As Evan and I recently discussed, 2016 has been the year of populism. Fringe political groups on both sides of the political spectrum have emerged throughout the developed world, and this trend seems set to continue into 2017 and beyond. From the AfD in Germany to Trump in the U.S. to Syriza in Greece, anti-establishment parties are proliferating. While the exact reason for this upsurge in populist elements is still being hotly contested, there is no question that economic insecurity has played a major role in contributing to the erosion of support for mainstream, centrist parties. As Thomas Piketty and Joseph Stiglitz have pointed out, levels of inequality are enormous (at levels not seen since the Gilded Age) and increasing. Real wages have remained stagnant for most workers in middle to lower income brackets, and unemployment remains unacceptably high throughout most of the E.U. Even in the U.S. – a country with a relatively healthy economy – labor force participation rates are quite low, leaving many Americans without a stable income.
Many economists and social scientist believe that these problems will continue. With new technology yielding ever greater efficiency, it is becoming increasingly easy for companies to substitute in capital for labor on the margins. Everyone from autoworkers to stock traders are likely to face increased competition from next generation robots and computers that can do their jobs faster and more efficiently than they can. Eventually, we may come to a point in which vast swaths of the population cannot find meaningful employment. And if this occurs, there will be massive social and political repercussions.
There are many proposed solutions to this problem. One is to increase funding for educational programs designed to help train obsolete workers in new skills and technologies, thus allowing them to reenter the workforce in a productive way. Another suggestion is to guide technological growth in such a way as to complement lower-skilled workers rather than replace them outright. Alternatively, it has been proposed that the government should simply give money to people. This concept – universal basic income – is, of course, highly contentious. However, it offers a clear way to boost overall purchasing power among groups that would otherwise lack the ability to support themselves and their families economically.
As someone who isn’t a specialist in labor economics, I have yet to make up my mind regarding universal basic income. However, I think it is a legitimate idea that needs to be taken seriously. Too often I feel that conservatives use unsupported assertions and overly simplistic economic models to dismiss welfare programs, and so I would challenge those individuals to take this proposal seriously, even if they still ultimately disagree with it.
Before proceeding, it is important to note that most individuals receive income without working for it. And furthermore, the people who receive the most “unearned” income are those in the middle and upper class. For instance, dividends and other forms of income from invested capital are not generated from individuals’ productivity capacity. Trust funds and other kinds of inheritance packages are also not earned; they are purely a product of being lucky enough to be born into a well-off family. Indeed, most middle and upper-class children and young adults contribute almost nothing to the labor force, yet they receive immense amounts of support from the government (educational grants, for example) and relatives (who generously fund their educations and affluent lifestyles). Of course, this is not an entirely accurate picture because most of this support yields increases in overall economic productivity by increasing firms’ access to capital and boosting the overall level of human capital available in the overall economy. However, this argument also applies to welfare toward lower class communities who use it to improve their human capital and to increase aggregate demand in their neighborhoods. It is hypocrisy plain and simple to excuse the unearned welfare in the upper income brackets by citing its positive economic effects while simultaneously lambasting lower-class welfare recipients as lazy and unmotivated.
Unfortunately, this is exactly how so many lower-class individuals are portrayed. Wealthy individuals tend to look down on them and assert that welfare money will simply be wasted on drugs and alcohol and will eliminate individuals’ desire to work. In reality, though, these kinds of claims enjoy almost no empirical support. They are nothing more than assertions based on dubious theoretical models. The alcohol claim, for example, is far from clear, as research by Zarkin et. al. finds a clear and positive correlation between higher wages and increased consumption of alcohol. The incentive claim is also quite bizarre, as it assumes that people have no motivation besides meeting basic needs. Any wealthy person should know this is absurd (yet, surprisingly, wealthy people are generally the ones most opposed to supporting individuals in lower income brackets). Just being able to afford basic food and shelter is not enough: People want to educate their children, go on vacation, and be able to retire comfortably. Providing a basic wage is insufficient to meet all of these demands, so it stands to reason that people will still have an incentive to work. It’s also erroneous to assume that the only valuable contributions to society are made by “breadwinners.” Traditionally, women ran domestic life and participated only minimally in the workforce. Indeed, this is still the case in many developing countries (and even certain developed countries like Japan). However, nobody would suggest that their lack of a wage made their labor useless or their role unimportant. Just because one isn’t in the labor force does not mean that they don’t meaningfully contribute to society and the economy, and thus it also doesn’t mean that these individuals should not receive support from the state.
