People studied the UBI idea and recognized the costs of giving money to everyone are so enormous that it's unworkable. That's there the means testing has come in to try to limit that.
Something more like a "guaranteed minimum income" where you can't have less money than what is required to have a good standard of living is a cheaper and more effective idea that accomplishes the same goals of ending poverty.
UBI is indirectly means-tested; if you make too much money, you end up giving back as much or more in taxes and/or partial UBI clawbacks than what you would get via UBI. This actually ends up working better and being cheaper than most alternatives (including the "guaranteed minimum"), because it's comparatively easy to structure a comprehensive tax system so that it minimizes distortions on people's behavior, and hard to design a means-testing policy to the same effect. The latter is especially true given the patchwork of social-insurance programs that currently exists. Giving cash can replace many of these programs, and making the policy a 'universal' one reduces administrative costs.
The universality doesn't just reduce admin costs, it also eliminates the "maybe I shouldn't get this really crap job because then I won't get to collect my unemployment" and similar mindsets that can be a result of means-testing.
It's actually a big bureaucratic problem to give people several thousand dollars and then demand most of it back later. Most people don't notice income taxes since it comes out of their paycheque. It would genuinely be tough problem to educate people to not spend their basic income, or to design a system where it's clawed back through paycheques.
> or to design a system where it's clawed back through paycheques.
It would be no different than e.g. the existing payroll tax, or income tax withholding. You'd just notice it as a reduction in your paycheck. And if your income is high enough, the UBI can simply be a tax credit.
> It would genuinely be tough problem to educate people to not spend their basic income, or to design a system where it's clawed back through paycheques.
We can use the system that we already have, that is, income tax. It has worked fine for quite a while.
No, it's an income tax which grows progressively with income plus a general refundable tax credit. So the overall tax liability goes negative for low incomes, and since the credit is "refundable" that involves actually getting money from the government. The general idea is sound, there's some difficulties involving ease of administration, e.g. paying the grant weekly or monthly rather than yearly.
No. A negative income tax is a well established principle. It can be implemented as a bracket, but it can also be implemented as a tax credit or in a fully progressive tax system.
Yes, I understand that. It is indeed far more common to hear the term negative income tax than with "bracket" at the end. I was giving an extra detail to distinguish the term from the truncated jargon the above poster appeared to misunderstand. (It is NOT a "negative income tax rate" but effectively a bracket that owes a negative tax liability thanks to the tax credit/UBI/call it mana if you want to.
So basically it's called a "negative income tax", but it's not actually implemented by multiplying income by a negative percentage.
In the model proposed by Milton Friedman, you start with an exemption amount, and a specific proportion of any unused exemption is refundable.
The first dollars you earn reduce your exemption, but at least they aren't taxed, until earnings equals the exemption amount, at which point you are getting no subsidy and your next earned dollar starts being taxed at the lowest rate.
The effective tax rate on those early dollars would be equal to the subsidy rate. For example, an exemption amount of $20k and a subsidy rate of 40% would mean earning nothing would grant you a $8k credit ($20k * 40%). Earn $10k and you would get a $4k credit ((20 - 10) * 40%). Earn $20k and you would get no credit and pay no taxes. But effectively your tax rate on the first $20k earned is 40% -- because you earned $20k and only netted $12k in additional income.
If instead you just give everyone $X, and just have the first dollar earned get taxed at whatever the lowest rate is, you don't have the same problem with regressive rates.
The idea of replacing existing social programs with cash handouts reminds me of Bitcoin's earlier days. Proponents were thinking of what it would be like if they were poor, and not what life is like for poor people.
It is not the case that you can reasonably just give large groups of people with histories of poor financial literacy cash as a replacement for food, shelter, or other necessities. Many people will make bad choices if just given money. That's why many of these programs were built this way: to ensure people can't spend all their cash and be unable to afford baby formula or rent.
Many experiments have been done that involve giving UBI-like grants (and even large, one-time-only cash grants) to people in extreme poverty. The money gets spent in sensible ways, by and large. Investing in one's shelter (e.g. replacing a leaky roof), paying for children's education or buying assets for a profitable business venture are extremely common choices. Regardless of their "financial literacy" (people in extreme poverty are hardly used to dealing with financials!) people seem to grok that they're getting something quite valuable, and are not inclined to waste what they get.
