Universal Basic Income
August 20, 2023
Universal basic income (UBI) is a social and economic policy concept that entails providing all residents of a country with a regular and unconditional financial payment from the government. This payment is designed to cover essential living expenses and ensure a basic standard of living, irrespective of a person’s employment status or income level. The primary aim of UBI is to alleviate poverty, reduce inequality, and provide a safety net in the face of technological advancements that might disrupt traditional job markets.
My opinion is that UBI is a proposal that superficially sounds good, but is designed to fail. If the goal of a UBI is to cover essential living expenses then, why not instead, provide a basic standard of living for free? Handing out UBI to cover essential living expenses is actually an invitation for people to misuse funds. For example, suppose I take my UBI and spend it on lottery tickets (i.e., a near-zero expected value investment). I can no longer pay for my essential living expenses and become a public charge, exactly what UBI is intended to prevent. UBI adds an unnecessary level of indirection.1 The best way to provide a basic standard of living for free is to do precisely that without a UBI.
Means-Testing #
Means-testing is a methodology used in welfare programs to determine eligibility and allocate benefits based on an individual’s or household’s financial means. One of the intentions behind means-testing is to reduce program costs, target benefits more effectively, and encourage self-sufficiency among recipients. However, these efforts have often come with both intended and unintended consequences. Means-testing has been used in the past as a strategy to reform or even dismantle welfare programs.
For example, consider The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) in the United States. This act introduced means-testing in the form of Temporary Assistance for Needy Families (TANF). This program replaced the traditional welfare program, Aid to Families with Dependent Children (AFDC). TANF implemented stricter work requirements and time limits for receiving benefits and aimed to reduce long-term dependency on welfare. While TANF did promote work, it also resulted in some families facing significant hardship due to the time limits and work requirements.
Disadvantages of Means-Testing #
- Administrative Complexity: Verifying income, assets, and other eligibility criteria requires paperwork, documentation, and sometimes intrusive assessments, which can lead to bureaucratic inefficiencies and delays in delivering benefits.
- Cliff Effects: This occurs when individuals or households experience a sudden reduction or complete cutoff of benefits due to a slight increase in income. This can create disincentives to work or earn more, as the loss of benefits may outweigh the increase in earnings.
- Stigmatization: People who rely on means-tested benefits might feel embarrassed or judged for needing assistance, which can lead to underutilization of available programs even by those who qualify.
- Incomplete Targeting: Means-testing might not always accurately identify those in need. Some people with modest incomes or assets might still be struggling due to high living costs, medical expenses, or other circumstances not captured by income alone. Similarly, some people with higher incomes might find ways to manipulate the system to appear eligible.
- Administrative Costs: The process of implementing means-testing, including verifying income and assets, can be expensive.
Essential services #
Just make ’em free:
- Food (legumes, grain, fruit, and vegetables)
- Housing (water, sewer, trash, energy)
- Communication
- Education
- Healthcare
- Transportation
