Years ago I did the same math, and went from supportive of UBI to against it. It's not going to happen. I had concerns about the disincentive to work and distortionary effects. I was and am pretty confident it will cause a lot of inflation, possibly equal to the amount of the UBI (i.e., we're not producing anything more and people get more money = everything gets more expensive in dollars, or worse, the work disincentive means we make fewer things).
All of those things pale in comparison to the core math problem of funding it. Anything affordable does too little to matter. Anything that does enough to matter isn't affordable.
> there is a reason I said “it looks as though.” A basic income has to be paid for. ... Doubling tax rates to fund a basic income would produce a large substitution effect
I quantified this in a comparison of UBI vs negative income tax a couple months ago: https://governology.substack.com/p/ubi-vs-negative-income-tax . The result is that negative income tax would be massively more efficient than a UBI in our current tax regime (of income taxes).
You don't replace social security, but reduce all ss awards by 10k. Same for Medicare, pensions, et all.
You already need to raise quite a bit less. This you raise by instituting a no-gap VAT which combines with the UBI to be a net award to those deemed poor by the market, and a net tax on those deemed rich by the market.
Way back in 2006 I did similar sums for a UBI in the UK - http://www.di2.nu/200611/23.htm and http://www.di2.nu/200611/26.htm . It was on the cusp of financially possible for the UK then. But politically it would not have been possible then (or now) since it would have resulted in mass job losses among civil servants and their panic would have done a Liz Truss to the markets
I mean, I would imagine most proponents of UBI to also be proponents of progressive taxes - which, yes, makes it somewhat like income tax, _but_ with unequally distributed results so that the substitution effects only get pronounced at levels over... oh, say, $450000 dollars a year was the recently floated number? And maybe we really _don't_ want people working more to get $500000 instead of $450000, so the substitution effect at _that_ level is intended?
It is vital to point out the difference between the substitution and income effects. I've thought about this myself in defending the EITC on blogs against those who claim it subsidizes Walmart.
May I add two thoughts?
1. A pure transfer will not lower wage income [hours worked, given the wage] so as to outweigh the transfer unless consumption is inferior, which is hard to believe. So, there is a limit to how much work could decline.
2. Proponents of UBI, guaranteed income, or such, cannot possibly believe that all these freebies must be completely tax free. As soon as they are taxed, they begin to look more like a negative income tax. Even our garden variety two-rate sales taxes nudge in that direction.
Most proponents today of UBI in the real world do NOT intend them to replace most/all other welfare programs; they view them as at least mostly additive.
…and then to DF’s point, they fail to do the math.
I've long since come to believe in TANSTAAFL, There Ain't No Such Thing As A Free Lunch. Whenever I see any proposal which neglects to mention costs, my assumption begins with the neglect being intentional and fraudulent. It may change to negligent from ignorance, but that's the best it can be. It may even be possible someone has hit upon something really clever; but that degree of cleverness should include explaining why the costs don't matter.
My father abandoned "TANSTAAFL" on the grounds that there are free lunches, in particular consumer and producer surplus. He replaced it with "Always look a gift horse in the mouth." Free lunches sometimes exist but the claim that something is a free lunch should be viewed with suspicion.
Those surpluses still had a cost to produce, even a cost to deliver. I remember farmers dumping milk because prices had fallen so low it was too expensive to deliver. At any rate, the meaning is the same, and ALAGHITM is harder to pronounce.
Consumer surplus and producer surplus are technical terms in economics.
Any time I buy a good for less than the highest price I would be willing to pay for it, the difference is consumer surplus, a gain I am getting from the opportunity to buy that good at that price, an opportunity available to me for free. Any time I get paid a thousand dollars to give a talk I was willing to give for free, I have gotten a thousand dollars of producer surplus.
As a former Californian, I regard $10,000 a year as alarmingly scanty. My wife and I moved out of Riverside (not the most expensive part of California!) when we couldn't find a one-bedroom rental for less than $1500, or $18,000 a year. That would use up 90% of two people's guaranteed annual income right there. I suppose we could use the rest to pay for luxuries like food, electric power, bus fare, phone and Internet, cleaning products, and so on. . . .
A supporter of a guaranteed income could respond that the ability to live on it doesn't mean the ability to do so anywhere. Someone living on a guaranteed income is free to choose a location where costs are low. California may not qualify.
That makes sense as policy, but I'm not sure you'd get people to vote for it. People who live in expensive states would probably have a lot of bias against having to move to inexpensive states.