Why shouldn't cash be the benchmark when it comes to aiding poor folks? If giving food or shelter really is more helpful than just giving the equivalent cost in cold hard cash, that will be quite interesting. But let's see the proof of that.
They don't have the financial literacy skills to manage it properly.
I'm not trying to be unreasonably judgemental, and I don't mean things like bond rates or yield curves. Things like making sure you have enough dollars at the end of the month to make a rent payment. Making sure the check gets written so it actually happens. Keeping track of automated withdrawals and ensuring the number stays above zero with the timing of all of them.
This is not trivial at all for a huge chunk of the population that is served by social welfare programs. You can't just expect it to work out giving them cash instead.
I believe this has been debunked by previous UBI studies, Give Directly, etc..
The vast majority of poor people do just fine with money when given to them. The 1-2% who are addicted to substances or mentally ill will always need additional services, but why throw out the huge efficiency gains in just direct cash transfers to all because of the worry that 1-2% might waste it? The efficiency gains of a UBI vs. most means-tested programs is likely more on the order of 20-50%.
A similar argument is “would we give a UBI to billionaires too?! What a waste!” Yes, what a waste of 0.0000003% of the UBI!
> I believe this has been debunked by previous UBI studies, Give Directly, etc..
One shortcoming of the UBI studies I've heard about is that (naturally) they focus on settings that I don't have much confidence would necessarily translate to other settings like the current US. I can easily imagine the efficiency of UBI changing over time, let alone across locations, due to a plethora of factors. This isn't really a criticism of the studies (they're probably doing the best they can, and achieving good results on those is obviously a prerequisite), but rather of how much we can extrapolate from them and how much weight we can put in positive results currently. No matter how perfect their results, I'd totally expect people to be reasonably skeptical of their extrapolability (if that's a word) in the beginning.
If the rhetoric is solely around "government spending" then the perspective will always be that UBI is "too expensive".
But the money doesn't just vanish when it enters people's bank accounts. All of a sudden, banks have a lot more collateral against which to borrow and invest, by virtue of the fact that the bank accounts which store the UBI have money in them. People spend that money and it enters and moves through the economy. The government taxes it back out via sales taxes, income taxes, capital gains taxes, etc.
I think, in general, it's worth having an economy that keeps moving. If you let too few people have too much proportion of available wealth, the consumers won't have any to work with and your economy will be entirely dependent on luxury goods for a tiny proportion of the population.
A higher velocity of capital ~= larger economy, which is good.
However, a higher velocity of capital without commensurate economic value being created ~= massive inflation.
This is a potential risk for UBI, and one that small-scale studies do not cover. Ideally, the additional economic value would be greater than the face value of the capital transferred every year, but there is no guarantee that is correct (nor is there any reason they should even be on the same order of magnitude).
Implementing UBI on a national scale would be a grand experiment. Most grand experiments tend to fail with massive upheaval. I think for UBI to be adopted, you would need a plausible incremental strategy with a lot of safety checks.
Yes, taking things ad absurdum in either direction will lead to catastrophe.
The perspective of MMT is that government can and should tax out money at a rate that keeps the economy from inflating beyond the scope of our control, and inject it at a rate that sustains the velocity of capital. Making this perspective the dominant one in discourse, however, would require a lot more public trust in government before people got comfortable with the idea of governments taxing us for our benefit.
Well, in this case "ad absurdum" is pretty close to a reasonable UBI. A reasonable UBI (say $1000/mo) is going to be ~15% of the entire US economy "printed" every year.
The NPV of that dilution would be enormous, unless the economic value being created is very close to $1000/mo (or higher).
Consider all the government spending that currently goes to companies (tax credits, subsidies, etc.) and how that money further goes into people's pockets as (at $1000/mo, close to minimum) wage. I don't have hard numbers but this is probably not much different from the overall cost of UBI. All UBI does is cut out the middleman. Especially post-recession, many companies only survive because they run at a loss for a while and soak up investments to stay afloat. If we are to believe capitalists, we should structure the economy to discourage corporate grifters. UBI would do exactly that and replace costs that currently support the grifting behavior.
