02 January 2015

Top Economist says: “Universal Basic Income is Not Affordable”


This is an article by Paul De Grauwe translated from Dutch.

You can find the original article here: http://www.demorgen.be/opinie/een-universeel-basisinkomen-kan-nooit-van-de-grond-komen-a2166604/25mXp2/

A Universal Basic Income Will Never Happen


Top economist Paul De Grauwe, professor at the London School of Economics, writes weekly about people, the world, the economy.
30 December 2014

The idea to provide everyone with a basic income exerts a strong intellectual appeal towards both the left and right side of the political spectrum. The appeal for left is that a universal basic income that is sufficiently high can ban poverty. For the right, a universal basic income is popular because it will remove the unemployment trap. In the current system of unemployment benefits, the unemployed lose their benefits upon finding a job. That discourages the search for a job. This shortcoming disappears with a universal basic income. Because in that system, the unemployed retain their basic income after finding a job.

Affordability

With such broad support you would expect that the universal basic income is already a reality. But that is obviously not the case. And that has everything to do with its affordability. Due to the fact that in such a system everyone, both rich and poor, working and non-working, receive the same basic income, the government requires to organize a massive money stream.

A numerical example: Suppose that the universal basic income is 1000 EUR per month (which is not that much if it is intended to ban poverty entirely) and that the basic income is given to all adult Belgians. This would mean that government expenses would increase by 100 billion, or 25 percent of GDP.

The universal basic income of course makes it possible to save on large portions of social security. Unemployment benefits and benefits for illness can be scratched; we could also save on pensions. But an important part of social security is not dropped. For instance, health care, child support and the portion of pensions above 1000 EUR remain.

Andreas Tirez from the think-tank Liberales has done an interesting exercise on the subject. He came to the conclusion that after deducing the savings on social security that would become possible through the basic income, there is still a shortage of about 35 billion EUR. That is about 9% of GDP.

It then also means that, after the introduction of the basic income, tax revenue would have to increase by 35 billion. The total tax burden that now represents about 51% of GDP, will need to increase to 60% of GDP.

Weakening work incentives

One can argue over these numbers. Do they overestimate or underestimate the costs of a universal basic income? The reality will not be far off in my opinion.

A universal basic income that has the ambition to ban poverty from the world, is then immensely expensive. That doesn’t need to surprise you. To give the poor (a minority in society) a basic income, you have to also provide a basic income to the large majority that doesn’t need it. This leads to new problems. The working majority receives a basic income that stands loose from labor efforts, but will have to pay extra taxes (and not a small amount) on their labor incomes. And that is the best way to weaken work incentives.

Conclusion: The only realistic system is one where the basic income is limited to those who need it. A universal basic income will never happen.

6 comments:

  1. I feel that the affordability is directly related to there not being enough money to support it, globally.

    Though it seems that if a global program/banking regulation were created that required sovereign debt to be backed with Commons shares, distributed one to each adult human, for deposit in their bank, looks like it would pay every adult on the planet $20/mo, from the interest on sovereign debt, at 1,25%.

    The neediest on the planet would benefit significantly, and the program would exist.

    Beyond that; nations, states, and municipalities, possibly including corporate governments, (and I would particularly like a certain allowable quantity of individual sovereign debt) could be encouraged to increase sovereign debt, for infrastructure and cash reserves, as revenues allow, until the monthly dividend is sufficient in developed countries.

    Is there not some way this could be sustainable?

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  2. It is still Universal if provided to those that ask for it and no one that makes request for it is denied. I totally agree with this solution arrived at by the LIG group.

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  3. "Will never happen" - with that meme, this "top economist" joins a stellar club:

    http://www.foresight.org/news/negativeComments.html#loc025



    One member:

    On 29 December 1934, Albert Einstein was quoted in the Pittsburgh Post-Gazette as saying,

    "There is not the slightest indication that [nuclear energy] will ever be obtainable."

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  4. Actually, if people are content and secure (well-fed and in the knowledge they will survive) I believe they want to produce and /or care for other people. Work incentive is not all about money. I work hard every day for no money at all.

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  5. The pilot study in Canada has shown us that Basic Income reduces substantially the costs derived from poverty.
    So, it's (9% of GDP) minus (the cost derived from poverty) = Affordable Basic Income

    Basic income can also be funded through:
    1. Financial transaction tax.
    2. Land value tax.
    3. High-income tax.
    4. A consumption tax on luxury goods and polluting products.
    5. Cutting a lot of tax loop poles which mainly favours the wealthy.
    6. Diverting the subsidies and the money created out of nothing (Quantitative Easing) that are always given to rich corporations towards the funding of basic income.

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  6. Who has commissioned this sophistry? Everyone, but especially aul de Graue, read the first part of 'Dynamic Benefits: towards Welfare that works' Search for centreforsocialjustice.org.uk click 'Publications', and you will find it in September 2009. It was prepared by Iain Duncan Smith's Think Tank. The secondpart of the report is a clever, and so far stupidly successful attempt to obscure the first part, which cannot be bettered as thecase for a Basic Income - with graphs showing the withdrawal of means tested benefits AS TAXES. How to pay for the Basic Income? Just shift that tax to where it should be borne.
    clivelord.wordpress.com

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