Politics with the Gare Bear

Universal Basic Income and the Free Market

Have you ever really thought about the term "free market economy?" What is the "free market" free of, anyway? Of course, it's free of government intervention! Ignoring for a moment that this is obviously false, is government really the only thing markets need to be free of to work properly? The government may not compel businesses to allocate their resources in specific ways, but people are compelled to act against their will by a force more powerful than the government: the threat of poverty.

This force is so pervasive that we don't even work it into our normal calculations. We like to imagine that employers and employees come together for their mutual interest, to trade wages for work on terms that seem fair to both parties. In reality, employees may be willing to take less than their labor is worth, because if they don't, they will die. Market forces are important. But is there some way to preserve the power of the market while also making it free of that threat of extreme poverty? A universal basic income (UBI) can do this, and is essential to a market that is "free" in the most meaningful way.

UBI schemes (also called a Guaranteed Income, or GI) are straightforward. The government pays for citizens to receive a minimum income to keep them from falling into poverty. Under some plans, the UBI only comes into effect if a citizen's earned income falls below a certain threshold. Other plans call for the money to be unconditional.

A UBI is not a new idea. It's been implemented as a pilot project in several countries, and was almost signed into law in the US by Richard Nixon at the urging of the famously conservative economist Milton Friedman. However, most members of Congress turned against the idea when an error in divorce rate data in Seattle (where a UBI experiment had been under way) convinced them that the guaranteed income was making women too independent. The idea has lain dormant for decades, but new research, a jobless economic recovery, and worsening wealth inequality have breathed new life into the Universal Basic Income.

Although a UBI has plenty of liberal and conservative fans, it also has staunch opponents, who point to the same pretty apocalyptic fears:

1. A UBI will make people lazy.

It seems reasonable to assume that being paid to live would discourage people from working, but let’s dig a little deeper. It seems safe to say that most people are not content to live at the poverty line. As humans, we generally want not only more material comforts than that, but we also have a powerful desire to project a degree of social and economic prestige; you can’t keep up with the Jones’s when you receive the lowest income possible in the country.

Conservative opponents of the UBI point to (usually hypothetical) “welfare queens” as proof that not everyone feels this innate desire to better their economic fortunes. Still, even the prototypical welfare queen would have more incentive to work under a UBI than under the current welfare scheme. Most aid-to-the-poor programs today are means tested, meaning that one must prove to government that they are in fact “poor enough” to qualify. In this arrangement, benefits are phased out as you earn more money, resulting in an obvious disincentive to work. Under most UBI plans, benefits are not phased out as your income rises, solving that particular problem (sometimes called the 100% marginal income tax).

Luckily, we don’t have to rely on theory alone to predict how people would react to a guaranteed income. In the 1970's, a pilot program called “Mincome” supplemented the incomes of about 1000 families in whose earnings fell below the poverty line in Dauphin, Canada. The experiment, which cost $17 million, was cut short in 1978 when a recession hit Canada. Researchers have found that only two segments of the population worked less than before the program started—teenagers and new mothers. Teenagers presumably devoted more time to study, as high school graduation rates got a boost. New mothers used the subsidy to spend more time with their babies. As it turns out, the government may actually have been saving a fortune by allowing new mothers to take the extra time off, which brings us to the next argument:

2. A UBI is far too expensive.

Commentators have pointed out that if you take all the money currently being spent on welfare (including some special tax benefits for the rich and the middle class) and use it all for a UBI, you don’t have quite enough to pay everyone a living wage.

However, there's a lot missing from these calculations. Most importantly, it assumes that a UBI has no effect on economic growth. If a UBI does lead to stronger economic growth, the government has more income, profit, and sales to tax, leading to higher government revenues. Crucially, there are important reasons to think that a UBI will lead to a better economy. Most new businesses actually lose money for the first few years, so right now entrepreneurialism is basically limited to people already rich enough to live without an income for years. How many potential Googles and Apples has the world already lost because some visionary son or daughter had to take the first job that came along to help support a family? A pilot study in Namibia has already shown how a UBI can increase entrepreneurial activity by hedging some of the risks of starting a business.

We already know that a UBI can encourage students to pursue more education, and I leave it to the reader to decide whether or not this is good for economic growth in the long run.

Even if we deny that a UBI can lead to stronger economic growth, there’s another reason to believe it won’t break the bank for the government: it can save money on healthcare.

Let’s return to Dauphine, where we learned that new mothers receiving Mincome spent more time raising their babies. Why does this matter? According to Stephen Bezrucha, a physician and professor of public health, “roughly half of our health as adults has been programmed in the first thousand days after conception.” In other words, allowing a mother to properly care for a baby can save Medicare from paying through the nose for healthcare later, when that baby is in the geriatric ward.

This might help explain why Sweden, which offers universal paid maternity leave and subsidized daycare, pays less than half what we in USA do on healthcare (per person) for the same results. In a country where almost a quarter of the federal budget goes to healthcare, achieving a spending level closer to Sweden’s could save some serious cheese. And while we can only make an educated guess that those babies in Dauphine will have better health outcomes than their counterparts as they age, we already know that hospital visits during the Mincome years were down almost 10 percent. As a researcher reviewing the Mincome data, notes, “When you walk around a hospital, it's pretty clear that a lot of the time what we're treating are the consequences of poverty,” 

To be honest, it's difficult to know how much a UBI will change government spending if these changes do take place. But this only leads us to a more basic question: does a policy that essentially ends poverty in America need to save money? Isn't wiping out poverty a goal that's worth spending money on? After all, no one argues that Medicare is free—most people just think seniors having access to health care is a worthwhile goal. No one argues that the military is free—most people just think that keeping America safe is a worthwhile goal. It's true that the wealthy might have to pay more in taxes (at least at first), but if a UBI turns out to be effective at eliminating poverty and growing the economy for everyone, I think the wealthy may consider it money well spent.

3. A UBI Will Turn Us All Into Government Drones

The last charge laid against a UBI is not economic or political, but philosophical. The Paul Ryans and Charles Kochs of the world contend that government transfers destroy human dignity by making people "dependent on the government." Unless you're living alone in the woods like Christopher McCandless from Into the Wild, your survival will always depend on other people. Is it really so bad to have part of your income depend upon a democratic government? I think a lot of folks whose jobs have been shipped off to low-cost countries would agree that being dependent upon a private corporation for your survival is not necessarily better.


Thomas Picketty's new book on inequality (which I admittedly didn’t read) has a lot of people talking. He traces the staggering concentration of wealth at the top that's been underway for half a century. According to his predictions, we might be heading towards a world (and specifically an America) that looks more like medieval feudalism than a land of opportunity. But we can head off this grim future by taking action soon. There are a number of things we can do, like index taxes to measures of inequality as Yale economist Robert Shiller has suggested. But a UBI can do more than just stand as a bulwark against feudalism. It can transform our economy into a market that is truly free.