Basic Income AMA Series: I am Ed Dolan, economist and supporter of universal basic income. Ask me anything.

Hi Ed!

I'm a big fan of the idea of a basic income. Something I'm curious about, though: How would a basic income accommodate local variations in cost of living?

As an example: I live in the San Francisco Bay Area, which is one of the most expensive places in the country. There is currently a lot of unrest regarding social welfare supports, as the cost of living (primarily rent) has increased very, very quickly, and priced many long-term residents out of the area.

If a basic income was adopted on a national level, how would it account for something like this? I have the following questions (in convenient point-form).

• Would a basic income be a single one-size-fits-all dollar amount across the entire country, or would it attempt to take local cost-of-living variations into account

• If it was intended to be a one-size-fits-all dollar amount, it would likely be insufficient to provide the expected reasonable baseline quality of life in very expensive areas like SF. Would this just be accepted as a limitation of the system? (eg. "if the basic income is not enough to live on, move somewhere cheaper"). Additionally, if that is accepted as a limitation, do you think it would be a difficult thing to sell politically ("move somewhere cheaper" is decidedly not an effective political slogan in local SF Bay politics)

• If local cost-of-living variations are to be taken into account, this is likely to mean paying out substantially higher amounts in places like SF. Is there any worry that some enterprising poorer folk would move to a more expensive area, just to get a larger payout? Related, is there any worry of people fraudulently misrepresenting where they live in order to get more money

• If local cost-of-living variations are to be taken into account, is there worry that it would be politically difficult to sell this to the rest of America? I can imagine someone in, say, Kansas, making the argument that "Why should my hard-earned tax dollars go to pay for the poor in California when our own poor don't even get that much money?"

• And finally, as a related implementation detail of this system: Do you see this being run by the federal government, or being more like a federal mandate with implementation details left up to individual states? I can see that as being a reasonable solution to the 'accounting for local variation' problem, as well as being a reasonable and sensible thing to devolve to a more local government. But I could also see that playing out like Obamacare, with many states making a political point of refusing to implement these programs. Your thoughts?

Thanks in advance for your response

There are two parts to my answer:

(1) In this post on affordability, I treat the UBI as a federal program only, uniform for the whole country. However, I note that right now, about 1/4 of all income support programs are run by state and local governments. Those states and cities would probably want to reconfigure their efforts to dovetail with the federal UBI. The result would be that richer states and cities would have more available to supplement the federal UBI to take into account housing costs, etc.

(2) I don't think anyone has a "right" to live in San Francisco with its glorious economic and noneconomic benefits. If you couldn't find work in SF, and had to live on your UBI, maybe you should consider moving to Oklahoma City where the cost of living is a lot lower and your UBI would go farther.

If you couldn't find work in SF, and had to live on your UBI, maybe you should consider moving to Oklahoma City where the cost of living is a lot lower and your UBI would go farther.

This would be my preferred answer, and makes me optimistically wonder about some unintended consequences of a UBI. Perhaps, given an income guarantee, you'd see large scale movements of artists and creative types to previously-run-down areas of the country. Kind of like spreading the gentrification out from the few trendy cities that are bearing the brunt of it right now.

Plus, correct me if I'm wrong, but a lot of the worst problems with gentrification (the inability of long time residents to afford to live in the area anymore, combined with the inability of poorer long time residents to easily afford to move) would be solved if they had a reasonable guaranteed income

you'd see large scale movements of artists and creative types to previously-run-down areas of the country

Yes. I live in the San Juan Islands. In the 60s and 70s, lots of artist and creative types moved here because it was very cheap. Now it is more expensive, so now some of them may have to move on--Oklahoma, here we come! (My home state, BTW).

Yes, I think a UBI would help the gentrification dilemma.

Won't this drastically increase inequality? Live in SF or NYC with a high paying job and access to all the cultural things people claim to want or live in an apartment in rural Oklahoma and watch tv all day?

Why is it an increase in inequality? We have Productive Pauline, who earns $200k a year as a bond trader, and Low-productivity Lou, who earns $20k a year as a grocery clerk. We give each of them $5k UBI. That decreases inequality, other things being equal, since P now has $205 and L has $25. If P and L initially live both in SF, and L then moves to OK, where life is cheap but she keeps the same income, how does that increase inequality? I'm not sure what you are getting at. Are you saying that L is being "cheated" because she has to give up the excitement and culture of SF for boring OK?

Why should middle-class people with good careers care about helping the poor?

Historically they never really have. So what's in it for them? Why should they support this?

Ooh, nice question. Maybe we need to move this to /r/philosophy/!

Short answers: (1) So that the poor don't rise up and burn them out of their homes, Russian style; and (2) Because charity toward the poor is in our genes (helped hunter-gatherer tribes survive the hard seasons) and in our religions (if we have one). Historically every society has had some mechanism for helping the poor. The problem is that ours is so unfair and inefficient.

Your first point is fairly suspect... given our current society, the risk of a violent revolution from the poor in the USA is extremely remote.

Yes, it is, given our current society. But your question was, why should we do anything for the poor? What would happen if we ended all welfare, all social security, all healthcare, and so on? I don't think the danger of a violent reaction would be so small then.

You are right, though, people are not revolting violently against the current welfare system, with its built-in poverty traps and its micro-managing of the lives of the poor. More's the pity. People who are caught up in that system should be mad as hell about it, but most of them just take all the indignities of the welfare system as part of life as they know it.

Better answer; it gives the poor a chance to fix their life and depending on the model of basic income you support, helps keep them clean and off the streets. More productive members of a society can only be better as a whole towards advancements in the world. We all fuck up, but our lives shouldn't be absolutely wrecked because of things that may or may not have been our faults.

