Should we just give poor people more money? Over at Vox, Sigal Samuel summarizes a recent experiment:
The city of Stockton, California, embarked on a bold experiment two years ago: It decided to distribute $500 a month to 125 people for 24 months — with no strings attached and no work requirements. The people were randomly chosen from neighborhoods at or below the city’s median household income, and they were free to spend the money any way they liked.
....The most eye-popping finding is that the people who received the cash managed to secure full-time jobs at more than twice the rate of people in a control group, who did not receive cash. Within a year, the proportion of cash recipients who had full-time jobs jumped from 28 percent to 40 percent. The control group saw only a 5 percent jump over the same period.
I suppose I've read a hundred pieces like this over the past few years. Some describe American experiments. Finland did one a few years ago. Africa is a popular place for philanthropies to run UBI projects. The problem is that none of them really tests the Universal Basic Income thesis in a way that matters for the United States. This would have the following requirements:
- The test takes place in the US. Even a well-designed project simply doesn't tell us much if takes place in, say, Nigeria, with its wildly different culture and enormously lower living standards.
- It needs to include enough people to provide the power needed to draw serious conclusions. At a guess, that's a bare minimum of 100 people, and probably more like 500 or so.
- The amount of money needs to be substantial enough to make a real lifestyle difference. Ideally, it's enough to allow someone to quit working entirely if they're willing to live on a low income. Here the bare minimum is probably $1,000 per month.
- The project includes a control group that gets at least a small amount of money (so that the results aren't skewed too badly by the mere act of receiving cash).
- Needless to say, the test group and the control group can't know that the other exists.
- The test has to be very long term. Probably ten years minimum. If it's shorter than that, the test subjects know that they're just getting a short-term infusion of cash. They will treat it very differently from knowing that they are guaranteed a significant flow of strings-free cash for the rest of their life.
Now, there's an obvious problem with my requirements: The only kind of test that qualifies is very expensive and takes a very long time to return results. Including both the cash and the people to run the experiment, we're probably talking $30-100 million depending on how rigorous the test is.
This is hardly impossible if some billionaire gets really interested in the idea, but that's what it would take. In the meantime, the raft of experiments that are done in poor countries; or last for only a year or two; or involve small monthly stipends—well, they just don't tell us much. I honestly don't think there's an answer to this.
Looks like we'll just have to go ahead and institute the UBI program without the almost-impossible-to-obtain research data.
Funded by the Larry Jones Philanthropic Institute?
Yes why not do that - what are actually the arguments against it like? None of them make much sense to me.
It costs too much (but we could get rid of lots of tax deductions, add environmental taxes to finance it, use a small VAT, add a few pennies to already ridiculously low income taxes on capital income etc, etc).
People would stop working - really - people want to be poor? Why don't we increase taxes on the rich if we are worried about lack of incentive to work. And the big advantage of a GMI is that it doesn't remove the incentive to work.
It will push up rents. Well maybe not if it means that people will move to where they can afford to live rather than being forced to move to where they can find a job.
It will increase illegal immigration. Well depends on the qualification requirement doesn't it? Maybe if we prosecuted employers for avoiding social security taxes and had a long qualification period we could even ease border restrictions.
It will increase the divorce rate. Well is that a plus or a minus?
It will make it harder for employers to find workers without offering a better employment deal. Is that a plus or a minus.
I could go on. Why is Kevin so down on the idea?
Encouraged that not everyone characterizes the poor as just being lazy & wanting to live on welfare - something a lot harder to do than Reagan & his ilk thought.
Like the possible effect on employers - & yes, people in abusive relationships might be able to escape.
But actually raising taxes on the rich, even after seeing many in that category add stunning amounts to their wealth despite the pandemic, remains unlikely, especially as long as campaign finance reform isn't in sight.
.Sf is full of societies where the "idle poor" subsisting on "Basic" do nothing but lay around doing drugs and procreating. Lately, much of the projected "idleness" has been attributed to a lack of jobs for all but the few who program the machines that actually make and do everything.
If there are literally no jobs for nearly everyone, but abundant production of all the necessities and luxuries, how does this not cause total economic collapse, unless people somehow have money?
