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.

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Day 252: The Rich Be Cursed, The Rich Be Blessed

This image of Harris Rosen has been circulating Facebook. I find it amusing to read the comments made under it. On the one hand society is angered by the rich for appropriating such huge amounts of money for themselves while others are struggling to make ends meet. Yet, when one of these rich people takes responsibility for one neighborhood, he is revered and blessed for doing 'God's work'. This creates quite a conundrum, because on the one side the rich are seen as the problem, as the cause of hardship of the poorer groups in society, but on the other side charity by the rich is seen as a miracle-solution, a divine intervention, that may save the world. The rich are cursed and the rich are blessed.

Truth is that it is indeed unacceptable that some may bathe in glory and riches, the world at their feet, if this disproportionate wealth is enabled by an economic system, which is the same system that can deny others a life of basic dignity. Even the most liberal philosophers tend to agree that liberty cannot be increased at the expense of others' opportunity to improve their well-being - yet due to the interconnectedness of our lives as a result of a shared economic system, it is undeniably what is happening.

At the same time one can see in the example of Harris Rosen that problems such as crime and structural poverty can be remedied through generosity, through giving, through sharing. But can we allow such charity to be dependent on the benevolence of the few rich who give a damn? Perhaps we have no choice, because one needs to have a lot of money to give away a residual amount one doesn't need for personal support. Of course, such a situation is unsustainable and implicitly allows the suffering of many as we submit to the whims of those who have the money to affect change. But is this the whole story?

In fact, each one of us has the power to affect change, because each one has the ability to vote for change. This vote of course does not mean much when the only available proposals are the ones who maintain the status quo. This is where the Living Income Guaranteed proposal intends to offer a solution. With Living Income Guaranteed, the rich can live by the principle of liberty, putting their talents to use to improve their own lifestyle and fulfill their dreams - while at the same time each one is guaranteed of a life of dignity with the opportunity to improve themselves and build themselves up to a similar position. With Living Income Guaranteed, charity would be institutionalized through the provision of a Living Wage to anyone who doesn't have the means to otherwise support themselves. Such a Living Wage can be funded through the profits of companies that form part of the national heritage. This means each citizen is owner of these companies, and in effect, each citizen takes part in charity. As such - we ensure that charity reaches every neighborhood and every family in need of it - and not the lucky few that happen to live in a neighborhood that some rich fellow 'fell in love with'.

The word 'charity' comes from the Latin word 'caritas', which can be translated as 'generous love' - or in other words, charity stands for: Love Thy Neighbor as Thyself - and as the word 'generous' shows: requires giving. As a principle - charity should then not be exclusive or temporary, but institutional; as an agreement by the people to do unto each other what we would like to be done unto.

With Living Income Guaranteed we would no longer curse the rich, because their enrichment is not done at the expense of the rest of society and we would no longer bless the rich, because we have empowered ourselves be the source of the greatest charity through enabling a Living Income.

For more information on the Living Income Guaranteed Proposal - please read this Document and visit http://livingincome.me.

Related articles

• What If Every Millionaire Were to Follow Harris Rosen's Lead?
• Day 252: The Rich Be Cursed, The Rich Be Blessed
• Day 227: The Myth of Conscious Buying
• Day 350: A Living Income Guaranteed will End Charity - for Real
• Day 228: Sorry I'm not Qualified to Understand That

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