Everything old is new again, as the saying goes, including the controversial idea that the solution to economic upheaval is free money.
Universal basic income (UBI), a social policy that guarantees a fixed, unconditional stipend to all members of a designated group or entire country, has been kicked around for centuries by thinkers from Thomas Paine to Milton Friedman. Now it is experiencing new life as autonomous vehicles, artificial intelligence and other advancing technologies rattle labor markets and foreshadow a future in which there simply may not be enough jobs for everybody who wants one.
Big-time disrupters Mark Zuckerberg and Elon Musk have both weighed in on the concept in recent months (they like it), and multiple UBI experiments are underway around the world, including in California, Canada, Kenya and Finland. “The changes that are taking place in our societies are so big and so profound that we have to change our social policy systems,” says Olli Kangas, who is directing Finland’s UBI experiment. “The systems we created during the era of industrialization don’t respond anymore to the requirements we have in modern society, with digitalization and globalization taking over. Something must be done,” he says.
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In Finland that something is an experiment designed to test the potential of UBI by providing 560 euros (about $640) a month per person for two years to 2,000 people selected at random from the ranks of Finns collecting unemployment insurance. The total cost of the experiment, which runs through 2018, is some $28 million. As described by Kangas—who is director of government and community relations at Kela (the agency that oversees Finland’s social welfare programs)—the project is a full-blown social engineering research study, complete with a control group of about 173,000 unemployed people matched to the test cohort for age, education, employment history and other characteristics. The controls are receiving conditional unemployment benefits that in some cases exceed the monthly amount given to members of the free-income group. Participation in the experiment is mandatory for the 2,000 people in the experimental group who may get less money but do not have to look for a job or fulfill any other requirements or obligations.
Whereas UBI is traditionally seen as an antidote to widespread job loss, some of today’s proponents view it in a different, somewhat counterintuitive light as well: as a way to encourage self-sufficiency and innovation. One goal of the Kela experiment is to assess UBI’s effectiveness as an incentive to find work—which is ironic, because one of the most common criticisms of UBI is that it discourages job-seeking. As Kangas points out, however, traditional unemployment compensation may actually be more of a disincentive than UBI. “People calculate that it’s not beneficial in economic terms to take a low-paying or short-term job,” he says. After all, the thinking goes, why give up your free time and a benefits package—that in Finland lasts two years and can include housing subsidies—for a marginal increase in your income?
But with UBI the money keeps coming whether a person works or not, so taking even a minimum wage job can mean a significant bump in the bank balance. One of the keys to a successful UBI program, Kangas says, is to set the monthly payment high enough to meet some basic needs but low enough to motivate recipients to seek extra income. “If you don’t want to work, you will get 560 euros and suffer,” he says. “If you take a small job, you will get some pocket money.”
Or, as some UBI supporters see it, you might do something great. Y Combinator, a Silicon Valley start-up seed funder, is launched a small UBI pilot project in Oakland this year. In a post on its Web site describing its UBI efforts, the company frames UBI as potentially much more than mere subsistence: “Do people sit around and play video games or do they create new things? Are people happy and fulfilled? Do people, without the fear of not being able to eat, accomplish far more and benefit society far more? And do recipients, on the whole, create more economic value than they receive?”
For every big, provocative question UBI raises, there is a decidedly practical issue to consider. Besides tracking and comparing employment rates, the Finland experiment is designed to assess what UBI advocates consider another important benefit of the programs—a reduction in the size and complexity of the bureaucracies that manage social welfare systems in developed countries. Unconditional cash disbursements, the argument goes, eliminate all sorts of costly and inefficient administrative steps.
At the other end of the economic spectrum, UBI is getting a hard look as a potential remedy for the extreme poverty found in places like Africa and India. “What’s interesting about basic income is that, coincidentally, it’s a conversation people are having all the way from Silicon Valley, where they are worried about job loss to robots, to some of the poorest countries in the world,” says UBI proponent Paul Niehaus, a professor of economics at the University of California, San Diego.