To get by on $20,000 a year, you'd need (by the conventional line drawing) to have a dwelling that rented for no more than $556 a month. Even in Kansas, where I live now, that's an unusually low rent. But I suppose you could have people living solely on guaranteed basic income spend more than a third of it on their rent, and make it necessary for single people to find roommates.
One could argue that this is intentional and/or good. We want people to work. Unless/until free robots make all of our goods, people working means we have things to buy. Notably, houses for people to live in, food to eat, clothes to wear. In that case, we would look at a UBI not as an income substitution, but as an income supplement.
The other issue is more practical. $10,000/person is already too much to afford, so anything higher becomes even less politically feasible.
That works as an argument for people who are capable of working. But it's hopeless for people who genuinely can't work, for whatever reason—that is, for the people for whom (within the discourse of tax-funded expenditures) there's the best justification for actually having the government provide them with an income in the first place.
Sure, but that only matters if UBI would be a full replacement for all other forms of public assistance (Medicare/Medicaid, Social Security, TANF, Section 8, etc.). If UBI is in addition to those things, then we would have the same safety net as now, so UBI would only be a benefit to them. An extra $10,000, on top of what they already get, which should be more than enough.
If we were serious about this proposal, we would have to discuss which programs, maybe all, that get eliminated in order to afford a UBI. Then we would have to discuss how to help those in such a predicament.
I agree, but obviously not everyone would. In fact, I think the largest voting bloc in favor of UBI are probably Progressives who would be aghast at reducing the other forms of assistance.
One could adjust the $10,000 by location, but how finely? By state, county, city, zipcode? It's just another example of government one-size-fits-nobody solutions, and another reason to leave it to individuals.
The US is a country of givers. I know a guy who brings people food and prescriptions on his snowmobile; he expects to be paid for the goods, but the trip is on him. I have faith in people to look out for each other. One of my biggest problems with government welfare is how much it discourages private charity.
A supporter could argue against adjusting the amount by location, on the grounds that we want people who can to choose inexpensive places to live. He could even argue that giving a higher income in California than in West Virginia is like giving a higher income to someone who chooses to live on steak instead of beans.
One could also argue that the yearly subsidy should be sized for living in the most expensive locations, on the grounds those are the most productive, and then follow with arguing that people in poorer sections deserve less, and not just less proportionally, but even less because they deliberately chose to be less productive.
I can think of lots of arguments, but they all pale in comparison to arguments against government redistribution of money.
I remember a Rothbard argument that it was unfair to limit federal tax deductions for local and state taxes, because that punished people like him who chose to live in high tax cities like NYC. I don't know where he said it, but it sure surprised me. I'll see if I can find it.
One could make the counter argument that anyone living solely on the UBI was incredibly unproductive, and so had no claim to more money for living in a more productive area whose economy they aren’t contributing to. You could even argue that people living in a more expensive area can more easily find work that would pay more and offset their shortfall, so they should get less.
Really, the whole system would break down into a mess of arguments over who deserved more if there was no fixed statutory number.
I did not find the Rothbard references I remembered. The Rothbard Reader, Chapter 17, "The Myth of Tax Reform", mentions both the state and local tax deduction for federal taxes and expensing business lunches which I remembered, but not in the same manner. I am guessing he repeated the same general arguments differently elsewhere, but darned if I know where.
Living in a productive region, as opposed to being productive itself, seems like a very bad argument for more money. If we want to incentivize productivity, we should pay people more money when they are more productive. That's...pretty much the opposite of what we do with progressive taxation.
Yes, there are a zillion ways to extend government's reach. There is one even simpler way to not do so. This idea that "we", in the form of majority rule, should be able to tell "us", in the form of everybody, what to do, is not the route to freedom.
To be clear, if we were to implement a UBI I think we should make it the same nationwide, with no adjustment for COL. I also think that paying people to be productive is a non-starter and wouldn't be a useful/necessary government function anyway.
I am saying that paying people more just for living in a high COL area is backwards of what we should be doing, even if we were interested in using government to support social policy (which I am generally against). If we wanted social policy, we should incentivize people to move away from high COL areas so that productive people who want to be productive in those areas can better afford it. To that end, a variable UBI should be the *least* in cities and the most in low productivity places. This is also a bad idea, but it's less bad than paying more money for people to take up housing in productive areas while not themselves being productive.
