The Rise and Fall of Guaranteed Income

It’s an old idea. Establish a bottom line of poverty — below which no one must be allowed to fall. Abu Bakr, Islam’s first Caliph, introduced the concept in the 6th Century. Napoleon later fielded the idea in Europe, as did Thomas Paine in the USA. Then came a flood of proposals — to establish an income floor for all citizens — from politicians and economists and theologians over a stretch of decades.

Essentially they proposed that the economy should not operate on top of an income floor of zero. That was creating all kinds of injustice and suffering. Run the economy on top of an income floor of subsistence. It’ll run just as well, but everyone’s back will be covered.

In the 1960s — the idea was picked up at the University of Chicago under the leadership of Prof. Milton Friedman. He was a strong advocate of unfettered capitalism, with little or no place for government interference. But after a while, he came to believe that unfettered capitalism by itself creates too many social instabilities — unless one single government programme is put into place — a guaranteed income floor.

He believed that existing government programmes in response to social pressures — from welfare schemes to minimum wages — were sure to distort capitalism’s rational price structures — except for guaranteed income. A simple price floor is uniform and neutral and non-distorting. Capitalism will work just fine, in fact much better, sitting on top of it.

But what’s out there that’s so neutral, that’s not going to interfere with the markets and upset their prices? There’s one principle candidate — the income tax algorithm — at least the flat-rate income tax that Friedman advocated. It’s already in place and operational, sort of, and all we have to do is let it run into negative territory.

In other words, he was talking about a Negative Income Tax (NIT). When you earn above the floor income, you pay the government. When you earn below the floor income — negative territory — the government pays you. Remarkably simple. And nobody ever again has to sit humbly before a welfare employee and plead poverty.

Other economists sounded the alarm. If everybody has access to a negative income tax, nobody need work any more. It’ll be a disaster.

Slowly, over time, some governments started checking that out. They set up social experiments, selecting large groups of people and enrolling them in emulated NIT schemes — and measured their work effort. Of course, social experiment tend to produce noisy data where results are hard to determine and may be all over the map. But some consistent patterns did emerge.

There was really a very minimal impact on work effort. There were a few people who exercised the option to lounge about. But there were more who took the opportunity to upgrade their skills, start a business, volunteer in much-needed social services — the list goes on. It produced a net benefit for the economy. Over 50 years of experiments from time to time, most of them got shelved for various reasons as other priorities took centre stage.

Since my early days working in one of those experiments, I’ve had mixed feelings about it. NIT was meant to take over everything and boot government out of everything else. One may complain about meddling social workers costing taxpayers too much money — but many poor people really need someone helping them manage their budgets, or cope with their deprived kids, or arrange cooking lessons for unwed mothers — another list that goes on and on.

Most social workers perform valuable services, but an NIT takeover may see them on the streets. Just give out the money and scrap everything else. I like the NIT concept, but as a better mix of services not a revolution.

Nowadays guaranteed income is back — or is it?

What’s back is now called Basic Income (BI). And it’s not NIT. It has nothing to do with the income tax system. It’s now to be lodged in a new BI Department, where they will judge how much money you need from the extensive forms you humbly fill out — and guarantee that you get it! It’s the new incarnation of guaranteed income, after all.

But it strikes me as just a new incarnation of welfare reform. God knows traditional Welfare is in dire need of streamlining, not to mention cost control — as long as that doesn’t turn into an excuse to scrap social services.

And placing a guarantee of secured benefits in the top priority slot is a good move if it actually happens. But I’m sorry — welfare reform is just welfare reform — even if you upgrade its title to Basic Income. It’s sorely needed if done right (yeah, right) and I might support it if real NIT is off the table.

But dammit, why is NIT off the table now?


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