"The amount of money needs to be substantial enough to make a real lifestyle difference. Ideally, it's enough to allow someone to quit working entirely if they're willing to live on a low income. Here the bare minimum is probably $1,000 per month."
I think you are underestimating the leverage that relatively small amounts of money can make on the working poor and the poverty stricken. Poverty traps, particularly with respect to transportation access, can yield to small amounts.
The findings of the Stockton experiment so far are completely unsurprising. A number of years ago, I tipped someone who didn't work for tips $20. They spent several minutes gratefully explaining that the tip probably meant a few hundred dollars in income. It was an extra tank of gas, which meant that his wife could pick up extra shifts at her job after dropping him off at his. If they got lucky, that money could be leveraged to hiring a sitter a couple times per week, which opened up different employment options. I'm ashamed to say that while I understood the challenges of poverty, until that happened, I didn't have any sense of how thin that margin between making the rent and not making the rent was.
This rings true. I had a new furnace installed recently, and as the crew were leaving, I heard them take up a collection to get one of them a tank of gas. I agree with KD that this isn't a good test of UBI, but it's a great test of how much effect an extra week's pay can have.
It doesn’t meet all the parameters Kevin outlined, but there was a four year long minimum income experiment involving thousands of people in Canada, which is probably *the* foreign country most culturally and economically similar to the US. A family of four was guaranteed an annual C$16,000, which during the 1970s when the experiment occurred was definitely enough to live off of.
https://www.bbc.com/worklife/article/20200624-canadas-forgotten-universal-basic-income-experiment
I think in most proposals/models out there, UBI would replace current means-tested welfare programs, such as food stamps, TANF, EATC, childcare subsidies, etc. It doesn't seem as if this cash payment experiment in Stockton also un-enrolled its test subjects from all those programs to see what happened. I can only assume that when you give people $500 *on top of* all those other benefits, it does make a difference. Without them, though, I'm not so sure.
"It needs to include enough people to provide the power needed to draw serious conclusions. At a guess, that's a bare minimum of 100 people, and probably more like 500 or so."
I would assert that is low by at least an order of magnitude if not two.
Yes. At least a few hundred in different age groups, homeless vs not homeless, and you have to compare results of those with high levels of indebtedness to those with low levels. Also, mental health issues have to be evaluated.
In general, I would think anything that stabilizes ones living situation, i.e. address, would be good.
"Needless to say, the test group and the control group can't know that the other exists.
The test has to be very long term. Probably ten years minimum."
Riiiiight. Neither is going to know the other exists, and it will be possible to maintain that for ten years...
Kevin claims the experiment has to involve a lot of money, more than $500/month - why? Why wouldn't it be good to test a small amount of money? Kevin's objection would apply if the result had been negative, but supposedly the results were positive and show a huge result for a small amount of money. If correct the results tell us a great deal. Just because the experiment was not exactly the one that Kevin had in mind doesn't itself mean that the results are worthless. Why should ti be assumed that Kevin (or even people more expert than he is) fully understands how such a program would work?
Of course the experiment is so small it is not a full test. Every experiment must be repeatable. How do the results compare with those for other countries, Finland especially (not a third-world country)?
Exactly. Kevin -- why are you complaining that instead of requiring a lifelong expenditure of $30K/year, you're getting impressive results for a 2 year expenditure of $6K/year?
If you can figure out why even that paltry amount of money helps so much, you'll have learned a lot.
Well, experiments like this don't tell us what how a real UBI program might change things, but it does say something about a two year income assistance program.
Specifically, it says that if you give people a small to moderate amount of cash, for an upfront bounded time period, it can help them deal with the obstacles to getting employed.
In this case, 2 years of $6K/year, delivered monthly, which really isn't much money, and yet it had a big impact on employment.
Don't let the perfect become the enemy of the good, right? This is a very interesting result, and it would be useful to learn why such a small amount of cash had such a big impact. I'm going to guess that extreme poverty is so constricting in this country that even a paltry $500 / month relieves those constrictions.
