Sunday, April 10, 2016

I Am Not An Economist - Basic Income

Despite not being an economist, I am someone who cares about politics and reads far too much news from sources such as Bloomberg, Fortune, WSJ, The Economist, etc. Thus, I have opinions about economic policy. For this week's thinking to myself, I wanted to go over an econ policy idea that has been making itself increasingly loudly heard through some corners of the net. See YCombinator, Reddit with  r/BasicIncome, Vox's parade of articles on the subject, etc.

For those of you who don't read over my shoulder everything I skim on the internet, what exactly is a basic income? Wikipedia has the intro on basic income covered, but as I have seen it presented, the idea is to give every citizen, or every citizen at age of majority, a direct income. Simply a check every month or similar, with no means testing, generally so as to replace all, or most other, social programs such as social security, food stamps, welfare, etc. The amount of money that would be paid out in such a system is up for debate, with some arguing that it should be enough to survive on, and others wanting just a baseline level of aid. The minimal level of aid could be along the lines of what is already done with the Alaska Permanent Fund, or Norway's similar distribution of oil revenue through the Government Pension Fund of Norway.

Firstly, what is the reason one would want to do this? Looking at the collection of American law and regulation designed to provide aid and a reliable source of income, I see a complicated mess. As a software developer, it is the sort of situation that makes me dream of throwing it out and rewriting it from scratch, in as simplistic and direct a way as possible. Giving the same amount of money to everyone, through one singular program, with no means testing, is pretty much that ideal. Presuming it works, and is affordable, of course.

So, what might the benefits be? Beyond the simplifying of bureaucracy, there are, theoretically, a number. The system, being so simple, would be harder to corrupt. Furthermore, it removes a good share of the perverse incentives seen with many welfare systems. If you only get aid when you are below the poverty line, getting an income that would boost you above the poverty line is, if not a negative, is less of a positive than it would otherwise be.

The overall goal, of providing aid, and putting a floor on poverty is, in my mind, necessary. We've got a vast proportion of our population that's in poverty or unfortunately close to poverty. Wealth is becoming increasingly concentrated. There's a lot of risk in the future that jobs will be wiped out faster than people can train for new ones. Giving every citizen an equal amount of money will help equalize things and prevent abject poverty and social stratification.

There is the question of what to set the level of payments at. If set too low, you are providing less aid than with current systems, and some people are losing out. If set too high, you create a system that we cannot afford, and discourages people from wanting to work at all. Much as I would like to hope otherwise, I think we're at least a few years away from the futuristic utopia where robots do most of the work and we can all get by on five weeks of work a year. Maybe not too far, but not something we can just start tomorrow.

So, what could this basic income level be set at? Of all the papers about it I've seen on the net, I've seen very few with direct numbers.

As a first thought experiment, what would happen with a revenue neutral basic income? Do not change current tax rates, or total social program spending. Simply get rid of social security, food stamps, minimum wage, welfare, Medicare, Medicaid, etc, and just give every citizen a check each month. What happens then?

For the roughest of back of the napkin calculations, bear in mind I'm not an economist, it looks like we spend ~2.25-2.5 trillion per year on the programs I mentioned. And there are ~320 million Americans, ~240 million of them over the age of 18. So, if we gave each of them an even distribution of that money, that would be approximately, $10,00 a year for citizen over the age of 18. That actually lines up fairly well with what New Zealand, Finland, Canada, and the Netherlands are experimenting with,

Not enough to get by on, certainly, which mostly avoids the problem of discouraging people from working, but how would the end result work, and who suffers? If you're giving this money out to all citizens instead of some subset of citizens, there are going to be people getting less money. Looking into that, I realized that I had no idea what the max social security distribution is in the US. Apparently it's about $2,639, for people who have contributed the maximum taxable earnings for 35 working years. For maximum benefits through welfare, SNAP, Medicaid, etc, I have even less of an idea, but after a brief internet search looks like for some people is greater than one thousand a month.

Distributing all this money perfectly evenly, instead of targeting it, would thus, of course, create a number of winners and losers. Despite the efficiency gains of such a program, a number of people currently hurting the most, would have aid reduced.

Furthermore, what are the efficiency gains? There are all the potential benefits of removing perverse incentives, but measuring that is mostly up to ambiguous econ theory to debate, Then, how many fewer people would it take to administer such a program? As not-an-economist, and spending a few seconds looking on the web, I see the US currently employs 62,000 people in the Social Security Administration, and after that, sifting through docs from OPM gets complicated. I imagine a good number of jobs would no longer be needed, but hardly enough to have a sizable impact on the amount of payout such a system would be able to give.

What if you wanted to increase the amount of basic income, in order to compensate for those losing out due to decreased payments? As a basic income is being given to all people, tax burdens on people not currently receiving aid, but who would under a basic income system, could be increased without changing their effective income levels, but then it all becomes a question of tax policy.

I love the aesthetics of such a basic income plan, its ideals, and basic argument, but still need more details to have any idea how it would actually work. Glad they are experimenting with it in other parts of the world, and look forward to seeing what happens.

1 comment:

  1. The ideal way to fund it would be to tax carbon/pollution, resource extraction, and anything related to the commons/public land. Those revenues would fund a "Citizen's Dividend Fund." Ideally this would grow over time and pay out dividends to each citizens.

    Another source of funds would be taxing financial speculation (the Robin Hood Tax), which would be a small "sales tax" on the high-risk speculative financial trading and derivatives, etc (less than 1% could generate a lot of income) - these are the same things that lead to the Great recession and currently are not taxed. Taxing them would temper the risk a bit and potentially provide a lot of income for government programs.

    Doing those things, we could reduce income taxes on the poor and middle class (while ratcheting up on the rich, to temper inequality).

    All-in-all there are a lot of revenue streams that should be tapped anyway.

    I disagree with removing all social services. Services like SNAP, disability assistance, and even welfare, are important to those less advantaged. Social Security and Medicare are both vital programs that should stay as well - both are funded fully or partially by all citizens. Social Security is a retirement program all working Americans fund, and are then able receive pay based on how much we've contributed - it's our money!

    We could, however, remove some other tax burdens that are regressive - like sales taxes, income taxes (unless it's a large income and contributes to inequality), etc.