The Case Against a Basic Income Guarantee
By David Henderson
Jason Kuznicki of the Cato Institute has written a piece calling for an “Unconditional Basic Income.” (I should note that he did not publish this under the auspices of the Cato Institute. I mention Cato only to identify his affiliation.) Under Kuznicki’s proposal, the government, presumably the federal government, would guarantee everyone a basic income. While he lists a number of upsides to his proposal, he never mentions the amount of the guarantee. It matters.
In my article, “A Philosophical Economist’s Case for a Government-Guaranteed Basic Income,” I took Matt Zwolinski’s proposal for a $10,000 guarantee per U.S. adult. I showed that the result would be a huge increase in federal spending, a huge increase in tax rates, and a huge increase in the deadweight loss from taxes.
Zwolinski has argued elsewhere that a BIG “would be much better than the current welfare state.” He writes: “Current federal social welfare programs in the United States are an expensive, complicated mess. According to Michael Tanner, the federal government spent more than $668 billion on over one hundred and twenty-six anti-poverty programs in 2012. When you add in the $284 billion spent by state and local governments, that amounts to $20,610 for every poor person in America” (2013b, emphasis in original). He wonders, “Wouldn’t it be better just to write the poor a check?”
It might be better to “write the poor a check,” but notice what Zwolinski has done. He started by arguing for a check for every adult American citizen and then in his cost comparison shifted to having the government write a check only to poor people. In that same essay, he writes: “A Basic Income Guarantee involves something like an unconditional grant of income to every citizen. So, on most proposals, everybody gets a check each month. ‘Unconditional’ here means mostly that the check is not conditional on one’s wealth or poverty or willingness to work” (2013b). For that reason, the relevant expenditure does appear to be the $2.068 trillion figure given earlier.
Assume, as Zwolinski advocates, that such a program would displace all 126 federal antipoverty programs and all state and local government antipoverty programs. Later, I challenge that assumption, but for now imagine that it is true. Notice what would happen. A $2.068 trillion program would replace programs whose total expenditures in 2012 were $952 billion. Even rounding up the $952 billion to $1 trillion, the program that Zwolinski advocates is more than twice as costly in budgetary terms as current antipoverty programs.
So it would be helpful to know what basic income guarantee Jason Kuznicki proposes.
I found this part of his article surprising and troubling:
But also as real incomes rise, the price system may run into trouble on the low end of the economic spectrum: How can someone send a price signal when they don’t have any money at all? How can the comparatively feeble price signals of the very poor compete with the price signals of the middle class, which are strong and (happily) getting stronger?
It’s possible, and tempting, to make gross simplifications of this situation. But the impaired ability of the poor to signal via the price mechanism has some predictable effects, and they aren’t especially good. We might say, for example, that inexpensive, high-quality basic consumption goods will be underprovided, in favor of conspicuously non-basic goods. The latter signal at great cost that the consumer belongs to a higher social class. That’s a big problem if you’re poor. (Revealing, too, is that the word “basic” itself has acquired such a negative connotation in recent years.)
Whom does he have in mind who doesn’t “have any money at all?” Also, when he writes, “inexpensive, high-quality basic consumption goods will be underprovided,” I immediately thought of Wal-Mart, where high-quality basic consumption goods are provided in great quantity and at low prices.
We might further hypothesize that when charity is left to the upper classes, a good deal of supposed charitable expenditure will be devoted instead to virtue signaling.
Sure, we might hypothesize that, and there’s certainly a lot of that. But part of the problem is that government has a welfare state and that, as Russ Roberts has shown, has displaced transfers to the poor. Moreover, it’s not just upper classes who traditionally helped poor people. It’s also the middle class.
By the way, even though I’ve focused on the fiscal aspects of the basic income guarantee, my piece that I reference above does deal later with the moral case for a guarantee, which I find highly problematic.