This article was contributed by a reader (MSc Economics)
In recent years, many countries across the globe have been flirting with the idea of UBI - Universal Basic Income, or the Unconditional Basic Income, depending on the term you use or who you talk to. And while many articles by various pundits, journalists, policy wonks, and even economists are in favour of such a simple and easy measure to solve poverty and counter a "post-work" world in the future with automation and technology when jobs have been massively impacted, supposedly freeing up people to do anything they like, or even better, pursue their dreams - this economics paper takes a stand to argue against this idea.
I don't think that the UBI is a good idea. It strikes me as a bad idea.
Why is it not a good idea to give people free money, and allow them to pursue their dreams in a post-work world? Why not do away with other forms of welfare and just go with a simple blanket redistribution? I am with the Swiss on this one - in June 2016, the Swiss people overwhelmingly voted to reject an unconditional cash payment given to all citizens to the tune of $2,500 a month. To my mind, they voted wisely.
First, to pay for this plan, proponents suggest that all that is required is to reallocate spending on other transfer payments, such as payments to help people tide periods of unemployment, to UBI instead. Everyone gets a cheque. All the money that would have been allocated to unemployment benefits are now redistributed as a lump sum that goes to all the citizens of a country, rich or poor. So one way of looking at it, this camp argues, is that there are no new taxes raised as funding allocated to social spending will now no longer be targeted to the poor, but given to everyone.
This strikes me as odd, that the social assistance is not targeted to the poor, or those who need financial support, but instead given to everyone regardless of their level of income. Currently, most countries don't have unconditional income - that is why we are having this debate - but they do not give the rich a lump sum that is unconditional, that is, tied to nothing. Why give the rich more money?
And what makes this idea even worse is the fact that it completely ignores the fact that during good times and the economy is booming, less is handed out in transfer payments and more is collected in tax revenues, while the reverse is true - in bad times, there are many on the dole and taxes are often cut so as to boost AD. This means that under the situation of the UBI, during a recession relatively less government expenditure would be needed to fund the system, while during a boom time relatively more would be required to fund the system. Think about it for a second. In simple terms, more will be spent by the government handing out funding in the form of a universal basic income when times are good (as the government would not have handed out that much welfare benefit during a boom time); less will be spent by the government during a recession (as the government would have raised transfer payments counter-cyclically during a recession).
Second, the UBI idea totally ignores the idea of economic incentives. I am not sure about other people, but surely I can speak for myself. If I received $2,500 for free - and I were to be taxed on income that I earn - because taxes do not simply pay themselves - I would definitely work less. I am a rational agent who actively responds to incentives. Why would this logic be any different when it is applied to a large population of people? While some unemployed would take this chance to get a better job and can have a proper subsistence - there's no denying that - some who are currently employed at around that wage would effectively have less incentive to work. I say again, I speak for myself but it is no stretch of the imagination that these incentives also work for other people - the incentive to be lazy and reduce work motivation, or for others to work in short term, simpler, less stressful jobs. At the slightest hint of problems at work, one would be tempted to leave as there is a UBI backing one up. Economists have often spoken of moral hazard and adverse selection - these important lessons should be revisited by anyone who is speaking about this topic.
Third, I am not going to make an economic argument as I did above, but I am going to talk about unintended consequences of redistribution. And some history, especially involving redistribution (a few countries have had this experience). There was once a societal experiment, which everyone knows about, to build a classless society where everyone would work harmoniously - From each according to his ability, to each according to his needs. I am sure you know where this is going. If income is unconditional, we cannot expect the consequences to be the same as though the person got his income from hard work and labour; forgoing his present consumption; investing; saving; or even inheriting his wealth. There are unintended consequences and as history has taught us - sometimes these consequences can be quite dire. Many countries have tried to create utopia and solve poverty and inequality - many countries have failed. Free markets may not have solved all of the world's problems, but they do help massively, and the facts of history have borne their successes out.
All in all, there are a lot of things wrong with a UBI. Please don't support it. Not only does work have meaning, but there's a lot to be said about financial incentives, a country's attempts to balance their budget, and the simple fact that there is no free lunch.
JC Economics Essays - Special thanks to our readers for their kind contributions. This economics perspectives essay is contributed by SS.
JC Economics Essays is an economics essay site that deals with A level economics essays, from H1 to H3, and also has articles on how to write an economics essay, how to craft paragraphs, and write strong justified evaluations. Thank you for reading and cheers!
