Basic Income in Liberal Social Policy

Basic Income in Liberal Social Policy

Andrew Yang, once the leader in the race for New York mayor, finished a distant fourth in the first round of polling. Even ranked-choice voting is unlikely to save him. Many commentators, including Edward Luce of the Financial Times and Paul Krugman of the New York Times have blamed the disappointing result on his support for a universal basic income.

Luce titles his piece “The Well-Earned Demise of the UBI,” but I think that is too strong a generalization to draw from the outcome of New York’s mayoral race. I see Yang’s version of the UBI as little more than a convenient straw man that distracts from the role that a better-designed basic income could play in the social policy of a liberal government.

The straw man

Andrew Yang’s UBI has three features that make it a convenient target for critics.

First, Yang pushes his UBI as a cure for an oncoming wave of automation that supposedly threatens to make the whole concept of work obsolete, at least for many occupations. The focus on automation conjures up an image of millions of former workers playing checkers in the park or making TikTok videos in their living rooms, while adjusting to a frugal lifestyle on $1,000 a month. But, as Krugman points out, the available data show no such onslaught of automation. Instead, they show a slowdown, not an acceleration, of productivity. That leaves Yang vulnerable to the charge that he is proposing a solution to a problem that does not exist.

Second, Yang pays little attention to the issue of work incentives. That may be natural if he thinks the whole concept of work is becoming obsolete, but in the real world, it matters. By not seeming to care whether people have jobs or not, Yang leaves himself open to critics like Luce, who writes that “Most people need to feel wanted. They do not just crave income. They want to be a part of the community around them—to be useful and valued.”

Third, Yang’s version of a UBI is expensive. Krugman estimates its cost at some $3 trillion a year. That, too, makes it an easy target of critics. Consider that total federal expenditures were only $4.4 trillion a year in 2019, before pandemic relief pushed them higher. But pandemic relief was temporary; a UBI would be forever.

Building a better basic income

But there are things that could be to fix these weak points in Yang’s version of basic income. Here are three ideas:

First, forget the “universal.” The full basic income grant, whether per adult or per child, should only be available to people with relatively low incomes. After some point—say, the median income or half the median income—the maximum benefits would be gradually reduced. High earners would eventually lose all their benefits. Even basic income advocates on the left are starting to realize this. For example, the just-released Guaranteed Income for the 21st Century from the New School’s Institute on Race and Political Economy includes such a phase-out.

Second, the basic income should replace most existing welfare programs, not be added to them. One reason, again, is affordability. The funds already spent on SNAP, TANF, child credits, housing vouchers, and similar programs would be enough to finance a basic income with a gentle phase-out and a basic grant roughly equal to half the poverty level—what the Census Bureau calls deep poverty.

Work incentives are another reason for a replacement basic income rather than the add-on version. Most-means tested welfare programs reduce benefits gradually as income increases. For example, SNAP (food stamps) reduces benefits by 24 cents for each dollar earned (with some variation from state to state). If a household benefits from more than one program, the benefit reductions are additive—you lose some food benefits, some housing benefits, some cash benefits and so on each time your income rises. For example, the USDA calculates that a typical household eligible for both TANF and SNAP loses 70 cents of benefits for each dollar earned. If you added a basic income with a benefit reduction rate of 30 cents per dollar of income, potential workers in such a household would not keep a penny of anything they earned.

A third possible modification of a simple basic income program would further boost work incentives by adding  a modest wage subsidy at the lowest incomes. Much as happens with today’s EITC, workers just entering the labor market would receive a bonus of, say, 25 cents for each added dollar of earned income. That would help new entrants overcome initial work expenses such as transportation, work clothing, and child care.

My term for a basic income program with all three of these features is Integrated Cash Assistance (ICA). In a detailed proposal written for Niskanen Center, I argue that an ICA with a basic benefit equal to the deep poverty level and a generous child allowance would raise more families out of poverty that all current welfare programs put together, while costing no more than the total now spent on poverty relief. It would also have much stronger work incentives, especially for people with the lowest incomes.

But what is liberal about basic income?

Even if an ICA-type basic income might outperform America’s current welfare kludgeocracy, one might well ask what that has to do with liberalism. Isn’t liberalism about the rule of law, a market economy, personal freedom, and democracy? Where does basic income fit in?

One answer is that social support policies can be ordered along a spectrum from autonomy to paternalism. At one end lies cash assistance, long favored by classical liberals like Milton Friedman, who argued that if the main problem of the poor is that they have too little money, the simplest and cheapest solution is to give them some. At the other end are conservative paternalists. A basic income favors autonomy both in leaving beneficiaries to decide which of their many needs are most urgent and in not requiring any government agency to distinguish between the worthy and unworthy poor.

Another answer is that a robust and effective social support policy is complementary to other aspects of liberal government. If there were a demonstrable tradeoff between sound social policy and other principles of good government that liberals favor, that would justify skepticism. But there is no such tradeoff.

In an earlier article, “How Liberal is America,” I scored countries around the world in terms of their adherence to four core liberal principles: Quality of government (rule of law and the rest), quality of market institutions, personal freedoms, and procedural democracy. I also assigned a score to the effectiveness of those countries’ social protection policies. I found a strong positive association between the four core principles of liberal government and the quality of social protection. Liberal democracies—whether Norway, Switzerland, Australia or the UK—do not sacrifice other liberal values in order to help those in need. Quite the opposite, the stronger their liberal institutions, the stronger their systems of social protection.

Among the world’s highly liberal democracies, the United States is the odd one out. Yes, America does squeeze into 21st place among the elite group of 22 countries that I rate as “highly liberal.” But despite its strong liberal institutions and its vast wealth, America seriously underperforms its peers in terms of key measures of social protections, including its social protection spending, its Gini index of income inequality, and its satisfaction of basic needs. In terms of its overall social protection ranking, it is dead last among its highly liberal peers.

A properly designed basic income could go a long way toward closing the social protection gap between America and its liberal democratic peers. Still, not all basic income proposals are equal. Any basic income must balance the objectives of income security, work incentives, and affordability. Some, like the straw-man UBIs that critics like Krugman and Luce attack, pay insufficient attention to work incentives and affordability, but that imbalance is remediable. Something along the lines of Integrated Cash Assistance could be just what we need.

Featured Image is Monk giving out food to poor