That is a good way to put it.

What do you think about this? Its impact on world economy. Assume its true, of course.

Thanks for the link, I'll watch the video later when I have some free time.

I think, though, that what you are asking is what do I think about the potential that computers and robots will completely or largely replace the need for human labor.

Honestly, I am a skeptic on that. It is what they said about tractors, typewriters, almost every invention you can think of and it never has happened.

Still, maybe this time it really is different. If you are worried about this problem, I think that is just one more reason to like an UBI. Personally, though, I don't lose sleep over it.

Honestly, I am a skeptic on that. It is what they said about tractors, typewriters, almost every invention you can think of and it never has happened.

Oh come on now :/ Please watch the video and comment back! It really is an important topic, if not the most important topic related to UBI. It's very bothersome that no one is worried about this.

Marx predicted the end of capitalism once we reached a level of automation that kills a large percentage of jobs. It already happened, and he was wrong. Capitalism is remaining, stubbornly, as the only way people think the world makes sense. As the video warns, we are not prepared for this.

I work in technology, and see colleagues getting laid off left and right, after building self-sustaining systems that require almost no human to run reliably. The field in which the middle class is relying now, is the field of killing jobs through technology. How come corporations already know the most profitable future (for them) is automation replacing humans, but politicians/intellectuals refuse to take that future seriously?

OK, I promise, I'll watch the video as soon as this AMA madhouse is over. Honestly, I do need to dig into the literature on automation and jobs, you are not the first person who has urged me to do it. After I do so, either I will become a believer or I will be able to make a more informed skeptical argument than I can now.

Let me repeat what I have said before, if what you say is true (I am not yet convinced), then it is one more reason we would need an UBI.

Honestly, I do need to dig into the literature on automation and jobs...

Here you go.

Thanks for the link, first time I saw that one. Reddit is amazing.

Ed, nice job doing an AMA here and raising awareness on this.

In my opinion, this is not about if we ever do this in the USA, it's WHEN. It is necessary and will save money in the long run. Do you agree or disagree that this will be eventually implemented in some way? That there really isn't another logical option?

Gosh, thanks for your support! I wish I could agree that "there really isn't another logical option" necessarily implies "this will eventually be implemented".

Seriously, though, I do see momentum building. Eventually if not sooner, as they say.

Hi Ed, thanks for doing this AMA!

I see from another answer that you prefer to not do any new taxes in order to achieve UBI, and to just make sure it happens first, but I'm curious about your thoughts on the potential for a flat income tax paired with a UBI.

I did some of my own research and calculations and came up with the following chart as a result:

http://imgur.com/Lx0GkBv

Does this look right to you? What effects do you think a flat tax could have when paired with a UBI that could be potentially good or bad?

I don't have time right now to critique that particular chart, but I agree that the idea of a flat tax plus an UBI makes sense. I encourage you and others to develop such a proposal in detail.

Why haven't I advocated that approach in my writings?

I like to think that an UBI is a good idea, even without tax reform, and that tax reform is a good idea even without an UBI. Of course, both together would be even better, but intellectually, I prefer to work on them separately.

Maybe I am wrong, though, so keep working on your idea that combines the two!

Hi, you've got some great info on UBI (Which I'd never heard of before this) I'm still reading through all the info but I wonder: I'm the sole provider for my family and work a job making $10/hr my fiance works part time and is taking classes to go into the medical field, we have three kids 7 to 11. Would a UBI take away Medicare? As at the moment the kids are on medicare and if they weren't they wouldn't be able to get the care needed (two have a rare disorder). Aside from that $2k a month extra would be helpful, if thats what it came to, we are on food stamps and get $360 a month and that barely cuts it.

Good question about Medicare and healthcare in general

I think the general problem of income support and the specific problem of healthcare are very different, at least if we start from the current US healthcare system. For that reason, I would like to approach these problems separately with an UBI that would (at least temporarily) leave our healthcare system, including Medicaid and Medicare, untouched.

Some versions of basic income recommend giving a big enough basic grant so that people could buy their own health insurance. I can see in theory that might work, especially if you started with a genuinely universal health insurance system like, say, France or Germany, or a national health service like the UK or Canada. However, starting from the complex and not very satisfactory healthcare system of the US, I think it would be too complex to try to solve both problems at once.

Ed, Love your blog. Curious on what you speculate some of the unintended consequences of a UBI might be?

First of all, I'm sure it would have some unintended consequences that no one has even imagined. That is the nature of economics.

Second, I would point out that within the camp of UBI supporters, what is "intended" for some people is "unintended" for others. For example, some green UBI supporters see people quitting work to live the simple life as an intended benefit, while many conservatives see that as a big drawback.

Let me think more about this, it's an interesting way to put the question.

How would/should BI deal with the price creep associated with existing social programs like car insurance in BC canada, or medical care in the US. Would regulation not force people to spend what they have, and thus increasing the definition of what we consider basic? Thanks for giving me the opportunity to pick your brain.

An UBI would have to be indexed to the cost of living, but if it is financed in a way that is revenue-neutral (which I favor), it would not make the problem of inflation any worse than it is.

Am I right in saying by 'revenue-neutral' you mean, as long as the UBI is funded through taxes and savings on public spending, it would not cause inflation?

Not new taxes. I view it as entirely funded by reducing spending on transfer programs and on "tax expenditures," that is, closing tax loopholes.

Wouldn't taxes on rent seeking activities be better to fund a UBI or any other tax revenue? Taxing land or radio spectrum would be much better than closing loopholes and still taxing income, and consumption.