Years ago I did the same math, and went from supportive of UBI to against it. It's not going to happen. I had concerns about the disincentive to work and distortionary effects. I was and am pretty confident it will cause a lot of inflation, possibly equal to the amount of the UBI (i.e., we're not producing anything more and people get more money = everything gets more expensive in dollars, or worse, the work disincentive means we make fewer things).
All of those things pale in comparison to the core math problem of funding it. Anything affordable does too little to matter. Anything that does enough to matter isn't affordable.
> there is a reason I said “it looks as though.” A basic income has to be paid for. ... Doubling tax rates to fund a basic income would produce a large substitution effect
I quantified this in a comparison of UBI vs negative income tax a couple months ago: https://governology.substack.com/p/ubi-vs-negative-income-tax . The result is that negative income tax would be massively more efficient than a UBI in our current tax regime (of income taxes).
You don't replace social security, but reduce all ss awards by 10k. Same for Medicare, pensions, et all.
You already need to raise quite a bit less. This you raise by instituting a no-gap VAT which combines with the UBI to be a net award to those deemed poor by the market, and a net tax on those deemed rich by the market.
Way back in 2006 I did similar sums for a UBI in the UK - http://www.di2.nu/200611/23.htm and http://www.di2.nu/200611/26.htm . It was on the cusp of financially possible for the UK then. But politically it would not have been possible then (or now) since it would have resulted in mass job losses among civil servants and their panic would have done a Liz Truss to the markets
I mean, I would imagine most proponents of UBI to also be proponents of progressive taxes - which, yes, makes it somewhat like income tax, _but_ with unequally distributed results so that the substitution effects only get pronounced at levels over... oh, say, $450000 dollars a year was the recently floated number? And maybe we really _don't_ want people working more to get $500000 instead of $450000, so the substitution effect at _that_ level is intended?
It is vital to point out the difference between the substitution and income effects. I've thought about this myself in defending the EITC on blogs against those who claim it subsidizes Walmart.
May I add two thoughts?
1. A pure transfer will not lower wage income [hours worked, given the wage] so as to outweigh the transfer unless consumption is inferior, which is hard to believe. So, there is a limit to how much work could decline.
2. Proponents of UBI, guaranteed income, or such, cannot possibly believe that all these freebies must be completely tax free. As soon as they are taxed, they begin to look more like a negative income tax. Even our garden variety two-rate sales taxes nudge in that direction.
Most proponents today of UBI in the real world do NOT intend them to replace most/all other welfare programs; they view them as at least mostly additive.
…and then to DF’s point, they fail to do the math.
I've long since come to believe in TANSTAAFL, There Ain't No Such Thing As A Free Lunch. Whenever I see any proposal which neglects to mention costs, my assumption begins with the neglect being intentional and fraudulent. It may change to negligent from ignorance, but that's the best it can be. It may even be possible someone has hit upon something really clever; but that degree of cleverness should include explaining why the costs don't matter.
My father abandoned "TANSTAAFL" on the grounds that there are free lunches, in particular consumer and producer surplus. He replaced it with "Always look a gift horse in the mouth." Free lunches sometimes exist but the claim that something is a free lunch should be viewed with suspicion.
Those surpluses still had a cost to produce, even a cost to deliver. I remember farmers dumping milk because prices had fallen so low it was too expensive to deliver. At any rate, the meaning is the same, and ALAGHITM is harder to pronounce.
Consumer surplus and producer surplus are technical terms in economics.
Any time I buy a good for less than the highest price I would be willing to pay for it, the difference is consumer surplus, a gain I am getting from the opportunity to buy that good at that price, an opportunity available to me for free. Any time I get paid a thousand dollars to give a talk I was willing to give for free, I have gotten a thousand dollars of producer surplus.
As a former Californian, I regard $10,000 a year as alarmingly scanty. My wife and I moved out of Riverside (not the most expensive part of California!) when we couldn't find a one-bedroom rental for less than $1500, or $18,000 a year. That would use up 90% of two people's guaranteed annual income right there. I suppose we could use the rest to pay for luxuries like food, electric power, bus fare, phone and Internet, cleaning products, and so on. . . .
A supporter of a guaranteed income could respond that the ability to live on it doesn't mean the ability to do so anywhere. Someone living on a guaranteed income is free to choose a location where costs are low. California may not qualify.
That makes sense as policy, but I'm not sure you'd get people to vote for it. People who live in expensive states would probably have a lot of bias against having to move to inexpensive states.