What is perhaps most intriguing about programs of universal basic income is that they have powerful advocates on both the Left and the Right. On the Left, there is the idea that one is entitled to a share of the country’s wealth simply on account of being a member of society. In much the same way that everyone pitches in to create an effective society – paying taxes, obeying the law, participating in government and policymaking, etc. – there is a belief (at least on the left) that one should also be entitled to certain economic resources from the state. This argument is especially powerful in certain developing economies that rely primarily on the export of raw materials like oil that almost magically appear. However, as James Ferguson points out in Give a Man A Fish,
there is no obvious reason why this sort of reasoning need be restricted to resource extraction. Consider the most advanced forms of manufacturing today, in which small numbers of highly trained workers run highly automated, capital-intensive production processes from which emerge (almost magically) vast quantities of goods. The most radical demand, in previous times, was for the workers to own and operate the factory; more reformist forms of socialism suggested more modestly that the workers should, in various ways, share the profits it produced. But when a tiny number of workers run a highly automated factory, neither of those formulations looks very distributive, and both would leave out the vast majority of the population. Instead, the more adical demand today does not depart from the claims of protective labor at all but from the claims of distribution – a claim for a universal share in socially produced wealth.
One particularly innovative way of realizing this would be for the government to buy shares in capital-intensive firms and then use those returns on capital to redistribute income toward laborers. Because the government would never purchase a controlling interest, this wouldn’t be nationalization of major firms. However, it would allow the state to compensate laborers increasingly being forced out of the economy due to exogenous technological forces.
On the Right, many advocates of universal basic income contend that it represents a far more efficient way of distributing welfare because it doesn’t require the extensive regulatory state that currently exists to oversee welfare policy. Instead of employing legions of government bureaucrats to run drug tests and double check individuals’ income level, the state would just cut a check to everyone. This kind of system is broadly in line with conservative support of free markets. After all, instead of the state deciding what welfare money can be used for (i.e., food stamps) it is up to the individual to spend the money as they see fit. Given that each individual knows their needs better than some government agency, this approach should yield a better outcome than current programs that micromanage and scrutinize welfare recipients. Finally, certain conservatives argue that programs like universal basic income would increase entrepreneurship by providing a safety net. Knowing that she will receive some minimal guaranteed income, the argument goes, a potential businesswoman will be more likely to take a risk and start a new business that might fill a new niche in the market. To think about it another way, consider rock climbing. Sometimes one has to take daring risks to reach the top of the rock wall, leaping up to a new handhold without a guarantee of successfully holding on. Universal basic income acts as the safety line that allows one to take the necessary risk to get to the top without fear of losing everything if the enterprise fails. In this way, universal basic income would accelerate the creative destruction that is so fundamental to capitalism’s success.
As I explained previously, I’m still not entirely convinced by basic income. I’m not sure how it would impact inflation rates, and I think more work needs to be done on ascertaining the best way to finance a basic income program. What I am convinced of, however, is that the typical critiques from moralizing Republicans are completely off-base and comically ill-conceived. The global economy is changing very rapidly, and new technology and increased globalization mean that this process is largely irreversible. We can ignore the problems, of course. But then we will likely face movements far scarier than Trump and Farage. It’s time to start seriously considering how to deal with rising unemployment among the lower class and increasing inequality because if we don’t, we will all suffer the consequences.