There are lots of tax reforms that would improve our economy. A good case can be made for taxing the radio spectrum or carbon emissions or whatever and cutting income taxes, or for closing loopholes and cutting marginal rates. My perspective, though, is that those kinds of tax reform would be good whether we had a UBI or not, and a UBI would be good whether we have tax reform or not. There is no logical reason to tie the two together.

Isn't a revenue-neutral UBI a regressive move from the current state? If I currently pay $10,000 in taxes and start getting a $2,000 UBI, then my effective tax bill has gone down leaving only $8,000 to divide among people with a lower income than me.

My idea is more like this: Now you are a middle-class worker who pays $10k in taxes and gets no UBI, but you do get a home mortgage deduction, a deduction for tithes to your church, a deduction for your 401k and so on. Under my approach, you would lose those deductions so you would get your $2k UBI (your number, not mine) but you would pay $12k in taxes. That is what I mean by revenue neutral. Of course, the losses of deductions would't exactly balance the UBI for every individual, but I would like to aim for something approximately equal to balance on average.

I don't believe financing the UBI in a revenue-neutral way guarantees no inflation. Consider all the money being spent on military goods is now spent on the UBI (i.e. revenue neutral). The goods that were previously purchased by the military (guns and ammo) will go down in price to reflect the decreasing demand. The goods that are purchased by people who have more money in their pockets thanks to UBI (food, clothes, etc) will go up in price to reflect the increase in demand. Thus inflation occurs in the basket of goods meaningful to the average consumer, but deflation occurred in the basket of goods that previously received funding.

(1) I am not talking about cutting back military to finance the UBI. We are talking about cutting back welfare and other existing transfer programs (including some kinds of tax breaks), which is pretty much the same basket of goods.

(2) Putting that aside, yes, there could be some changes in relative prices, depending on micro shifts in types of goods purchased by different categories of consumers. However, changes in relative price are not inflation in any meaningful sense. Any impact on the CPI would be a one-time change, not an increase in the percentage rate of change that would accumulate over time, as with true inflation.

Could you talk about the issue of inflation, I'm not sure it's an issue amongst economists but it comes up a lot among the general public.

Would a UBI cause inflation and effectively undo it's own purpose by causing prices to increase by the same amount as the UBI grant?

You are right, I get questions about inflation all the time when I talk about an UBI.

According to the standard textbook economic models, if we financed an UBI by printing new money, it would cause inflation. I don't advocate doing that.

Instead, I would like to finance the UBI by cutting back on existing welfare programs and closing tax loopholes. That would be noninflationary.

What about the hedonic treadmill? If the UBI is universal, then everyone gets more spending money and the standard of living will go up so poor people will feel that they "need" more things to have a "normal" life. Won't any future increase in the UBI be eaten up by marketers?

That could happen if you made the UBI too generous. I am thinking of something that would be below the poverty standard for a single person, below what you would earn with a full-time minimum wage job.

Do you see a sub minimum wage income as a transition to something better, or do you imagine a universal basic income more as a wage supplement?

I would expect that a UBI plus a minimum wage job would provide enough to meet the basic necessities of life. Which is a supplement to the other is a matter of perspective.

So how would people who are too disabled to work fair?

A UBI would not solve every social problem. There are some problems for which we would need other private or public safety net programs. Genuine disability would probably require a separate program even with an UBI, especially if it included mental as well as physical disability. We couldn't just kick a deeply autistic 18-year-old out on the street and say "here is $450 a month, fend for yourself."

Having said that, I would make two comments about the interface of a UBI with disability insurance:

(1) People should not be allowed to double-dip. For example, if you are now getting SS disability payments, you would be able to choose to keep your SS disability or take the UBI, whichever was greater, but not take both.

(2) A UBI would remove some of the incentive to game the disability system to turn it into a kind of extended unemployment program. Unfortunately, a fair number of people do that now. The downside of doing that is that once you go on disability, as a practical matter, you can never get a job again. It is all or nothing. An UBI might be less than full disability payment, but it would not cut you off from all future earning potential to the extent the existing disability system does.

closing tax loopholes

"Closing tax loopholes" is a convenient scapegoat that politicians refer to all the time, but it seems like there is very little agreement on which loopholes to close, or for that matter what counts as a loophole. Would you be willing to go into details over what specific tax code changes you would like to see?

Yes. I've written lots of stuff on my blog about this. I don't have the time right now to give you complete links, but you can find this posts if you go to Google and enter "Ed Dolan's Econ Blog [search term"

Do that for this list of search terms:

Mortgage interest deduction

Charitable deduction

Retirement savings

Capital gains tax

Corporate income tax

That will give you a start on some of my thinking.

cutting back on existing welfare programs and closing tax loopholes

Would that be enough to fund UBI for every citizen, though?

Yes, about $5k. See here.

Do you think direct/liquid democracy - like in Switzerland and Iceland - would greatly accelerate BI adoption? Would make sense to fight more for it in order to achieve things like BI, animals rights, environment protection, etc? Or is it better to focus on the activisms themselves and forget about fighting for direct democracy?

In my state, Washington, we have direct democracy in the form of initiatives. They cut both ways. Initiatives got us marijuana legalization (a plus in my view) and drastic cuts in car registration fees (a minus in my view that has undermined our transportation infrastructure).

So direct democracy might get people to vote for an UBI, or it might get us forced labor laws for anyone caught living a life of voluntary idleness.

I'm going to take a break, thanks for all the comments and keep them coming. I'll get back with more answers later today.

Oops, this is a first-level comment so it has to contain a question. Here's my question:

What's for lunch?

