UBI: A Radical Fringe Theory or a Pragmatic Path Forward?

Of all the 2020 US presidential candidates, none have exhibited a rise as remarkable, and as meteoric, as that of entrepreneur Andrew Yang. Yang, a man so far off the political radar that the Washington Post ran an article on him titled “Random Man Runs for President” [1], was able to become one of the final seven Democratic candidates, outlasting several experienced statesmen [2]. How did a complete unknown ascend to the same stage as Joe Biden and Bernie Sanders? Look no further than his flagship proposal of giving a perpetual annuity of US$1,000 a month to all US adults, a type of economic policy known as Universal Basic Income. Initially regarded as an outlandish “fringe theory”, Universal Basic Income (UBI) is increasingly becoming a mainstay of public discourse, especially as the coronavirus pandemic leaves many desperate for cash relief [3]. In fact, a recent poll demonstrated that nearly two-thirds of Australians would welcome a form of universal basic income [4]. So, what is UBI and why has it become relevant? And would this policy have a role in creating a better future for Australians?

   A universal basic income is an unconditional payment made to all individuals (or all adult individuals) of a country [5]. It differs from conventional welfare schemes in that it does not require a means test. An individual is granted the right to receive payment by virtue of their citizenship; their financial situation is irrelevant. The UBI acts as complete replacement of all other publicly financed support – all forms of welfare will be abolished in favor of one single, unifying payment: the UBI [6]. Basic income is no new concept. From influential Quaker Dennis Milner’s 1918 State Bonus Scheme to futurist Robert Theobald’s guaranteed income, UBI has been a part of the conversation for much of the last century. Even the staunchly libertarian Milton Friedman promulgated his own version in the form of a Negative Income Tax (NIT), in the hopes simplifying the income relief system and to provide a more direct form of relief to the financially disadvantaged [5].

However, in recent years, UBI has entered public discussion for another reason; namely, the grave concern that progressive advances in technology will eventually sever the link between economic growth and job growth. A 2020 report from the Australian Computer Society (ACS) estimates that close to 3 million jobs could be lost to automation in the coming 15 years [7]. The report’s modelling predicts that around a third of all jobs in the transport and administrative industries could be wiped out by 2034, creating an “unemployable underclass” of people. The new jobs that replace these obsolete jobs will inevitably be both fewer in quantity and more demanding in terms of skillsets [8]. Other factors, including stagnant real wage growth, the rise of the gig economy, and the negative ramifications of the COVID-19 pandemic have all pointed to a less-than-desirable future for the labour market [9][10]. Furthermore, fiscal systems which rely on the taxation of labour will come under pressure because robots cannot be taxed [6].

Where does UBI fit in all of this? Simple. Proponents of UBI believe that it is the optimal solution to redress these problems. The above issues will inevitably be a significant burden on the economy – a burden that is best alleviated by providing direct cash relief to those affected, as evidenced by the pandemic response. Unlike existing welfare programs, which have been castigated by Milton Friedman for being inefficient [5], the UBI frees the labour market from social-political redistribution tasks whilst also correcting the distribution effects of the labour market [6]. As an unconditional annuity, it provides a permanent safety net that no citizens could fall beneath whilst still providing an incentive to work, unlike many conditional welfare programs which remove beneficiaries’ benefits once they surpass a certain financial threshold [9]. Most importantly, it removes the stigma attached to welfare.

 Furthermore, guaranteed income will encourage financial risk-taking, giving individuals the opportunity to reskill, retrain and engage in entrepreneurial activity [8]. For example, someone whose career was automated away would be able to take coding classes without the risk of succumbing to poverty. Finally, there is evidence that illuminates the positive effect of UBI on economic growth. A Roosevelt Institute study which aimed to model the macroeconomic effects of UBI demonstrated that an unconditional guaranteed income of US$1,000 to all adults would expand the economy by 12.56% over 8 years [8][11]. According to the model, the GDP increase would also be accompanied by higher nominal wage and labour force participation. Price inflation will also increase (although remain at acceptable levels) along with the government deficit.

So, what’s the issue? Well, to put it simply, the cost. Peter Whiteford of the Australian National University’s Crawford School of Public Policy estimates that a basic income program which covers 18 million Australian adults, paying rates tantamount to Age Pension, would cost the nation around A$360 billion a year – an astronomical sum [5]. Despite the cost, nations around the world have begun testing UBI programs as the pressures of the pandemic mount. Most notably, Spain is trialing a basic income scheme that offers monthly payments of up to US$1,145 to 850,000 households [10].

Right now, it is unclear whether or not an idea as radical as UBI is the way forward. There is simply too little concrete evidence to make a conclusive statement. However, radical times call for radical measures, and it is certain that UBI will stay at the centre of public discourse in the years to come.

References

[1] O’Connor, Maureen. (2019, June 10). Random Man Runs for President. The Washington Post Magazine. https://www.washingtonpost.com/news/magazine/wp/2019/06/10/feature/random-man-runs-for-president-the-odd-saga-of-andrew-yang-explained/

[2] Montellaro, Zach. (2020, January 1). Yang qualifies for New Hampshire primary debate. Politico. https://www.politico.com/news/2020/01/26/andrew-yang-new-hampshire-primary-debate-104901

[3] Tharoor, Ishaan. (2020, April 9). The Coronavirus Strengthens the Case for Universal Basic Income. Newsday. https://www.newsday.com/opinion/coronavirus/pandemic-coronavirus-covid-19-universal-basic-income-ubi-1.43776695

[4] Hutchens, Gareth. (2020, Dec 11). A Majority of Australians Would Welcome a Universal Basic Income. ABC News. https://www.abc.net.au/news/2020-12-11/survey-says-most-australians-welcome-universal-basic-income/12970924#:~:text=%22Unconditional%20income%20support%20is%20sometimes,that%20they%20can%20rely%20on.

[5] Arthur, Don. (2016, November 18). Basic Income: a radical idea enters the mainstream. Parliament of Australia Research Paper.  https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/rp1617/BasicIncome

[6] Straubhaar, Thomas. (2017). On the Economics of a Universal Basic Income. Intereconomics. https://www.intereconomics.eu/contents/year/2017/number/2/article/on-the-economics-of-a-universal-basic-income.html

[7] Tonkin, Casey. (2020, March 11). 2.7 million Aussie Jobs at Risk of Automation. Australian Computer Society. https://ia.acs.org.au/article/2020/2-7m-aussie-jobs-at-risk-of-automation-.html#:~:text=Nearly%20three%20million%20Australian%20jobs,AI%20data%20analytics%20company%20Faethm.&text=For%20example%2C%20only%20seven%20per,are%20marked%20as%20being%20augmentable.

[8] Berkely Economic Review Staff (2020, February 25). Unboxing Universal Basic Income. https://econreview.berkeley.edu/unboxing-universal-basic-income/

[9] Santens, Scott. (2017, Jan 15). Why we should all have a basic income. World Economic Forum. https://www.weforum.org/agenda/2017/01/why-we-should-all-have-a-basic-income

[10] Arnold, Carrie (2020, July 10). Pandemic speeds largest test yet of universal basic income. Nature. https://www.nature.com/articles/d41586-020-01993-3

[11] Nikiforos,  Steinbaum and Zezza. (2017, August 19). Modelling the Macroeconomic Effects of a Universal Basic Income. Roosevelt Institute. https://rooseveltinstitute.org/wp-content/uploads/2020/07/RI-Macroeconomic-Effects-of-UBI-201708.pdf