100 billion annually, while a tax of $49 per metric ton of carbon dioxide could raise closer to $210 billion annually.
Background: There are two important elements to the debate over carbon tax. First, a successful carbon tax would yield diminishing revenues, moving towards zero. Second, there’s a design question: a carbon tax sets a price on carbon and lets emissions calibrate organically, while a cap-and-trade approach sets an emissions level and lets prices calibrate organically.
Each strategy has particular strengths and weaknesses that may complement each other well in a mixed approach.
Projected revenues: $9.6 billion - $200+ billion
Example: Reforming how the corporate tax is levied often offers more potential revenue than raising the rate. Still, the 2017 tax cuts reduced the corporate rate from 35% to 21%, leading to a $135 billion decline in corporate income tax revenue.
The congressional budget office (CBO) estimated the revenues for a mere 1% increase in the corporate tax rate, finding a $9.6 billion annual increase.
Background: 379 of the Fortune 500 companies paid an effective federal tax rate of 11.3% on their 2018 income, 9.7% less than the actual corporate tax rate of 21%. 91 of those corporations - including Amazon, Chevron, IBM - paid $0 in taxes on their 2018 income.
Discussions about the corporate tax rate often focus on the stated tax rate, rather than the effective tax rate paid. These situations are made possible by various deductions, allowances, and loopholes. Corporate taxation reform should begin with a reevaluation of how the tax is applied.
Projected revenues: $100 billion - $750 billion.
Example: LVT projections are scant. Some of the most recent academic work for full-scale national projections dates back to 1985. The author estimated that a full LVT could raise 28% of national income, yielding $658 billion in 1981 (28% of national income in 2018 would yield $5.8 trillion).
More recent and sober estimates range from smaller, targeted LVT rates that yield closer to $100 - $200 billion in annual revenue, up to a 5% LVT that raises $750 billion.
Background: A land value tax (LVT) was Henry George’s big idea. He sought to socialize land (place it all under collective, rather than private, ownership) and replace all government taxation with a tax on land values. While the notion of replacing all taxes today with a land value tax is far-fetched, smaller-scale land-value taxes are theoretically possible. Indeed, small scale LVT’s are used around the world.
LVT’s are attractive in theory, but treacherous in practice. Implementing a LVT at a national scale would present a series of administrative challenges. These are far from insurmountable, but require magnitudes of attention and innovation to transform the conversation from fantasy to reality.
Projected revenues: $600 billion - $1.3 trillion.
Examples: CBO estimates for a 5% VAT tax range from $190 billion to $290 billion annually, depending on details. Committees have expanded these findings to estimate that a 10% VAT tax would raise approximately $600 billion per year. Estimates on broader-base 10% VAT tax expect revenues of $1.3 trillion per year.
Background: A VAT is used in most of the developed world. 166 of 193 countries with UN membership have one in place. While varieties of VAT proposals are gaining momentum, progressive economists caution that the burden of taxation is ultimately regressive.
VAT’s were conceived in the post-war 20th century, when industries that define 21st century economies were relatively small - finance, insurance, education, and healthcare. Today, these high powered industries would either be beyond the reach of the VAT, or able to pass on the cost burden to consumers.
Projected revenue: $1.2 trillion.
Example: A national income tax was proposed by Emmanuel Saez & Gabriel Zucman in 2019 as a progressive alternative to the VAT. The tax applies to all income - capital and labor - at a single flat rate with no deductions or exemptions. They estimate a 6% national income tax could raise $1.2 trillion annually.
Background: In their 2019 book, Zucman & Saez propose a new tax innovation to ‘leapfrog’ the VAT:
“The United States can leapfrog the VAT. It can pave the way in the creation of the fiscal institutions of the twenty-first century—as it did during the twentieth century. How? By creating a national income tax.”
Its virtue, by including both capital and labor with no exemptions, is the comprehensiveness of national income subject to the tax. This makes it possible to raise high revenues with low rates. The reason such a tax has never been implemented is largely because it incentivizes capital flight - wealthy entities basing their assets in other countries to avoid higher rates.
Accordingly, this kind of tax is only realistic in partnership with reformed taxation of multinational companies and tax havens.
Projected revenues: $60 billion - $75 billion.
Example: A 0.34% broad-based FTT could raise a maximum of 0.4% of GDP, or $75 billion.