How will UBI differ between parents and the childless? For the childless certainly we want spartan living to incentivise work. But for parents, child welfare may demand more generousity. Will the UBI allow them to be fulltime caretakers. Programs like the EITC demand parents work to receive the subsidy and that might strain single parents.

How do you balance the needs of the children, sorting parents who should or shouldn't work, and keep the program "fair" for the childless?

The problem of how to handle children under a UBI is a complex one, and I don't claim to have the ultimate answer. I do have a short discussion of the problem in this post. To give the short version, I recommend that kids of all ages get their own UBI, but that for young children, it is split into two parts. Part goes to the parents to provide child support, and part goes into trust to be used for education. Eventually, when the child becomes an adult, he or she gets control of anything left in the trust account.

I agree that some parents would use the UBI to free themselves from work and do full-time parenting. I see the freedom to make such a choice as a positive feature of a UBI, compared with the one-size-fits-all approach of work requirements plus subsidized day care. That works for some, but not for everyone.

What do you think about the idea that our present economic and political system needlessly employs people doing "work" that doesn't really need to be done, and do you think UBI might be a solution to this? Put another way, are we thinking about UBI the wrong way when we worry that it might provide disincentive to work? Wouldn't disincentive to work potentially be an upside of UBI?

Here are examples of people engaged in so-called "employment," whose labor seems tragically misallocated to me:

• Low-wage service workers who would be replaced by a kiosk, but for their managers' or companies' queasiness about "destroying jobs"
• Sales and marketing people (do we really need to be using so much human labor on selling and marketing products when internet reviews are a more accurate way to make many consumption decisions?)
• Bored office workers who spend all day on reddit :)

Your idea has merit. Although I think on average, an UBI would induce people to work more (because it gets rid of welfare clawbacks and poverty traps), I am sure there are some people, especially second earners in families with children, who would be happy to quite meaningless, dead-end jobs and devote themselves to, say, home schooling their kids, if that is what they see as more meaningful. Yes, that would be a plus for the UBI.

There is a nice book, "How Much is Enough?" that develops ideas like yours at length. See my review of it here

This is an old technique that NASA implements in the early planning phases of all of their projects after the challenger disaster. It's used as a way to analyze the different ways that a project may fail, so that these key areas of weakness aren't simply swept under the rug and left to fester.

So here it is: Let's say that basic income was hypothetically implemented and it was a complete train wreck. After the fact, you are asked to write up a quick summary on the catastrophe. What exactly went wrong?

1. Most likely way to screw up an UBI is to start with a small UBI and add it on top of what we have now. If you do that, you get all the expense of an UBI plus keeping all the poverty traps, bureaucracy, and disincentives of the current welfare system. Nixon tried to get a bill like that through Congress and almost succeeded. Good luck for us that he failed.

2. Second most likely way to screw it up is to make unrealistic assumptions about how much it will cost, then underfund it. For example, suppose I figure you can't afford an UBI unless you tell seniors that they have to choose between an UBI and SS, but can't double dip. To "buy votes" from seniors, you say, "well, we don't really need that, let them double dip." Then the UBI busts the budget and crashes. (That is just one hypothetical but you get the idea.)

Do you think it's even possible that Basic Income will become a reality in the USA in your lifetime? How?

It's easy to look at Congress and to say it will never do anything good in our lifetimes. The one thing that gives me hope is that a UBI is getting support from across the political spectrum, conservative, progressive, and libertarian. In that sense, it seems less divisive that some other issues that split along traditional party lines.

What is the downside to minimum wage?

The downside to a minimum wage, in my view, is that it discriminates against people with low skills. It encourages people to hire one guy with a backhoe instead of two with shovels.

But you bring up a good point--what is the relationship between the minimum wage and a UBI? I have never developed the idea in detail, but my instinct is that if we had an UBI, we could get rid of minimum wage laws.

Good point, but are you assuming that we will always live in a situation where there are more people than jobs? Are there ever periods of time when there are more jobs than there are workers? Is it possible that I have the cause and effect mixed up and that a minimum wage actually prevents a surplus of jobs because people know they will have to pay minimum wage so they don't even bother to try to find employees?

I don't think it is a worry. If there are more jobs than workers, the wage will go up. Some more people will join the labor force, and some people will decide it isn't worth offering some of those jobs at a higher wage.

Hi Ed! I read that you taught in Moscow, Russia for a period of time. Unrelated to economics as such, what were some things you enjoyed (and disliked) about life in Russia? And; do you think the recent sanctions placed on Russia could have disastrous effects on economies worldwide?

Thanks for the question! It's a little off the UBI topic, but I did a long interview on just that topic for the German website "Inomics" not long ago. You can read the link.

As for sanctions, yes, they always hurt both sides. They are a clumsy weapon, but sometimes the only one people are willing to use.

What was your grade in real analysis?

Sadly, that datum is lost in the mists of time :)

Hello Ed and thanks for the AMA. I am have just started to learn about economics. I just finished Basic Economics by Sowell and of course Freakanomics. Are there any books you could recommend?

Here's a nice little book that I strongly recommend: Living with Water Scarcity by David Zetland.

First, it's short, well written, and --get this-- it's free as an e-book.

Second, water is an important issue in itself, but more than that, you can read the whole book as a metaphor for living with scarcity in general. After all that is the central point of economics.

