A previous post dealt with the topic of a Universal Basic Income (enter “Universal Basic Income” into the healthy memory search block). Articles in the June 20, 2016 New Yorker by James Surowiecki and by Hal Hodson in the Features Section of the June 25 2016 New Scientist titled “What Happens if we pay everyone just to live” provide the motivation for this current post. Surowiecki is the regular “New Yorker” correspondent for economics, business, and finance. He has also written a book that Healthymemory would highly recommend, “The Wisdom of Crowds.” His article in the New Yorker is titled “Free Money.”
Both articles describe an unusual experiment in the Canadian province of Manitoba in mid-nineteen seventies. The town of Dauphin sent checks to thousands of residents every month to guarantee that all residents received a basic income. The title of this project was Mincome. The goal of the project was to see what happened. Did people stop working? Did poor people spend foolishly and stay in poverty? A Conservative government ended the project in 1979 and buried Mincome.
Many years later an economist at the University of Manitoba, Evelyn Forget, dug up the numbers on the project. She found that life in Dauphin improved markedly. More teenagers stayed in school. Hospitalization rates fell. Work rates had barely dropped at all. The program worked about as well as anyone could have hoped. The earlier healthy memory blog post on this topic found that similar results were found for 20 villages in India.
The Hodson article notes that UBI has long history. Thomas Paine, a US Founding Father, believed that natural resources were a common heritage and that landowners sitting on them should be taxed and their income redistributed. This idea of a UBI returned to the fore in the sixties and is now popular again among economists and policy folks. According to Hodson the idea has been graining adherents across the political spectrum. In the UK proponents include the left-wing Green party and a right-wing think tank, the Adam Smith Institute. In Canada, testing the approach forms part of the policy platform of the Liberal Party, which was elected to power last year. There are many versions of this idea, but one would provide every adult citizen in the U.S. a stipend, say $10K, with children receiving smaller amounts. This would increase a willingness to take risks in jobs and to invest in education. There were small scale experiments with basic income guarantees in the seventies and they showed young people with a basic income were more likely to stay in school. In New Jersey the chances of students graduating from high school increased 25%. The fear that a UBI produces lazy unmotivated workers does not appear to be true. The examples of the many direct-cash-grant programs in the developing world suggest that, as Columbia economist Chris Boatman puts it, “the poor do not waste grants.”
In Alaska an annual dividend from state oil revenues is paid to citizens each year. This amounted to $2012 per person in 2015. Economist Scott Goldsmith at the University of Alaska points that the state is the only one in the US in which the income of the poorest 20$% grew faster than that of the top 20% between the 1980s and 2000.
Now experiments are afoot to test such effects more exactingly. As many as 10,000 Finns will get a no-strings attached monthly income for two years. The sum is designed to guarantee subsistence, covering housing, food, and services like water and electricity. The point is to test whether a basic income gets more people working. The government is interested in removing disincentives to joining the labor force. The ideal is to encourage people to enter the labour market on their own terms.
A study of 1000 children by Kimberly Noble of Columbia University found a strong positive correlation between family income and brain development. One theory is that families with a secure income can focus extra resources on their children. “But with purely correlational data we can’t say which way the arrow is pointing,” says Noble. To find out she is running an experiment in which 1000 low-income mothers across the US will receive a basic income for three years. One group will receive a nominal $20 a month, the other $333. Noble’s focus is on brain development, not economics. But in a pilot study in New York in which money was handed on trackable, prepaid debit cards found that of 1100 transactions most of the money went on groceries. Just three happened at a liquor store.
A basic income would be costly. Depending on how the program was structured, it would likely cost at least twelve to thirteen percent of the GDP. Of course, GDP is another problem. There have been many previous healthy memory blog posts, particularly around Labor Day, arguing that the GDP is the wrong measure of economic success. Requiring constant growth in GDP will eventually destroy itself. There are better metrics of the health of the economy.
Surowiecki concludes that at the moment the prospects of a UBI do not seem favorable, but that the most popular social-welfare programs in the US seemed utopian at first. Healthy Memory would argue that increasing job insecurity along with the a need for increased education throughout the lifespan, a UBI is all but guaranteed for sometime in the future.
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