Until we have living-wage laws, UBI will mainly be a subsidy that allows low-wage employers to pay even lower wages than they otherwise would. ‘Externality’ is a mainstream concept in economics, referring to a cost of providing a good or service, that is borne by a third party, not by the producer or consumer. The third party might be the taxpayer, diffusing the actual cost. This is a market distortion, and an economic inefficiency. To provide a UBI without requiring living wages is in economic terms like the government buying, say, electricity at $0.12/kWh and selling it to some businesses at $0.06 or $0.08/kWh. A living wage is simply the cost of provisioning labor as a factor of production, and that cost is properly borne by the producer or the consumer. No honest economist should be opposed to living-wage laws, any more than anti-pollution laws (the classic example of externality).
This is rubbish. Employers pay as little as they can get away with. The fact that employees might have an alternative source of income is irrelevant to them. What is also relevant is that you are increasing the ability of potential recruits to turn down exploitative job offers. In fact a UBI could obviate the need for a federal minimum wage.
Irrelevant? When Wal-Mart assists its employees in obtaining government and charitable assistance?
UBI without living-wage laws incentivize employers to offer _more_exploitative wages.
You are confusing UBI with means tested benefits. They are not same and the incentive structures (for both employees and employers) are completely different. EITC you lose if you lose or quit your job so it increases the power of the employer over you. Not so with UBI.
No, I am not confused, and I was not speaking of incentives for workers at all, only for employers. The ‘labor market’ is an inequitable one, but it does function (imperfectly) as a market, which is why most low-wage employees do receive better than the legal minimum wage. There might be a bit of upward pressure on wages because someone who was working two poorly-paid jobs to get by, might now be able to get by on one poorly-paid job + UBI, decreasing the labor supply marginally. But it’s just as likely that it draws some number of people into the work force who realize they can get by with a crappy job + UBI, rather than selling scavenged stuff on eBay, or whatever.
The idea must be that the cost of the UBI is recovered by taxes on employers which is passed on to consumers, or direct taxation of consumers. You can't judge this in terms of some ideal "free market" economy. It is a social welfare situation, which is different from a pure free-market situation on the one hand or from true socialism on the other. Enforcing a living wage is also a market distortion, as is allowing collective bargaining in unions.
That institutionalizes the externalities, diffusing the costs and minimizing incentives inappropriately.
Fine, wage laws and collective bargaining are market distortions, if you like. Without them, we live in Dickens’ England. With them, we became vastly more productive (efficient) in the first half of the 20th century. Now we have weakened both, and productivity has slumped.
It is useful to look at the Alaska Permanent Fund as an example of UBI (many write-ups and analysis, like https://medium.com/basic-income/ubi-lessons-from-the-alaska-permanent-fund-dividend-program-c6c95a1e09a2). Generally it seems to have worked out well. The biggest lesson is that the long run attitudes toward the entitlement and its relationship to bigger picture taxes, funding, spending, and politics are, uhh, complex. For instance, in Alaska's case, since the source of the fund was the Oil Industry, it has influenced people's attitude toward the balance of environmental protections versus profits from extraction.
This is rubbish. Employers pay as little as they can get away with. The fact that employees might have an alternative source of income is irrelevant to them. What is also relevant is that you are increasing the ability of potential recruits to turn down exploitative job offers. In fact a UBI could obviate the need for a federal minimum wage.
Whether this, or any other social safety net program, either "works" or "doesn't work" I think misses the analysis.
The only reason for any social safety net program ("SSNP") is that capitalism is inefficient at both the high end (incredible wealth unrelated to actual benefit to society) and the lower end (poverty, however defined, which is also unrelated to both benefit to society (I can't think of a benefit to society in having part of the population in poverty) and individual effort).
The sticking point, both politically and, to my mind analytically, is the whole concept of how much of poverty is related to individual effort. That's why programs for the disabled are more or less universal. Everyone can agree that being disabled (if you prove it) is unrelated to effort.
I think we libs make a mistake here. Its possible that a program would have no actual benefit. But that's hard to believe, really, of course there is going to be a benefit.
I would like to know what percentage of people take the money and sit around. That's the key number. I suspect its low. One could get these programs passed if we loudly and strongly point out, that say, only 1% (or whatever) of recipients misuse the program and we seek them out.
For the interesting problems, you never get the perfect experiment. You have to read the tea leaves from the experiments you have. So far, things look pretty damn interesting.
Of course, we can't even manage to do a $15 minimum wage or affordable health care for all.
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