First off, I want to say that something like this would help my family immensely. We are currently negative in our income every month because my wife just opened her first daycare. She was the main source of income, supplemented by my ~1200 per month. So my questions to you are:

1. How would you convince the US Government that something like this is a necessary evolution in welfare?
2. How likely do you see this coming to reality?
3. I read somewhere else in this AMA that you determined $5000 a year. That comes out to roughly $416 per month. Is this arbitrary, or what you have researched as a good choice?
4. Would UBI be taxed, or tax free?
5. Why do you feel UBI is better than the current benefits, like SNAP, WIC, TANF, etc, besides everyone being eligible?
6. Would UBI be based on a per person basis, or per family? Like, would my wife and I both get the $416 per month, or just $416 total since we are married?
7. Would there be a lower age limit, or does a child start receiving benefits to help with Child Care? For example, my son is 3 months old. If we were to have $416 extra because of him per month, we would finally be able to help climb out of debt we already managed to accrue.

Lots of Qs, have to keep the A's short:

>How would you convince the US Government that something like this is a necessary evolution in welfare?

I'm trying, I'm trying!!

How likely do you see this coming to reality?

I'm encouraged that support is growing among conservatives, progressives, and libertarians. This is one idea that seems to have cross-partisan appeal, and that makes it more likely.

I read somewhere else in this AMA that you determined $5000 a year. That comes out to roughly $416 per month. Is this arbitrary, or what you have researched as a good choice?

I consider that an affordable choice, but I don't pretend it is optimal in any sense. Remember, it is $5kper individual, add that up for a family. I would like to repeat, though, that I don't support an UBI that would let people live in middle-class comfort without working. Just a basic fall-back on which people can build a better life for themselves.

>Would UBI be taxed, or tax free?

Personally, I recommend tax free, although some basic income supporters think normal income taxes should apply.

Why do you feel UBI is better than the current benefits, like SNAP, WIC, TANF, etc, besides everyone being eligible?

The main reason is that all those programs have high benefit reduction rates. As you start to earn income, they claw back a big part of what you earn--estimated about 70 cents of each dollar for people just above or just below the poverty line, sometimes more.

>Would there be a lower age limit, or does a child start receiving benefits to help with Child Care? For example, my son is 3 months old. If we were to have $416 extra because of him per month, we would finally be able to help climb out of debt we already managed to accrue.

I recommend the UBI starts at birth, but I have proposed that for young children, part goes to the parents directly for child support and part into a trust fund for education and other needs. As the person gets older, they get more control.

What percentage of GDP do you believe it would require to accomplish this? What do you think of the proposal of some that the Fed should directly deposit cash into people's accounts (sort of a mega QE)?

Hmm. Let's see. If the UBI is 5k and there are 250 million resident citizens, that gives you 1.25 trillion in cost for the UBI, which sounds like roughly 8 percent of GDP. That is off-the-cuff.

And no, not mega QE--I don't advocate paying the UBI with newly created money (I hope I don't get in trouble with my MMT friends for saying that).

Would you leave all other welfare programs such as food stamps as is?

No. I would get rid of TANF, food stamps, childcare benefits, housing subsidies and most other forms of cash and in-kind welfare.

Some versions of a UBI would give you enough money that you could also afford health insurance, private education, and so on. I understand the theory, but my version is more modest. I would not get rid of public education, some public role to ensure affordability/insurability of healthcare, safety nets for special problems like autism, mental illness, drug abuse, domestic violence, etc.

It certainly sounds wonderful, I could get behind it I think. Some will argue your plan is regressive for current beneficiaries of welfare though. The gap between rich and poor is unlikely to be lessened much if it's revenue neutral and taxes don't go up to redistribute.

You raise an interesting issue: What will determine if a UBI in place of the current welfare system produces an income distribution that is, in the end, more equal or less equal that what we have now?

The most important consideration is whether people respond to the increased work incentives you get when you replace the current welfare system, with its its high benefit reduction rates and clawbacks, with a system that lets low-income people keep most or all of what they earn if they make the effort to get a job. If lots of people respond by working more, by starting their own businesses, and so on, then you get more equality from a UBI, when you take earned and unearned income together.

Another thing that matters is how large the basic UBI is. Should everyone get as much or more in their UBI grant as they get now from welfare?

A third thing is whether you keep other social safety nets in place when you introduce a UBI--say, programs to help with chronic diseases, mental illness, disability, substance abuse, domestic violence, and so on.

Let me turn the question around and ask you: Suppose you were a person who could not find any job that paid more than the minimum wage, about $14,000 a year. You have the choice between two systems: A welfare system that gives you $10k a year but takes back 75 cents of every dollar you earn from your minimum wage job, or a UBI that gives you $5k and lets you keep everything you earn?

Can you discuss a little more about why replacing the "means-tested" forms of social welfare will be more beneficial to society as a whole?

I think the biggest benefit to society as a whole is that getting rid of means testing would give people who are now caught in the poverty trap more of an incentive to work to make their own life better. Right now, the problem is that the welfare system takes back 50, 70, even 100 percent of what they earn if they go out and get a job. I wrote a long, detailed post on this issue starting here. I invite you to look at it when you have time.

Do you think we will ever see a negative interest rate? If so, what would be your ideal way to implement such an idea?

You can have negative interest rates on some special kinds of financial services. For example, Denmark has negative interest rates on central bank deposits. Negative rates don't work for other things, though. You can't offer to lend money at -5% interest. If you did, demand for the loans would be infinite. People would borrow $100, put $95 in the kitchen drawer to be used to pay back the loan, and spend the remaining $5. Then they would say, "that worked so well, why not borrow $100 million".

Hi Mr. Dolan,

I am in Canada, and the idea of a basic income is gaining traction among some people here.

I am intrigued by the idea, but something like a basic income does not seem possible, just from a pure numbers perspective. I could see a guaranteed minimum income working, but not a basic income.

Which option, between a guaranteed minimum or a basic income, would be better suited to Canada and why?