Background: A FTT, beyond raising revenue, has a significant corrective effect on the unbridled incentives of the finance industry. By discouraging high-frequency, short-term trading, a FTT discourages the short-termism that has plagued the economy since deregulation loosened capital controls in the 1970’s.
Projected revenues: $200 billion - $771 billion.
Example: While total welfare expenditures hover near $771 billion, Wiederspan, Rhodes, & Shaefer (2015) isolate means-tested programs that a UBI or NIT would make redundant. They project savings of $207 billion.
Background: As I’ve mentioned, the progressivity of UBI depends on whether it supplements, or replaces existing social programs. The full spectrum of which welfare programs should supplement UBI and which should fold their revenues into funding merits widespread critical discussion. But with a total welfare budget of $771.4 billion in 2019, a notable portion of funding can be derived from existing welfare expenditures without threatening progressivity.
It should also be noted that even if most welfare programs are left in place, their costs would greatly shrink in response to a UBI that elevates most citizens beyond their eligibility requirements.
Projected revenues: $59 billion.
Example: Reducing the defense department’s budget by 10%, phased in over a 10-year period, would save $59 billion annually.
Projected revenues: $200 billion - $500 billion.
Examples: By replacing one of every three dollars of social security received with UBI, recipients could increase their overall receipts while saving $324.2 billion.
Alternatively, rather than reducing payouts for those who’ve already paid in, after passing UBI we could justify reducing the 6.2% tax rate on employees that pays into social security, since SS payouts wouldn’t need to remain as high after being complemented by UBI.
Finally, raising the cap on social security payments up to $250,000 would raise an extra $80 billion, while subjecting earnings greater than $250,000 to a 12.4% payroll tax could raise $122 billion, annually.
Total annual revenue range: $2.6 trillion - $5.6 trillion
I am under no delusions that we could sensibly enact all these reforms and raise $5.6 trillion. These taxes cannot all be implemented at their upper projections, and implementing some would eliminate the possibility of implementing others.
The complexity and nuance at stake in accounting for how taxes interact with one another is why we need an influx of proposals from experts of all stripes. But they can be pieced together into cohesive, broad-spectrum proposals.
One example comes from Zucman & Saez’s 2019 book. They propose a tax plan that combines: a wealth tax, corporate tax, higher marginal income tax rates, higher taxation of capital gains, and a national income tax (6% flat tax on all income, labor and capital, no deductions). They predict this combination would yield $1.8 trillion in annual revenue:
This leaves on the table: financial transaction taxes, carbon taxes, any redundant welfare programs, social security reform, expected gains from economic growth, and deficit spending, to name a few.
It’s also worth noting that the point of a UBI funded by progressive taxes is to reduce the tax burden on most people. The taxes used in Saez & Zucman’s proposal, for example, only raise taxes on society’s wealthiest sectors. But for full UBI proposals, taxes will inevitably be raised on some portion of the middle class. It’s important to delineate exactly whose taxes will be raised, and where the breakeven point occurs along the income distribution.
I won’t attempt to suggest a better constellation of taxes - I’m not the guy you want doing that. But it’s demonstrably possible to put together a functional proposal, and we need more of them.
The particular form UBI might take is shrouded in ambiguity. In light of our tour through the relevant considerations, I’d like to propose a few elements worth considering if, following wide-spread democratic discourse and critical reflection, we wind up pursuing some form of UBI.
For UBI to achieve decommodification, rather than serve as a subsidy for capitalists, it must provide, at minimum, the physical basis for voluntary trade. Building off the work of Martha Nussbaum, Amartya Sen, and Karl Widerquist, we can equate this level with the poverty line, yielding a 2019 UBI level of $12,490, or $1,041 per month.
The poverty-level UBI must be guaranteed, which requires reliable and stable sources of funding (modest LVT, national income tax on both labor and capital, financial transaction taxes, reallocating existing revenues, etc).
But what to do with revenues from taxes with more volatile revenues? Wealth and carbon taxes, for example, will change behaviors and lead to fluctuating, and likely decreasing, revenues over time. These are taxes implemented not primarily to raise money, but to alter economic incentives. In this same category of taxes with fluctuating revenues we can include taxes on natural resources (like Alaska’s Permanent Fund), data dividends, and rental revenues on collectively owned assets like broadband spectrum rights, land, or a social wealth fund.
