The Case For Universal Prosperity (Part 2)
Michael Hrenka
2015-11-02 00:00:00

The reason for assuming such a problematic compromise is to demonstrate that a UBI would represent a large net gain for almost everyone, even without an optimal financing model.



What are the likely positive effects of a universal basic income?



It is quite reasonable to expect significant social, economical and psychological gains from a UBI. Additionally, many different groups will experience quite specific advantages, if a UBI is implemented.



Social advantages



Existence-threatening poverty would be effectively abolished. Currently, there is the possibility for people to lose their job and also to slip through the cracks of the social safety net. This can cause a continuous background of fear, anxiety, and stress, which is of course bad for health, happiness, and productivity.

In general, due to various different reasons, poverty causes people to be unhappy and less productive. In part, this is because being poor is expensive – this phenomenon is called the Ghetto tax. A UBI could help the poor to escape the poverty trap and to get better paid jobs.

Additionally, poverty can create high incentives for criminal behaviour. Thus, it should be expected that a UBI will reduce the crime rate significantly, which would increase the safety of everyone.



Economic advantages



It is hard to predict what effects a UBI would have on the economy. Also, the effects would depend on how the UBI was implemented. Nevertheless, it is possible to have some reasonable expectations about how a UBI would change the economy.

First of all, the income distribution would change moderately. Those who profit the most will be those who have almost nothing at the moment. Low income individuals will profit significantly from a UBI. Middle class earners will be largely unaffected, because what they gain from the UBI they will essentially have to finance on their own through their taxes. Only wealthy individuals will see a modest increase in their tax burden. Overall, income inequality will be slightly reduced, and there will be more demand for consumer goods, because now the vast majority of people will have more money to spend.

Most companies will generally profit from this rise in consumer demand, unless they have specialized on selling upper class luxury goods.

However, there is a good chance that the increased consumer demand will stimulate overall economic growth [Krugman 2014]. Also, a UBI would make people more bold and would encourage them to start risky endeavours like creating a company, and to take advantage of risky opportunities. More small businesses would spring up and some of them would turn into big businesses eventually. The rate of innovation would rise as a consequence, thus accelerating the increase of living standards for all.

In the long run, everyone would profit significantly.



Psychological advantages



With a UBI, personal motivation will shift. The pressure to work in order to maintain one’s existence is lowered. Therefore, people will be more positively motivated to work towards achieving their personal goals, rather than to work in order not to die. This opens up the question what it is that people actually want for themselves, and they get the opportunity to think about that in more depth. Also, with a solid unconditional income, they have more autonomy to follow their own goals, rather than to conform to arbitrary social expectations which might be ill suited for them.

According to the psychological self-determination theory [Pink 2010], there are three basic psychological needs: Autonomy, competence, and relatedness. A UBI strengthens the autonomy of individuals, because they can do what they want without falling into the risk of losing their unconditional income. Thus, they can focus on achieving competence and strengthening their relatedness to others. Thus, they will be more likely to thrive.

When it comes to work motivation, there have been many experiments which demonstrate that people who are more motivated by the desirability of a task in itself perform better than those who are motivated by external rewards like money (see the book Drive by Daniel H. Pink). The higher the UBI, the more one should expect motivation move from the problematic extrinsic motivation to the more benign intrinsic motivation. This line of reasoning will be especially important for the next parts of this article series.



Advantages for specific groups



In addition to those general advantages, it’s worth to point out some specific effects for different groups within the population.





How could a UBI be introduced?



There are many different possibilities for introducing a UBI, each with their own distinctive advantages and disadvantages.



Introducing a UBI at once



Theoretically, a nationwide introduction of a UBI that replaces most social safety systems could be done immediately. Of course, you might think “the sooner, the better”, but while the advantages of a UBI might arrive soon, all kinds of possible disadvantages would arrive at the same time. If it’s implemented the wrong way it cause significant negative consequences and would deter other nations from introducing a UBI.



