Reader’s Submission:- What is Universal Basic Income?
*please note that any opinions expressed in this article may not reflect those of the* *3MoneyTalk team*
In recent times, the idea of a ‘Universal Basic Income (UBI)’ being adopted throughout the world’s developed economies has gained traction, with prominent Democrat presidential nominee Andrew Yang being one of those to call for its implementation. But many people have been asking; What is it? How would we adopt it? (and perhaps most of all) How much would it cost?
The premise of a Universal Basic Income is the concept that, irregardless of socioeconomic status, every adult would receive a set amount of money each month ($1000 is usually the suggested figure). This is argued to be an effective way to tackle the issues of market failure, inequality, and future automation. UBI, in theory, would ensure a base minimum for every adult in a society. It would ensure that no matter your income, job status, or ability to work, you would have the have money for the costs of living. This is seen to be a much more effective way of tackling poverty than that of state welfare, which is not only not enough to live on in many nations, but usually means-tested, which inevitably leads to many slipping through the net and failing to be able to provide for themselves and their family. The universal nature of UBI is what many believe solves this issue.
Furthermore, UBI is argued to be crucial in preventing the colossal problems associated with the increasing automation of our economy. Recent research from the Brookings Institution in Washington has suggested that up to 25% of jobs in America could be lost due to automation. This loss of income for millions of workers will undeniably cause widespread issues across the US and the world. The proponents of UBI argue that the only way to ensure the economic stability of these workers and the prevention of subsequent poverty is to implement a basic income that would, as stated previously, ensure that the public have a base minimum of which to survive under.
The issue of a UBI’s implementation is one that attracts many questions, the general consensus among its proponents is that a UBI would replace the state’s welfare system. It is argued that this would not only ensure that nobody is denied a minimum but would also save billions in the administrative costs that complex state welfare systems incur.
This point leads to the question of the cost of UBI, how could we afford to give every adult in the country that much money a month?
Many critics of UBI are seemingly justified in thinking that the cost of a UBI would be astronomical, but supporters of the concept argue that the true cost isn’t as simple as multiplying the monthly amount paid by the adult population. This is due to the difference between gross cost and true cost. The gross cost of a UBI in the US is generally considered to be $3 trillion a year. While this figure seems impossibly expensive, it doesn’t represent the true cost of the policy. Those who have a higher income, who have little need for a UBI will ultimately pay it back through tax, meaning that the government will receive large amounts of that $3 trillion back through taxation, alongside the savings of replacing the bureaucracy of the welfare system. The true cost of a UBI in the US has been purported to be around $540 billion a year, which is only 3% of America’s GDP, meaning it is by no means an unachievable policy. It has further been argued that the increase in disposable income would lead to an increase in the marginal propensity to consume of those on lower incomes, which could lead to an increase in aggregate demand within the economic, leading to possible future growth, aided by the increase in the velocity of money due to people engaging in more transactions because of this policy.
There still remains questions about the negative impacts a Universal Basic Income would have on the wider economy, with some arguing it would hurt the incentive to work for many people, and others arguing that a it would lead to the state subsidising the wages of corporations who do not pay a livable base wage. Whilst there certainly merits to these arguments, for many people a Universal Basic Income seems to offer a solution to the economic uncertainty faced by millions as a direct result of the coronavirus pandemic. It is for this reason, I believe, that we should consider ushering in UBI as the new model of social welfare.