These can all be treated as revenue-neutral taxes, where revenues are equally divided amongst citizens in the form of a social dividend. The social dividend could form an additional, fluctuating layer of benefits atop the guaranteed poverty level that is free to evolve, grow, and shrink alongside capital flows without threatening the basic income.
In fact, an interesting dynamic emerges when there exists a social dividend that can facilitate revenue neutral taxes. Each dollar spent by the government must justify why it is better off going into government expenditures rather than the social dividend pot. All government spending then ‘trades against’ per capita distribution, creating an incentive alignment that optimizes both, while promoting citizen oversight of government spending.
This is what I call a split-tier UBI. The bottom layer must be adequate to provide the physical basis for voluntary trade by meeting the poverty line, while a fluctuating social dividend may layer atop the base to provide a commonly owned stake in certain capital flows.
One of the most common critiques of UBI goes something like: “Why would we pay Mark Zuckerberg $1,049 a month?!” In practice, his UBI acts as a minor tax credit on his much larger tax payment. He pays far more than he receives.
While UBI advocates use this logic to dismiss the critique, the question can be pressed. If a billionaire doesn’t receive any UBI payment after taxes are accounted for, why pay it at all? Why provide a tax credit on larger tax payments (the reason given is usually to avoid the administrative imposition of means-testing). Taking this logic to its conclusion winds up replacing UBI with NIT: only those who need the money most should receive it.
However, a basic income with high-end phaseout rates is different, falling somewhere between NIT and UBI. Columbia’s Poverty Center released a 2020 report analyzing a basic - but not universal - income program with a phaseout rate that kicks in at $150,000 and phases benefits out by $200,000.
We saw this same logic applied to the $1,200 stimulus checks provided by the US government during the Covid-19 pandemic. Individuals earning up to $75,000 received the full amount. Beyond that, the payment began phasing out, reaching zero for those who earned $99,000 or higher.
Using high-end phaseout rates effectively makes the cost burden more progressive by eliminating the payments that function as tax credits for individuals above the breakeven point.
It remains an open (and highly pertinent!) research question whether these savings would offset the additional costs of means-testing.
Since any guaranteed income proposal must be funded by progressive taxes, there will always be some who receive, and some who pay. The tradeoffs should be explored: what do we lose by violating universality with high-end phaseout rates? Whether the differences would justify abandoning the principle of universality merits significant discussion, but it’s worth considering.
Crucial to the efficacy of UBI is that it’s understood as a floor, rather than ceiling to social policy. Narrative framing is important, but the real decisive factor in this balance is how the UBI is paid for. UBI proposals must be clear about which programs would fold in order to fund it, which would remain alongside, and the broader projects UBI can facilitate.
Some of the strongest critiques of UBI come in the form of alternative proposals that accomplish similar reforms through more modest methods.
Raising the gross budget required for UBI - $3.6 trillion - we could fully fund universal healthcare, a poverty-eradicating negative income tax, and have over $1 trillion leftover. Alternatively, if we implemented reforms like universal healthcare, affordable housing, and mass transit programs that reduce the need for personal vehicles, we could reduce the required individual monthly spending on basic needs by an amount equivalent, if not greater, than a poverty level UBI.
With this all in mind, let’s survey some of the leading proposed alternatives to UBI.
I’ve mentioned NIT throughout the essay, and will return to it in the conclusion. Here, I’ll briefly describe how it works.
NIT is composed of two variables: an income floor, and a phaseout tax rate. The income floor sets the amount an individual with $0 of annual income receives from the program. The phaseout rate determines how much of the NIT is phased out for each dollar of earned income. Together, the phaseout tax rate and the income floor create a third element: the breakeven point. This is the earnings level at which NIT benefits reach $0.
Anyone who earns less than the breakeven point receives a proportion of the difference between their earnings and the breakeven point. That proportion is determined by the phaseout rate.
For example, consider a NIT with an income floor of $13,000, and a phaseout rate of 33%. This sets the breakeven point at $39,393. Anyone who earns below $39,393 receives 33% of the difference between their earned income and the breakeven point.
This means if I earn $0 annually, I receive 33% of $39,393, or $13,000. As my income increases, my NIT benefit slowly phases out, reaching zero when my income surpasses $39,393.
