The Latest News on the Minimum Basic Income

Last summer, Ontario started a three year test study of the impact of a minimum basic income of about $17,000 for individuals and $24,000 for couples. The core idea of this policy is that every citizen receives that a basic income paid for by the government. Any income they make on top of that income, (from, say, working), is taxed, but doesn’t reduce their basic income.

Interestingly, a parliamentary budget officer has calculated the annual costs of implementing a similar program nationally.

What’s the appeal of the basic income?

The basic income has several nice features. First, it’s easy to manage. Because every adult gets it, there’s little bureaucracy required to manage it. This is very different than, say, welfare or employment insurance, where constant paperwork is required to ensure that recipients are meeting the requirements of the programs. In contrast, you can implement a basic income simply by gluing it on to the existing tax system as as a negative tax.

Second, unlike many government programs like subsidized housing, the basic income allows recipients to spend money in the way that provides the most value to them. While Jack might want to spend 40% of his budget on housing, Jill might only want to spend 30% and use the extra 10% for better food. A minimum basic income allows the flexibility for them to both get what they want. Milton Friedman, the Nobel Prize-winning free market economist supported the idea of a basic income because of this feature and the low cost to the government of administering such a system.

Third, welfare and unemployment insurance programs can make working non-economic for some people. When an unemployed person gets a job, they lose their welfare payments and employment insurance benefits. So, some unemployed people can be in the position where working at a 40-hour a week job only provides an extra couple of hundred dollars a month in income over welfare, and that money is eaten up by job-related costs like transportation and childcare. With a minimum basic income, in contrast, every extra dollar earned will be income on top of the basic income.

Fourth, the minimum basic income helps to alleviate the genetic lottery effect. Children born of poor parents have worse outcomes than children born of wealthier parents. Thus, ensuring that poor parents have at least the basic income will likely result in better outcomes for their children.

One of the basic income studies showed that the only two groups of people who were less inclined to work when provided with the basic income were a) young adults—who were more likely to go to school—and b) parents—who were more likely to choose to stay home with their children. If poor parents are able to spend more time parenting and their children become less constrained by economic factors when deciding whether to pursue an education, it’s likely to improve income mobility, reducing variance resulting from the genetic lottery.

The costs

These aren’t the only benefits of the minimum basic income, but are just some of the biggest, most well-established benefits, and the second-order effects could be as significant as the primary benefits. But, it’s easy to say that everyone should own a beautiful house and an expensive car—we also need to look at the costs.

In Canada, the expected cost of a program similar to the one in Ontario would be $76 billion per year. But, since creating such a program would eliminate other programs for low-income Canadians like welfare, another $32.9 billion would be saved, leaving the net cost at $43.1 billion.

It’s unclear from the reporting on this story whether employment insurance has been taken into account when calculating this number, but if not, there is the potential for more savings there. While not all of the $21 billion in employment insurance expense could be diverted, perhaps some of it could. Something similar might be true for the $51 billion spent on old age security.

In any case, $43.1 billion is a large number, but not out of reach. The total projected federal expenses are around $330 billion, so the cost would be about 13% of the total budget. Interest on the national debt is about $24 billion—if Canada hadn’t overspent in the past, we’d be over halfway to having enough money to implement such a program.

The $43.1 billion number also compares nicely to the size of our economy. It’s about 2.2% of Canada’s $1.96 trillion GDP. And it’s less than 18% of Canada’s $242 billion in healthcare expenditures (and there’s a reasonable chance that a minimum basic income would reduce healthcare expenditures). So, the program wouldn’t actually be that big compared to the size of the economy or other far-reaching government programs.

So, financially, it seems to me that if Canada wanted a minimum basic income, we could figure out a way to afford it.

Second-order effects

That said, I don’t think it’s a completely obvious program to implement, simply because the second order effects scare me. I think it’s likely a good program, but nobody’s actually implemented such a program before and seen the long-term impact, so there could be some unforeseen catastrophic consequences.

For instance, suppose that a basic income program results in all low-income employees quitting, requiring salaries to double leading to high inflation that negates all the benefits of the basic income and then some. I don’t think such a scenario will happen, but it isn’t completely out of the realm of reason. Thus, because such a policy could potentially have a huge negative impact, it makes sense to move slowly, continue to do studies, and see how other implementations fare.

Nevertheless, with the rise of automation, I believe some form of basic income is required. With every other innovation, human labor has been displaced, but after a generation, has moved into other industries. Automation has the potential to be different, literally making human labor unnecessary.

While it’s pretty foolish to suggest that the entire economic system might change to make human labor obsolete (particularly in light of centuries of similar fears that never came to pass), I don’t see how this doesn’t happen. Suppose a robot is invented with all the capabilities of a human that is also able to build an identical robot using nothing but solar energy and carbon dioxide from the air. There would be no need for human labor.

My bottom line

A minimum basic income is the only solution I’ve heard that will solve this excess human labor conundrum in an ethical and stable way. So, I think there’s value in continuing to investigate and adopt this solution. Then, as humans are displaced by automation over the next century, the program can be expanded to ensure that the great mass of humanity isn’t left behind, but rather shares the benefits of innovation in the post-labor world.