Niehaus is a co-founder of GiveDirectly, a nonprofit that has distributed more than $70 million among some 80,000 households—around 350,000 people—in Kenya, Uganda and Rwanda since 2011. In the organization’s primary program model participants receive enough cash to cover a single year’s budget, around $1,000, paid in two or three installments. “There has been a ton of research on what happens when you give money to poor people,” Niehaus says. “It has largely been positive.”
What remains unknown, he says, and what a new project from GiveDirectly is designed to assess, “is the impact of knowing that 10 years from now you’re still going to have some basic level of economic security.” In the planned experiment 6,000 people in more than three dozen villages in Kenya will receive about $22 a month for 12 years. Another 10,000 people will receive the money for two years whereas 10,000 more will receive the equivalent of two years’ cash in two payments; a control group will not receive any money. “UBI advocates think that these [6,000] people are going to take more risks—start a business—and skeptics think that people aren’t going to work as hard because they don’t have to worry about 10 years from now,” Niehaus says. “Testing that, the impact of the long-term commitment really is the core question.”
Indeed, one of the chief criticisms of most UBI experiments is that they are too short-lived to provide useful data. For Christian Zimmermann, an economist with the Federal Reserve Bank of Saint Louis who has written about UBI, the true value of the experiments is what we can learn about how people make life-changing choices such as whether to further their educations. “These experiments give you a very clear sample for that,” he says. “But that’s only going to work if you have an experiment for the long haul. Two years amounts to a windfall that people may like, but it’s not going to change the way their life is going to go on.” Referring to the Finland experiment, Zimmermann wonders, “Is that [income] really going to change the habits of people, if they know that in two years it will not be available anymore?”
A bigger problem with UBI is paying for it, whether by raising taxes or shifting funds from other social welfare programs. Small, government-sponsored experiments like Finland’s and donor-funded projects like GiveDirectly’s do not address this issue, critics say. “There have been no true experiments that challenge the financing of it all,” Zimmermann says. “In my sense this is going to be the real challenge.”
Like Niehaus, Zimmermann readily acknowledges cash transfers to individuals—what he calls “a helicopter-drop of money”—help those who receive it. “But you need to finance that somehow,” he says. “And it’s not just printing money. You are actually giving resources. And if you are giving that to someone, you have to take it from somebody else, one way or the other. And this is where it’s going to be really difficult.”
Robert Greenstein, founder and president of the Center on Budget and Policy Priorities, a think tank in Washington, D.C., admires the work GiveDirectly is doing and does not oppose the concept of UBI. “My whole life’s work has at its core been trying to provide income floors and shore up income-type assistance for people in the United States who have too little,” says Greenstein, who has worked with presidents Bill Clinton and Barack Obama and directed federal food assistance programs under Pres. Jimmy Carter. But, he says, whereas UBI might be feasible in some other countries, it is simply not going to fly in the U.S. “I think it is likely to prove highly quixotic here,” he says. “I don’t think it’s likely to happen, not in the next few years and not 20 or 30 years down the road.”
The cost is simply too great, in his view, and the political divide is too wide. “I just can’t see at all that we’re going to raise taxes so much,” Greenstein says, “especially at the top, that we’re going to address both Social Security and Medicare shortfalls, crumbling infrastructure, improved education systems and UBI, which costs several trillion dollars a year—when the entire federal budget is only four trillion itself.”
An alternative to raising taxes to pay for UBI is to cut other social welfare programs. One such scenario is described in the following survey question, submitted in June 2016 to a panel of economists by the University of Chicago’s Booth School of Business: “Granting every American citizen over 21 years old a universal basic income of $13,000 a year—financed by eliminating all transfer programs (including Social Security, Medicare, Medicaid, housing subsidies, household welfare payments and farm and corporate subsidies)—would be a better policy than the status quo.” Only 2 percent of survey respondents agreed whereas 43 percent disagreed and 17 percent strongly disagreed. In testament to the complexity of the UBI debate 19 percent, nearly one in five, were uncertain.
Those doubts, however, are not shared by Greenstein, who adamantly opposes such cuts and worries that UBI could distract from efforts to change tax policy and advance other initiatives that benefit Americans in need. Such efforts, he notes, have much in common with UBI. “The more adequate these programs become,” he says, “the more we achieve core UBI goals of shoring up income and living standards at the bottom.”