Several European countries are moving to adopt universal basic income schemes in the next few years. If any of them come to fruition we could finally get an answer to one of the most exciting questions in economics: whether basic income is the best way to end poverty and the welfare state:
- In January 2016, the Dutch city of Utrecht will do an experiment in which its population will be divided into different groups that receive different levels of welfare, including one in the form of an unconditional basic income. Payments will range from €900 ($1,000) to €1,300 ($1,450).
- Later in 2016, Switzerland will hold a referendum on creating a universal basic income. (Its parliament is opposed.)
- In 2017, Finland will adopt a scheme that pays everyone €800 ($876) a month.
The theory behind a basic income scheme is that the government largely abolishes the costly, complicated, bureaucratic welfare state, where payments and transfers are based on status, personal circumstances, or the qualifications of the applicant. Then the pot of welfare money is simply divided equally among the entire population, no strings attached. Conservatives like the idea because it shrinks the state and removes the government’s micro-interference in the lives of the poor. Left-wingers like it because it provides a lifetime safety net for lower income people and gives workers more choices about what types of work to accept.
Needless to say, basic income has its critics. Canada has repeatedly flirted with basic income but never really implemented it properly. Here is Kevin Milligan, professor of economics at the UBC Vancouver School of Economics:
The Finnish example is typical of the fiscal folly. The Finns propose a monthly transfer of €800 ($1,200) a person, which sounds nice until you do the maths and figure out this would require a doubling of existing taxes to fund the program. This transfer would barely replace what low-income Finns already get under their existing social support system, so the bloated scheme would simply pay out big cheques to those who don’t need them, doing little to help those who are struggling. Not only would this plan be unimaginably expensive, but it’s hard to see why there would be any social gain that would begin to offset the costs.
Business Insider recently figured out what level of basic income the UK could provide if all its welfare payments were simply doled out to everyone, equally, with no increases in taxes or spending. It came to £423 per month ($640 or €584) for adults only. Not enough to survive without working. But probably enough to keep most people from starving or being homeless.
Surprisingly, the US could have been decades ahead of Europe on this issue if an experiment by former president Richard Nixon had not gone wrong in the late 1960s. The Nixon administration took 8,500 people in New Jersey, Denver, Seattle, and elsewhere and replaced all their welfare benefits with a guaranteed income called the “Family Assistance Plan,” between 1968 and 1978. It then monitored their fate. When the data came back, it showed an apparent increase in the divorce rate among those who had received the payments. So the plan was abandoned.
Unfortunately, it later turned out that the divorce data was faulty, and there had been no difference between the plan recipients and those not involved. The two officials in charge of that programme? Donald Rumsfeld and Dick Cheney.
You can read more about that lost opportunity in this excellent research paper by Prof. Evelyn Forget of the University of Manitoba.