What would the approximate cost of each be compared to Canada's existing social programs?

If I understand the way these terms are used in Canada, a "guaranteed income" means something like a negative income tax: You get a guarantee ($10 k or whatever) if you don't work, but if you do, then your benefit is gradually reduced as you earn more. Is that right?

If I am right, then there is a tradeoff: A negative income tax is cheaper, but it provides a distinctly lower work incentive. Personally, I favor the UBI, without the reduction in benefits as you earn more.

I discuss the difference between an NIT and a UBI at length in the two posts that start here

If that is not your question, and I misunderstood your terminology, please clarify and I'll try answering again.

Yes, that is the correct terminology.

I always thought that the lower work incentive argument against a NIT was debunked? Would the lower work incentive keep a significant number of people from seeking better work?

Since you favour a UBI, what should the benefit level be set at (in Canada) and how would it be paid for? As I understand it, the social benefit system in the US is much larger and more wasteful than our equivalent systems here. It seems like it would be much easier to find the savings to pay for it in the US.

Well, not really debunked. It is still a matter of open debate. Take a look at some of the literature linked in my posts on UBI and work incentives, and you will see some examples of people taking both sides on the NIT issue. The one thing that is sure is that regardless of who is right about an NIT, the work incentives of a UBI are stronger than those of an NIT.

I will read them!

Are you able to answer my questions regarding the revenue needed to fund such a program?

I'm afraid I don't know a whole lot about the specifics of the Canadian welfare system. If you are right, then the very inefficiency of the US system, in a sense, makes it easier to find savings to finance the new system. I really should read more of Canadian literature on basic income--I have seen some of it, but not really dug into it.

assuming that a currency with a slowly deteriorating value would spur economic activity, has there been any studies or theories as to what the optimal decay rate would be?

Yes. There seems to be a fairly widespread consensus among central bankers that it is reasonable to aim for a rate of loss of purchasing power of about 2 percent per year in developed countries. For developing countries, the rate may be higher. There is some (limited) support for the idea that something in the neighborhood of 7 percent per year might be optimal for developing countries.

Don't take these numbers as gospel, but yes, there has been a lot of study done about the optimal rate of inflation.

Hi Ed- interesting topic, and I feel like there are traces if Friedman's ideology in the roots of UBI.

What types if restrictions (if any) would be placed on the cash disbursement? Would recipients be free to spend on whatever they please? How is a situation handled where (in a very cynical situation) the whole sum is spent on drugs or alcohol, and they are back to square one, hungry and homeless?

Thanks.

Yes, there are traces of Friedman here. An NIT and a UBI share the concept that it is better to treat poor people like grown-ups, give them money, and make choices, even if that means running the risk that their choices will be "bad" (by the standards of whoever feels privileged to judge whether someone else's choices are good or bad). And they share the idea (not shared by modern anarcho libertarians) that even a classical liberal minimal state, the state can play a legitimate role in providing a social safety net for uninsurable risks.

So what about choices that are obviously bad, like substance abuse, gambling, and the like? I don't want to be dogmatic--these are tough questions. I can see some sense in each of several possible answers, although I don't want to represent any of them in isolation as completely satisfactory:

(1) We could say that the state has an obligation to give people one chance, but not more than one. If people crash through their safety net, they will have to live with the consequences of their choices.

(2) I would not want to restrict what people do with their UBI money (as long as it is legal, e.g., not investing in burglar tools or buying trafficked prostitutes as slaves). However, I could see the sense of some restrictions on the ability to borrow against a UBI, sell future UBI receipts for a lump-sum of cash, or assign future UBI receipts in exchange for other kinds of consideration.

(3) I do not think a UBI would fully cover all of life's risks. Someone--the state or private charity--would still have to maintain counseling and support programs to deal with problems like mental illness, congenital disability, domestic violence, etc. Substance abuse might fall into that category.

You have way too much faith in the human race for a system like this to work. If you have people in the streets who have gone with option 1, you would see yet another clamor for "oh government needs to help these people". As a Christian, I would love to see the church step up way more than it does to help those in poverty rise up rather than depend on a governmental solution.

I agree with you about #1. That is not my personal choice--I just tried to list some possibilities.

Personally, what I would like to see is a modest UBI plus #3--and I would hope that you and your church helped generously so the whole burden of the safety net for people who drew a bad hand at birth, or made bad choices later, would not fall on government.

How do you feel the economy would sustain itself if UBI were to be implemented? Wouldn't taxes need to be much higher, and in turn, need more people working to generate tax dollars? I understand that some money would come from sales tax, but if people were able to have an equal or greater quality of life then they have now without working, what would make them want to work?

Obviously I don't want lower income families to not have money to support themselves, but if more people don't work, then income taxes would have to increase substantially to support this system, correct?

Your other question: (both good questions)

If people were able to have an equal or greater quality of life then they have now without working, what would make them want to work?

First, I do not recommend that the UBI grant be high enough to allow people to live in middle-class comfort. I am looking at a very basic fallback income that is a reliable base on which people can build a better life for themselves by working, starting their own business, etc.

Second, remember that existing welfare has a huge work disincentive, because TANF, SNAP, etc all claw back most of your benefits if you get a job. If we replaced those means-tested programs with a UBI, people would be able to start with the UBI plus keep all of what they earn, which would mean a much stronger work incentive for people who are now on welfare.

Thank you very much for your responses!

What sort of support are you gaining for the implementation of UBI?

What gratifies me most is to see parallel discussions supporting a UBI developing in conservative, progressive, and libertarian circles. There are some examples in this post

You have two questions here. Let me answer them one at a time.