To get by on $20,000 a year, you'd need (by the conventional line drawing) to have a dwelling that rented for no more than $556 a month. Even in Kansas, where I live now, that's an unusually low rent. But I suppose you could have people living solely on guaranteed basic income spend more than a third of it on their rent, and make it necessary for single people to find roommates.
One could argue that this is intentional and/or good. We want people to work. Unless/until free robots make all of our goods, people working means we have things to buy. Notably, houses for people to live in, food to eat, clothes to wear. In that case, we would look at a UBI not as an income substitution, but as an income supplement.
The other issue is more practical. $10,000/person is already too much to afford, so anything higher becomes even less politically feasible.
That works as an argument for people who are capable of working. But it's hopeless for people who genuinely can't work, for whatever reason—that is, for the people for whom (within the discourse of tax-funded expenditures) there's the best justification for actually having the government provide them with an income in the first place.
Sure, but that only matters if UBI would be a full replacement for all other forms of public assistance (Medicare/Medicaid, Social Security, TANF, Section 8, etc.). If UBI is in addition to those things, then we would have the same safety net as now, so UBI would only be a benefit to them. An extra $10,000, on top of what they already get, which should be more than enough.
If we were serious about this proposal, we would have to discuss which programs, maybe all, that get eliminated in order to afford a UBI. Then we would have to discuss how to help those in such a predicament.
I don't see why there would be any point in supporting UBI if it wasn't going to replace other forms of public assistance.
I agree, but obviously not everyone would. In fact, I think the largest voting bloc in favor of UBI are probably Progressives who would be aghast at reducing the other forms of assistance.
One could adjust the $10,000 by location, but how finely? By state, county, city, zipcode? It's just another example of government one-size-fits-nobody solutions, and another reason to leave it to individuals.
The US is a country of givers. I know a guy who brings people food and prescriptions on his snowmobile; he expects to be paid for the goods, but the trip is on him. I have faith in people to look out for each other. One of my biggest problems with government welfare is how much it discourages private charity.
A supporter could argue against adjusting the amount by location, on the grounds that we want people who can to choose inexpensive places to live. He could even argue that giving a higher income in California than in West Virginia is like giving a higher income to someone who chooses to live on steak instead of beans.
One could also argue that the yearly subsidy should be sized for living in the most expensive locations, on the grounds those are the most productive, and then follow with arguing that people in poorer sections deserve less, and not just less proportionally, but even less because they deliberately chose to be less productive.
I can think of lots of arguments, but they all pale in comparison to arguments against government redistribution of money.
I remember a Rothbard argument that it was unfair to limit federal tax deductions for local and state taxes, because that punished people like him who chose to live in high tax cities like NYC. I don't know where he said it, but it sure surprised me. I'll see if I can find it.
One could make the counter argument that anyone living solely on the UBI was incredibly unproductive, and so had no claim to more money for living in a more productive area whose economy they aren’t contributing to. You could even argue that people living in a more expensive area can more easily find work that would pay more and offset their shortfall, so they should get less.
Really, the whole system would break down into a mess of arguments over who deserved more if there was no fixed statutory number.
I did not find the Rothbard references I remembered. The Rothbard Reader, Chapter 17, "The Myth of Tax Reform", mentions both the state and local tax deduction for federal taxes and expensing business lunches which I remembered, but not in the same manner. I am guessing he repeated the same general arguments differently elsewhere, but darned if I know where.
Living in a productive region, as opposed to being productive itself, seems like a very bad argument for more money. If we want to incentivize productivity, we should pay people more money when they are more productive. That's...pretty much the opposite of what we do with progressive taxation.
Yes, there are a zillion ways to extend government's reach. There is one even simpler way to not do so. This idea that "we", in the form of majority rule, should be able to tell "us", in the form of everybody, what to do, is not the route to freedom.
To be clear, if we were to implement a UBI I think we should make it the same nationwide, with no adjustment for COL. I also think that paying people to be productive is a non-starter and wouldn't be a useful/necessary government function anyway.
I am saying that paying people more just for living in a high COL area is backwards of what we should be doing, even if we were interested in using government to support social policy (which I am generally against). If we wanted social policy, we should incentivize people to move away from high COL areas so that productive people who want to be productive in those areas can better afford it. To that end, a variable UBI should be the *least* in cities and the most in low productivity places. This is also a bad idea, but it's less bad than paying more money for people to take up housing in productive areas while not themselves being productive.