I'm perplexed by how often people assume that spending will only increase with the introduction of UBI, when there are many existing pathways for capital to travel that will become obsolete when UBI is enacted, and can be diverted to funding UBI instead.
> However, a higher velocity of capital without commensurate economic value being created ~= massive inflation.
This is a good point. Money maps to stuff and services. But there is ample surplus production (and unused capacity) in our economy.
Every year 40bn+ pounds of food is wasted at the retail level (on top of all the waste that happens before retail in production), while ~11% of the American population is food insecure.
Nearly every clothing company — H&M, Nike, Burberry, Eddie Bauer, and so on — destroys billions of dollars of unsold clothing every year in order to preserve their brand.
We have material abundance thanks to highly optimised mechanisation and more recently automation in agriculture and manufacturing. UBI can allow the poorest parts of society access the surplus that we would otherwise destroy.
Having an income (via UBI or some other mechanism) would help the poor, that is true (minus the caveat above about economic upheaval). Assuming that said income will reduce economic waste is not at all evident.
That's literally untrue. It's built on people spending money. If there is no trade, there is no economy.
This fetishism with "work" as a proxy for the value of the human life which performs the work is a very American concept with corollaries in only a couple other countries. This is not the norm and certainly not a healthy way to look at labor and the economy.
Money is a recent invention, and economies have flourished without it. Money facilitates trade, increases liquidity, and reduces friction in transactions.
> This fetishism with "work" as a proxy for the value of the human life which performs the work
It is not a proxy for the value of a human life. It is a representation of the value of the labor of that human.
Americans are very generous in voluntarily giving to charities.
Compensation is a representation of bargaining power. If anything, compensation for labor has an inverse relationship with actual value. Teachers get paid little despite educating future generations, sanitation workers contribute more to the public health than doctors but make peanuts, and stay-at-home parents nurture children and are paid nothing at all. Bargaining power is not value of labor.
We are paid what can demand and not a penny more irrespective of our labor's actual value.
> It is a representation of the value of the labor of that human.
By withholding economic power until someone provides "labor" as defined by the state, and leaving them embedded in an economy which requires money to survive, you are directly tying the value of the human life to the value of their labor.
> giving to charities
Interesting, probably has a lot to do with the low taxes and high amount of disposable income.
> probably has a lot to do with the low taxes and high amount of disposable income.
A young lady I used to know was the kindest person I ever met. She didn't have much, but would donate a few dollars to every charity that called. They had her number, and called her all the time.
She was the real deal, not one of those people who are only generous with someone else's money.
> you are directly tying the value of the human life to the value of their labor.
Oh baloney. Plenty of people will voluntarily give food to a hungry person.
If "plenty of people" can be organized to consent to giving up money, maybe we can organize some kind of centralized method to collect funds and distribute resources to those in need. We can probably set up something through the government for this. Come to think of it, shipping food around is a lot harder than just giving money to them to go buy their own. Why don't we make it so the government hands out money to everyone who needs it, so that we can coordinate the good deeds of many to serve the needs of many more?
I'm not aware of any social problem that has been adequately resolved by any organization, government or private. There's always someone who thinks it's not good enough.
There are 12 US cities that have achieved "functional zero" homelessness -- no chronic homelessness and no homeless vets.
The country of Finland has done the same, with a plan to reach absolute zero (nobody staying temporarily with friends or relatives) by 2022. Right now, over there, with 5.5 million people, 500 people don't have permanent housing of their own.
You said: "I'm not aware of any social problem that has been adequately resolved by any organization, government or private. There's always someone who thinks it's not good enough."
If you think that 500 people out of 5.5 million -- who aren't sleeping on the street, but have access to shelter and only lack their own permanent housing, with a plan to house them in the next two years -- is "inadequate," that's a you problem, not a "no social problem has adequately been resolved by any organization" problem.
> People studied the UBI idea and recognized the costs of giving money to everyone are so enormous that it's unworkable.
Not really. There are UBI models that are more or less zero cost - taxes are increased by roughly the UBI amount for employed workers, and for the unemployed the UBI would be similar to the unemployment benefits they would lose.
Something more like a "guaranteed minimum income" where you can't have less money than what is required to have a good standard of living is a cheaper and more effective idea that accomplishes the same goals of ending poverty.