Priceonomics

 

In the 1950s, Nelle Harper Lee was a single woman living in New York City. Having disappointed her father’s hopes by leaving law school, she worked as an airline clerk and wrote in her free time. She had written several long stories, but achieved no success of note.

One Christmas in the late fifties, a generous friend gave her a year’s wages as a gift with the note, “You have one year off from your job to write whatever you please. Merry Christmas.”

A year later, Lee had produced a draft of To Kill a Mockingbird. Published two years later, it won the Pulitzer Prize for Fiction, sold 30 million copies, and won such polls as “Best novel of the century.” 

Lee felt confident that she would produce something successful neither when she received the gift nor when she finished writing her novel. But her friends believed in her writing abilities. Reflecting on the gift several years later, she wrote:

They wanted to show their faith in me the best way they knew how. Whether I ever sold a line was immaterial. They wanted to give me a full, fair chance to learn my craft, free from the harassments of a regular job. Would I accept their gift? There were no strings at all.

Today a small movement wants to make the gift Harper Lee received a right enjoyed by every individual for their entire lives. Known as a “Basic Income Guarantee” (or BIG), it is conceived as both a radically simple poverty solution and utopian vision for the future. 

Advocates have proposed many variations of BIG, but the basic idea is to regularly provide every individual or citizen of a country a sum of money that provides a minimal basis on which to live. It could be enough to keep one out of poverty, or more, or less. But as was the case for Harper Lee, it would be granted unconditionally “without means test or work requirement.”

The idea of the government guaranteeing every citizen a base income is not as crazy - or at least not as fringe - as it sounds. The Basic Income Earth Network, an international network and advocacy group, traces the idea of a government supplied minimum income back to Thomas More, the idea of a universal, unconditional grant to Thomas Paine, and their combination to the middle of the 19th century. 

The idea has proponents across the political spectrum. Noted socialists saw it as taming capitalism and empowering labor. Capitalist icon Milton Friedman advocated a similar system under the guise of a negative income tax that would essentially replace all welfare programs with annual cash transfers. One economist notes of Milton’s view that: 

If the main problem of the poor is that they have too little money, he reasoned, the simplest and cheapest solution is to give them some more. He saw no advantage in hiring armies of bureaucrats to dispense food stamps, energy stamps, day care stamps and rent subsidies.

Many libertarians appreciate the idea for the same reason. 

Lyndon Johnson’s War on Poverty spurred government consideration of a basic income guarantee in the US. In 1968, over 1,000 economists called for Congress to take up a system similar to the BIG while versions of the concept made it into political speeches and platforms. In the 70s, Congress considered four BIG bills.

In wealthy nations, the cost of providing a guaranteed basic income is not prohibitive. A substantial portion can be funded by redirecting the money spent on welfare programs and various tax credits, as well as the money spent administering them. 

It’s hard to give a simple percentage as deciding which tax credits and programs become expendable with a basic income is not black and white. Back of the envelope calculations in a discussion paper from the Basic Income Earth Network (“It’s Time to Think BIG! How the U.S. Can Afford a Poverty-Level Basic Income Guarantee”) estimates the cost of a “big BIG” of $10,000 for every adult and $2,000 for every minor at $1.9 trillion. It estimates the savings from unneeded welfare programs at $375.5 billion and unnecessary personal tax exemptions at $244.4 billion. Eliminating other (much less obviously “unnecessary”) tax policies like the deductions for homeowner mortgages and corporate tax breaks for employee medical premiums and pensions accounts for another $740.8 billion.

Other studies of the financial feasibility of a BIG include a 2004 paper from St. John’s University that “estimated the U.S. could afford a BIG at the 2002 poverty level of $9359 for an adult and $3500 for a child by eliminating some federal welfare programs and by replacing the individual income tax rates with a flat tax of 35%” and a 2006 contribution that argued that “a BIG at the poverty level would cost $1.69 trillion, but that an equivalent negative income tax would cost only $862 billion.”