Depending on where the income floor and phaseout tax rate are set, annual cost estimates for NIT range from $179 billion, all the way up to $1.09 trillion. Here’s a list of a proposals, from one of the best recent papers on NIT, with income thresholds at 75%, 100%, and 133% of the poverty line, with phaseout rates that maintain benefits until earnings exceed 150%, 266%, and 403% of the poverty line:
Recall the differences between UBI and NIT. Since NIT payouts must constantly adjust themselves to fluctuations in income, a system of income reporting and administration is required to maintain the program.
If NIT payments are to be distributed monthly, as UBI proposals are, this requires a monthly system of income reporting, rather than the yearly we’re currently accustomed to. This is why UBI proponents prefer giving everyone the same amount and using progressive taxes to adjust the distribution. It greatly reduces the bureaucracy and opportunities for error and exploitation in the program, while achieving a similar net transfer effect.
Personally, I see this as one of the most potent areas for digital innovation. A monthly NIT would be difficult with the present state of income reporting and governmental capacities. But modernized digital programs could significantly reduce the frictions, perhaps even automating the process entirely.
Universal basic services (UBS) refers to a comprehensive provisioning of public goods and services, including various combinations of healthcare, housing, transportation, internet services, food, and so on.
Crucially, UBS proposals are inconsistent on whether or not UBI is part of the package. A UBS that includes income - and therefore a UBI - as one of the unconditionally provided features is hardly different from most progressive proposals for UBI. This UBS just formalizes the insistence that UBI alone is insufficient, and must be complemented by a broader program of reform.
But some prominent proposals for UBS advocate for services instead of income, providing the physical means for voluntary trade in kind, rather than in cash. These UBS proposals arose out of the UBI movement, sharing their intent while believing direct provision of services is a better use of available funds than direct cash transfers.
But while UBI has a long history of scholarship, theory, and discourse, UBS proposals are scant. For example, the Institute for Global Prosperity (IGP) is perhaps the leading advocacy group for UBS. In 2017, they released a full proposal under the heading of UBS that proposed anything but. They estimated it would cost $53 billion annually to provide housing, food, transport, and basic communications services (cell phone and internet access) to all UK citizens.
Of these four elements, two - food and housing - were means-tested (decidedly not universal), and universal transportation amounted to little more than free bus rides. Means-testing is a significant break from the philosophy of most UBI advocacy. Their subsequent 2019 report recoiled, offering no cost estimate and striking both food and housing from the proposal, including childcare and adult social care instead.
Guy Standing, a leading advocate for basic income, concludes his comparison of UBI and UBS by pleading with UBS advocates to “stop juxtaposing the idea of more and better public services with giving people basic income security.” The either/or dichotomy is misleading, because “they address different needs and stem from different rationales.”
Perhaps the greatest difference between UBI and UBS is optionality. With UBS, what services one needs are determined by a centralized group. What constitutes sufficient food, housing, communication, are all determined, and monitored, by the government. This way of thinking is an extension of 20th century social democratic reforms to expand welfare states.
By providing the cash equivalent for basic needs, UBI increases people’s optionality in how best to spend the money, and what on. Doing so also maintains the incentive for innovation in these industries.
If these two approaches are brought together, how can we determine what areas of life should be directly provided, and which should be provided as cash equivalents? Why do progressives prefer universal healthcare to just giving people enough money to buy private health insurance?
Here’s a basic heuristic for making sense of this: in markets with significant market failures (like healthcare, or prisons), direct provision of services may be preferable. In well functioning markets, cash equivalents afford greater optionality and maintain the conditions for innovation.
Another increasingly popular alternative to UBI is a federal jobs guarantee (FJG). A FJG would provide a ‘public option’ for employment to all those who want it, paying a livable wage plus benefits.
Cost estimates range from $46 billion, up to $550 billion, to $750 billion, giving an idea of the diversity of proposals that go under the head of a FJG.
To compare, we might contrast a FJG with the previously listed motivations for UBI. The question of detaching livelihood from labor is the single largest point of divergent between these two approaches. A FJG does not decouple, but reinforces, the connection between labor and livelihood.
Proponents do suggest that a FJG could effectively eliminate poverty to all those able and willing to work. This amounts to a conditional elimination of poverty, and so a necessarily partial result. In terms of inequality, a FJG does have indirect effects on working conditions. The federal jobs program could put pressure on the private sector, forcing private jobs to at least match public benefits. Why take a $12.50/hr job in retail when you could get a $15/hr government job with benefits? In this fashion, a FJG could create an implicit minimum wage through competition, rather than federal mandates.