Wouldn't taxes need to be much higher?

No. My proposal is to finance the UBI by replacing other forms of income support that we already have. We would just give the money in the form of a cash UBI grant instead of the current form. Here are three categories that the UBI would replace:

(1) Means tested welfare like TANF, SNAP, etc (2) "Middle-class welfare" like home mortgage interest deductions (3) In the case of income transfers for the general population, like Social Security, disability, and unemployment insurance, people would be able to choose their UBI payment, or their current benefit, whichever is larger, but not be allowed to double-dip.

Home mortgage interest deductions are very popular. Do you have any idea how many people would "come out ahead" if they traded their deduction in for a UBI?

Are you averse to taxing, say, pollution or tobacco and adding that to the fund?

A couple of years ago, I wrote a long post The Case Against the Mortgage Interest Deduction. Yes, it is popular but what people don't understand is that it is very inefficient. Also, most of the benefits to go high-income people, not to the real middle class. If people understood it better, it would not be so popular.

As for taxing pollution, etc., yes, I have written in favor of a carbon tax see here for example but I don't like to link it to an UBI. Let's approach them separately: Figure out how to finance an UBI without new taxes, and in parallel, figure out how to improve the tax system. We need both, but they are separate problems.

Thanks for this. I am definitely going to read that article.

My only worry is that many low-income people will end up with less support if we don't supplement the cuts in their support with something. Such cuts would generate opposition from a group that seems poised to support BIG--people who think poverty is real and should be fixed.

I can't really guarantee that there would not be some poor individuals who would get less under an UBI of the kind I would propose than they get now. My argument is that those people would be relatively few compared with the number of people who are now caught in the poverty trap--the trap where the welfare system claws back most of what you earn as soon as you get a job. My expectation is that those people, when they are free of the poverty trap, would end up with total incomes (UBI plus earnings) above the poverty level even if the UBI alone is not enough.

How would you determine the level of basic income to give people? (How much is enough or too much/too little to give?) How would you fund it? Wouldn't it create a huge disincentive to work?

I've answered the question about funding and incentives in other comments, but your question about how to determine the level is a new one. Two parts to the answer:

(1) I do not advocate a benefit that is high enough to let people live in middle class comfort. Instead, I see a very basic grant that is high enough to give people a dependable fall-back as a basis for building a better life through work, starting a business, etc.

(2) I like to turn your question around: Instead of asking what the right amount is, let's ask how much we could afford if we cut back on welfare programs for the poor and "middle class welfare" that we would not need if we had an UBI. I calculate that would come to about $5,000 per year for every citizen resident in the US. For a more detailed discussion, see this analysisthat I posted on my blog earlier this year.

I think it needs to be higher than $5000. You can't live on $5000 alone unless you live with at least one or two other people making the same. I think Basic Income needs to be enough to pay your bills and have a little left over. Not a lot leftover, just enough for when it occasionally becomes necessary. Basic Income should be what's needed to survive, and wouldn't be taxed. Any additional income you receive from a job would be extra. Not necessary to survive, but important to have to build a comfortable lifestyle. I believe that extra income will need to be taxed quite a bit more than it currently is, but because it's extra income, those taxes won't be as much of an issue as they currently are.

Well, you have company in what you think. You haven't said what you mean by "what's needed to survive," but for the sake of discussion, let's define that as equal to the current poverty guidelines. Here are some of the problems I see in trying to guarantee that the UBI gives everyone enough to get to or above the poverty line without working:

(1) The poverty line differs according to family structure. What do you do, do you change the UBI according to family structure? Then it is no longer universal. Do you make the UBI enough so that even a single person can live on it? Then it gives way more than the poverty level to people in families.

(2) It would be hard to fund a UBI that fully met the poverty level for everyone without work. My back-of-envelope calculations always say it would require substantial new taxes. That would reduce the political appeal of the idea.

(3) The more generous the UBI is, the greater the concern about work incentives. I have discussed that problem in detail starting here

(4) I don't claim that a UBI could or should solve all problems. I think you would still need specialized safety-net programs for things like genuine complete permanent disability, mental illness, substance abuse, etc.

Thanks for the AMA. While I've heard several strategies to prevent UBI from just pumping inflation into consumer goods, I still have never heard how it would be possible to prevent it from just all rolling into real estate. I think it would be fairly catastrophic for the large majority of the UBI funds to merely accumulate in land owners' hands. Beyond the economic consequences, that much money going into real estate could set the stage for an English Revolution. Thoughts?

I'm curious, why would you think that? Let's say someone goes from a $10k welfare benefit to a $5k UBI plus $8k earnings from a low-pay, half-time job. Why would they spend the extra $3 k specifically on real estate, rather than on a broad mix of goods and services?

Are you thinking about the possibility that some one would take out a loan secured by the next 30 years of their UBI and use that to buy a house? There is a legitimate issue in my mind as to the degree to which people should be able to assign or borrow against their future UBI payments, or sell future payments for a lump-sum of cash.

Doesn't government like the paternalism part of the current welfare system? When we give people money targeted at specific uses, they don't have the option to spend "irresponsibly." If they take the UBI and spend it on drugs and Apple products, there's no safety net. When they don't have housing or food, government will be called upon to rescue them.

I'm all for personal responsibility. Friedman's NIT was brilliant, but the government can't let people make their own decisions.

You make a good point when you say that some people see the paternalism of the current welfare system as a virtue. I don't want to tar all social workers with that brush, but the fact is, the profession does attract a certain number of people like the "Ivy Starnes" character in Atlas Shrugged, who uses charity as a tool to manipulate and dominate the poor. I agree with you, and Friedman, that a cash based system, a UBI or NIT, would treat poor people as grown-ups.