These proposals suggest that a meaningful basic income can be funded. And they do so without accounting for expected boons from a BIG - benefits that range from the realistic (the economic stimulus of putting so much money in the hands of the poor) to the utopian (lower law enforcement costs as crime falls or the passing of dramatically higher tax rates to fund a world in which the profit motive is much weaker than it is currently). 

While some advocates would like to see high taxes fund a BIG large enough that one could live comfortable just on the basic income, most see something around the poverty line as the maximum or goal. Many Americans’ lives would remain unchanged as they work to pay for car payments, college tuitions, and Starbucks lattes. 

However, a basic income policy could dramatically reduce the incidence of poverty, serve as the ultimate security net, and free more people up to take the type of risk Harper Lee took in writing To Kill a Mockingbird

On an essay on work for the New York Times, Tim Kreider writes:

 “The goal of the future is full unemployment, so we can play. That’s why we have to destroy the present politico-economic system.” This may sound like the pronouncement of some bong-smoking anarchist, but it was actually Arthur C. Clarke, who found time between scuba diving and pinball games to write “Childhood’s End” and think up communications satellites. 

Some proponents of the basic income see it as the natural antidote for the deterioration of good middle class jobs at the hands of technology and automation. Rather than cling to the notion of full employment, they argue, we should turn wealth gains toward basic incomes so that the victims of technology can instead become beneficiaries - finding meaningful part time or volunteer work to supplement their basic income instead of fruitlessly searching for jobs that no longer exist. 

More radically, basic income change the meaning of work from what we do for a paycheck to how we choose to meaningfully fill our time. 

As with any welfare proposal, the main criticism of a basic income is that it will be a disincentive to work. Ten thousand dollars a year won’t support a lifestyle of first class flights or even writing in hipster cafes, but it could encourage people to slack by on their government handout. 

Happily, pilot projects indicate that basic incomes seem to encourage productivity more than slothness. In the case of a pilot that took place in a small Canadian town in the seventies, for example:

Every household in Dauphin was given access to a guaranteed annual budget, subject to their income level. For a family of five, payments equalled about $18,000 a year in today's dollars.

Politicians primarily wanted to see if people would stop working. While the project was pre-empted by a change in government, a second look by researchers has found that there was only a slight decline in work - mostly among mothers, who chose to stay home with their children, and teenaged boys, who stayed in school longer.

A decade long study in 1970s America had similar results, although Priceonomics has not yet found a detailed record of the study. 

Direct cash transfers are also an increasingly popular method for poverty alleviation in the developing world. While they are not an exact analogy for a BIG in a country like America (they are often one-off transfers, for example), researchers have found that they generally increase economic activity. Instead of using the cash for alcohol or in other unproductive ways, most recipients invested in better schooling or health, patched roofs, or capital for small businesses. 

Despite this promising evidence, we at Priceonomics do question about what it means for personal responsibility when the government guarantees something so fundamental as our annual income. You don’t need to hold a Romney 47% type attitude to ask whether having the right to an income undermines something important. 

But as we researched the BIG, we thought of American history. During the era of westward expansion - in the mythological days of Americans taming the frontier - the Homestead Acts offered every individual American a plot of land if they settled it. 40 Acres and a Mule was never seen as a handout or an infringement on responsibility, it was a chance to build something. Lacking a frontier on the Moon or Mars, a basic income seems a way to offer more equality of opportunity - the chance to be secure enough to aspire to something worthwhile.

What seems to make the idea of a basic income guarantee most compelling is the hunch, documented in a growing body of research, that monetary incentives are overrated. For every Wall Street banker devoting every moment of the year to increasing the size of his annual bonus, there are many more people volunteering at a shelter, working on a novel on weekends, or turning down a well paid consulting gig to teach. 

The fear is that a basic income could disrupt the workings of the invisible hand, but especially in a world of plenty, it seems just as feasible to argue that it could remove the material barriers keeping people from achieving a higher potential. It’s worth asking, what would happen if we offered everyone the same gift that resulted in Nelle Harper Lee writing one of the greatest books ever written? 

This post was written by Alex Mayyasi. Follow him on Twitter here or Google Plus. To get occasional notifications when we write blog posts, sign up for our email list.



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