Compared with the status quo, both a FJG and UBI offer a likely improvement. But for all they share, their differences are sharp. Consider the worst-case scenario for each.
With a UBI, one of the public’s greatest concerns is a recipient may move into their parents basement and do nothing but watch television, drink beer, smoke weed, and eat chips all day. The UBI, taxed from the earned income of others, would support this lifestyle.
By contrast, if basic livelihood is afforded through a FJG, imagine the spiritual plight of a worker consigned to meaningless, pointless labor merely in order to satisfy the work requirement for receiving a living wage. If the government is unable to provide quality work for all participants in the program, the outcome is dystopian.
The question of the best means to provide everyone with their basic needs may come down to the question of human nature: do we empower people to decide for themselves how their time is best spent, or utilize labor requirements to make sure no one receives taxed benefits without contributing to society in a way that labor markets deem valuable?
Put differently: who do we ultimately give the power to determine the best use of their lives, people, or the government?
Codetermination, while not a direct alternative to UBI, should be included in these discussions. Much UBI advocacy centers around power. The “power” to say no, and so on. Earlier, we mentioned how UBI gives workers power outside firms, while codetermination decentralizes power within firms. Though a national mandate to place worker representatives on company boards sounds politically far-fetched, Germany has had just such a system in place since 1976.
By giving workers voting rights in company decisions, codetermination places a check on the forces of short-termism plaguing the American corporate landscape since the 1970’s. And at no cost.
Empirical evaluations of German codetermination are yet to reach consensus, but find generally encouraging results. Across the spectrum of studies, most (but not all) find positive gains in productivity, a decrease in share buybacks, improved working conditions, and less unequal distribution of rents. Less positive findings include slight declines in profitability rates and stock prices.
The German board structure differs from that of the US. Germany has two boards, supervisory and executive, while the US corporate model only has one. Nevertheless, plans exist that adapt the German model to the US structure, notably reducing the required representation from 50% of the German supervisory board to 40% on US boards.
At least since Marx, reducing working hours without reducing pay has been the heart of labor-driven reform. “The true realm of freedom,” he writes, “can blossom forth only with this realm of necessity as its basis. The shortening of the working-day is its basic perquisite.” The labor movement made this sentiment a reality through their fights to create the weekend, and 40-hour working weeks.
While average working hours have steadily decreased ever since, the rate began leveling off in the 1980’s:
Around the same time, wage growth also began leveling off, while productivity continued its climb:
Add to this the familiar graphs showing how income shares of the top 1%, corporate executive compensation, and stock buybacks have all rapidly increased since around this same time in the 80’s, and the case for shorter work weeks gains momentum.
Shortening the working week without decreasing pay lets workers share in the gains they’ve missed out on the past 50 years. In practice, this might be achieved in at least two ways. One possibility, likely through codetermination, is individual firms voting to decrease the workweek, perhaps by eliminating Fridays. Workers could still receive payment through some form of paid leave for Friday’s lost wages. This was the strategy used by Microsoft Japan when they tested 4-day work weeks, yielding promising results, both morally and economically.
Another, more decisive path is through federal legislation. Congress could amend the Fair Labor Standards act, and the President could sign into law a reduction of the workweek from 40 hours to 32 (by reducing the threshold where overtime pay begins from the former to the latter).
A social wealth fund is a collectively owned investment portfolio. Every American receives one share of ownership, and so receives a universal basic dividend (UBD). As the portfolio value increases, so does the dividend payment.
The fund can grow by accumulating assets (stocks, bonds, real estate), levying taxes on land, capital, or natural resources (as Alaska’s Permanent Fund does), or monetary seigniorage (where the Federal Reserve creates money to purchase assets).
A proposal was put forward by the People’s Policy Project. In their projection, the UBD is set at 4% of the five-year moving average of the fund’s market value. Assuming a $10 trillion average - in line with the proposals projections - the UBD would yield between $1,000 - $2,000 annually per person, depending on specifics.
As such, social wealth funds, while excellent strategies to democratize investment in the economy’s capital stock, cannot yet provide enough income to meaningfully displace UBI or similar proposals.
But for all the promise of UBI, there is no denying the political barriers to enacting a program that requires upwards of $3 trillion in funding. Without engaging with the realities of our political climate, this may all amount to nothing more than howling in the wind. Some consider advocating for a direct leap from where we are today into a fully funded UBI a hopeless endeavor, a “nonrealist political philosophy” that’s “disjoined from real politics.”