Matthew Feeney has a nice piece in Reason that makes this argument very forcefully.

How might the system be abused and how does that compare to way things currently are? And would there be location-based cost of living adjustments?

No doubt people will try to abuse anything, but I think there would be less fraud under an UBI than under existing welfare. After all, the only way you can defraud the UBI system is by pretending that you are a person who never existed or is dead. In contrast, there are millions of ways to defraud existing welfare.

As for location-based adjustments: The proposal I have discussed is at the Federal level and I have always thought of it as the same for everyone. However, states are now responsible for about 1/4 of all welfare spending. If the states coordinated their systems with the federal UBI, people in wealthier/more expensive states could end up getting more.

Well you can "take advantage" of a UBI system by never getting a job. Of course, you'll be living a pretty crappy lifestyle, but I think some people will see it as abuse because you're basically getting something for nothing.

Yes, you are right that a lot of people are worried that people would take their UBI and live in a yurt, spending their days playing a guitar or nude volleyball. It is an important question. Let me try to answer it.

(1) People have to decide, what is the greater risk: Helping someone who is not "deserving," as they define it, or failing to help someone who is "deserving." A Mormon friend once told me that his church teaches that you give to panhandlers on the street on the theory that yes, some of them are frauds and maybe have a Mercedes parked around the corner, but that is a risk God wants you to take because if you don't give, the person might turn out to be really in need. (I hope I am right about that--I'm not a Mormon, so someone correct me if I'm wrong on what they teach).

(2) The pragmatic answer is that if we keep the basic UBI low enough (I see it as something like $5k a year), not many people will be content to "abuse" the system that way. The ones who do will be far outweighed by the ones who will respond by working harder, opening their own business, or spending more time in school once they are free of the poverty trap that is built into our current welfare system.

(3) I should add, for completeness, that there is a "green" segment within the UBI movement that sees quitting your job and living a simple lifestyle as something that is good for the planet. They hope lots of people will react that way. Personally, I think they would be disappointed, in the sense that an UBI would cause people on average to work more, not less.

I just don't think $5000 is enough. I'd put it around the poverty level or slightly higher, which is currently $11,670 for a single person. You need to consider the fact that jobs are going to be less and less available over time. Eventually a majority of the jobs currently available will be replaced by automation, so it needs to be possible to live without a job. Eventually I think it will need to be quite a bit higher than the poverty level, but for now, that's probably a good starting point.

Good question--I just answered it for someone else, look for that answer.

Do you have an answer specifically about what you would suggest in the event that most jobs are replaced by automation? I understand your arguments for the $5000 limit, at least under current circumstances, but I feel it would need to change as the job availability situation changes over time.

As I said in an earlier comment, I personally am not a believer in the automation worry. That is what they said about plows, typewriters, and so on, but it never happened.

For the sake of argument, though, imagine some Science Fiction world in which some big vending machine in the middle of town cranks out all the stuff we need with no inputs of labor by anyone, and at the same time also provides automated massages, string quartet performances, etc. We would have to completely reinvent society if that happened. A UBI could plausibly be part of the reinvention process.

My son is interested in Econ in college. Do you have any opinions on Carnegie Mellon, Univ of Richmond, Univ of Rochester, Franciscan or Mount St Mary's in MD? These are his current top choices.

I'll try to get back to this, I'd have to research it since I don't personally know those schools. But I am guessing you live somewhere in Mid-Atlantic from those choices. Have you thought about George Mason University? They have a good program there.

Thanks. I will look into George Mason. We are outside Philly and he wants to go somewhere within 5 or so hours from home

It's not the only choice, but I taught there for a while and I was impressed by the quality of the department plus the interesting diversity of students, all in a mid-priced university.

How would you balance basic income and motivating people to be productive?

You have hit on an important point here. There is no "balance" or "tradeoff" between a UBI and motivation to work--it is a win/win deal. You switch from the current welfare system with its clawbacks and poverty traps to a UBI, and you get more motivation to be productive, not less. See this post for a more detailed explanation.

Is this on par with Milton Friedman's Negative Tax Concept from the 60's?

If not how does this differ from Friedman's Negative Tax Concept?

Excellent question. I have been waiting all day for someone to ask it. Thank you.

In some ways an UBI is an intellectual descendant of Friedman's NIT, especially in that both an UBI and an NIT emphasize treating poor people like grown-ups, giving them money, and letting them make choices about how to live their lives.

The main difference is that an NIT has a heavy tax built in. In Friedman's version, you lose 50 cents for every dollar you earn until at some point you get nothing from the NIT. My objection is that such a high benefit reduction rate has nearly as strong a work disincentive as the present welfare system. For a detailed comparison of an NIT and a UBI, see my two posts that start here

Do you think it would be more efficient for the government to provide the things that a UBI is supposed provide to ensure that the cash stipend isn't misallocated towards things that a UBI wasn't intended for?

I guess what you have in mind is in-kind benefits, like give people a basket that includes X rent vouchers, Y food stamps, and Z hours a week of childcare services.

If so, my answer is no, it would not be more efficient. First, it requires a bigger bureaucracy to administer. Second, it is more likely to be distorted by the special interests that supply these things--builders, farmers, textile makers. Third, it assumes that everyone's needs are similar rather than allowing flexible tradeoffs to meet individual wants and needs.

Efficiency isn't the whole story, either. I think there is something to be said for treating poor people like grown-ups who can make their own choices. Yes, some people might spend their UBI on booze or meth, but there is a limit to what the government can and should do to make sure that no one ever makes bad choices.