Unconditional incomes for specific groups



Instead of starting with a universal basic income for everyone, it might be considered to create unconditional incomes for specific groups first, for example students or pensioners. This may be slightly less risky than introducing a UBI all at once, but there’s also no good justification for choosing this approach.



Gradual vertical introduction



With the argument that some advantages of a UBI might be seen even when introducing it at a low level, it could be introduced very gradually while lowering other social security payments by the amount of the UBI.

A gradual transition like this may be best to minimize problematic disruptions for individuals and systems, but it would also fail to provide the full advantages of the UBI to anyone. Also, it would be a relatively expensive way to introduce it, since all of the current bureaucracy would still exist during the transition period.



Local introduction



of the studies about basic incomes have been done locally, so the introduction of a UBI may start locally, too. For that purpose, it would be introduced in select cities immediately, indefinitely, and completely. Those cities would be the perfect bases for long-term experimental research. If problems arise within these cities, we will learn how to fix them before the UBI is introduced on a larger scale.

Once the results on the city level have been proven to be sufficiently positive, introduction of the UBI may move on to the regional level, and then the national level. This way, ideally, a UBI could be eventually introduced in all nations.

A side-effect of this approach is that the model cities and regions would probably become very attractive and that many people move to those locations. This has actually happened in the UBI experiment in Namibia in which there was significant migration into the village that paid a UBI even though immigrants would not receive it!

Overall, this is probably the best way to introduce a UBI, because it can demonstrate the positive effects (especially the long-term effects) quickly and without huge costs. Also, the risks of this approach are quite minimal.



Counterarguments against UBI



Let’s proceed with responding to some frequent counterarguments against introducing a UBI.



People will stop working



Proper economical considerations and empirical findings [Dolan 2014b] tell us otherwise: People would work more, on average, if there was a UBI, rather than less.

Those who temporarily do stop working usually have a very good reason for doing so, for example studying or caring for a child.



It cannot be financed



The quota of state expenditures to gross national income (GNI) of industrialized nations typically lies between 30 and 60 percent. Most of the expenditures are comprised of social spending. If such a state decided to spend 30 percent of its GNI on a UBI and limited other state expenditures to 25 percent, it would have roughly the quota of France, and a lesser quota than Denmark. France and Denmark are nice countries that have a properly working economy. So, they are a proof that such high expenditures as are required for financing a UBI don’t have catastrophic results.

But how much do 30 percent of the GNI of different nations represent? Here’s a list of what 30 percent of the GNI per capita would mean for different nations as UBI per year (in US Dollar; source: Wolfram Alpha GNI estimates for 2013):





These values are slightly higher if the full UBI is restricted to persons of age 18 and older. It is often suggested that children only get 50% of the UBI that adults would receive.

It happens that these values are roughly at the level of sufficiency for the respective nations. Therefore, a UBI can be financed.



Rich taxpayers and corporations will flee the country, so the UBI is unsustainable



A UBI would increase consumer demand and may lower labour costs. This should make any country introducing a UBI attractive to investors even if taxes are high.

Also, rich people and corporations rather use tax evasion schemes than actually leaving the country. That will hardly change with the introduction of a UBI alone.



Immigration will become rampant and make a UBI unsustainable



This may become a real issue if other nations fail to introduce a UBI, too. If anything, this is an argument for international cooperation and coordination when it comes to introducing universal basic incomes.

And if it really turns out to be problematic, immigration still can become more tightly regulated.



A UBI would cause inflation



Inflation mainly depends on how much money is created. No additional money needs to be created for a UBI, because it is covered by taxes. Nevertheless, there are a few theoretical arguments that suggest a UBI might cause inflation anyway. Interestingly, real world experiences from partial basic incomes suggests that a UBI might actually reduce inflation to healthy levels [Santens 2014].

Additionally, if a UBI would turn out to increase economic growth, then it would actually have deflationary effects. These can easily be compensated by creating more money.