Accordingly, we may consider a modernized negative income tax as a strategy sharing the sentiments behind UBI, while remaining well within the boundaries of economic and political viability.
By “modernized NIT”, I mean an unconditional NIT paid out to all individuals below an income threshold set above the poverty line, with a low phaseout rate, funded by progressive taxation, using the latest digital technologies to minimize bureaucracy, that complements rather than replaces existing and future social programs, made available at a minimum of monthly installments.
For example, Wiederspan, Rhodes, & Shaefer (2015) estimate the cost for a NIT with an income floor set 33% above the poverty line, a phaseout tax rate of 33%, and thus a breakeven point at 403% of the poverty line at $635 billion, annually.
Using 2019 numbers, this translates into an income threshold of $16,611, providing benefits until citizens earn above $50,335. Every additional dollar one earns from $0 up to the $50,334th dollar, one loses $0.33 of NIT benefits. Their cost of $635 is given in 2007 dollars. Adjusting to 2020 dollars yields a cost of $791 billion.
A significant portion of the cost could be covered by folding existing means-tested programs that NIT makes redundant. These might include the earned income tax credit ($59 billion), supplemental security income ($58 billion), temporary assistance for needy families ($16.7 billion), and the supplemental nutrition assistance program ($64 billion). Together, reallocating these revenues into funding the modernized NIT covers $198 billion, annually.
On the subject of reforming existing federal expenditures, we might revisit the $540 billion spent (in 2013 dollars) on tax programs (tax credits, deductions, exclusions, exemptions, deferrals, and reduced rates) that overwhelmingly benefit the highest tiers of the wealth distribution. At the least, this could mean eliminating the home mortgage interest deduction and the real estate tax deduction, freeing up at least $89 billion annually.
We could fund the remaining $504 billion by any number of progressive tax combinations. Perhaps the simplest method would be to update the income tax conventionally used to fund NIT, making it more progressive by applying it to capital as well as labor. We could do so by phasing in a version of the national income tax proposed by economists Gabriel Zucman and Emmanuel Saez (2019).
They estimate a 6% flat rate nation income tax applied to both capital and labor income with no deductions would raise $1.2 trillion, annually. We could phase in this income tax, beginning at the breakeven point where NIT benefits subside (in this example, $50,335). Using the 2018 income distribution, this tax would apply to over 60.1% of households and still the majority of income earned in the economy. A top rate of 3-4% would likely be sufficient to fund the entire remainder of the modernized NIT.
Alternatively, a combination of a financial transaction tax, carbon tax, wealth tax, and raising the effective corporate tax rate could comfortably fund the remaining $437 billion, with minor deficit spending available for discrepancies.
Basic income (BI) - whether UBI, modernized NIT, or non-universal basic income with a high-level phaseout rate - is one of the most important cultural conversations of the early 21st century. Considered alongside something like codetermination, we could structurally redesign socioeconomic dynamics to birth a new system from within the old.
There are things we know about the human condition that are yet to be made part of our social systems. We may not know how much happiness money can buy, but poverty certainly buys misery. Misery and poverty create their own gravitational culture that traps people inside. Through the pull of these invisible forces, poverty begets more poverty.
BI could eviscerate the deflationary, inward-pulling culture of poverty. But as I have argued elsewhere, BI is about more than poverty. It’s about redesigning the socioeconomic forces that guide human development.
Unconditional income is an opportunity to decommodify our lives. The more money we unconditionally receive, the more accessible it becomes to shift ourselves towards the projects, actions, and behaviors - ways of living - that we accumulate money for. These ways of living are qualitatively different, in that they are for themselves, rather than for money.
As anxieties over income that pervade most of our ways of living recede, our social institutions would reconstitute themselves. How might education evolve if most students weren’t preoccupied with securing a high-paying job? How might work evolve if we were more interested in the products of our labor than the paychecks we receive?
The speculations at hand are intoxicating. But as with all intoxication, the process of integration requires thoughtful diligence. The work of translating basic income from wishful vapors into a real policy option requires evaluative rigor.
Towards that end, I hope I’ve done less to convince you of my own opinions, than provoked you to develop your own.
Here’s a selection of some of the more interesting reads I’ve collected about basic income. Both positive and negative perspectives are mixed in.
I’d like to thank Evan Kasakove for providing feedback and helping edit this piece.