Stop Being So Optimistic about a Universal Basic Income

On the topic of socialism, G.K. Chesterton once remarked, "I do not propose to prove ... that socialism is a poison; it is enough if I maintain that it is a medicine and not a wine."  Chesterton's point is that socialist reform proposals, even if they really do address an underlying economic crisis, should never be mistaken for true human flourishing, which always requires a substantial degree of self-sufficiency and independence.  A man whose life depends on continual doses of strong medicine remains a sick man, and he cannot fully partake of the good things in life, such as drinking wine.

This admonition is more valuable now than ever, at a time when the American public is being bombarded with proposals for a universal basic income (UBI) as the panacea to all our socioeconomic problems.  The conventional wisdom now seems to be that massive cash transfers are the obvious solution to all that ails us, whether that be economic infirmities like poverty and inequality or nebulous social afflictions like crime, the breakdown of the nuclear family, and generalized feelings of modern ennui.  Even some conservative commentators have begun to refer to UBI as "an idea whose time has come."

Alas, the reality is more complicated.  The truth is that, like any strong medicine, a UBI is likely to have a number of unpleasant side-effects on the American body politic.  These downside risks are larger than many commentators realize, and they need to be faced clearly before radical policy shifts are implemented.

The first question most people ask is, can the country afford it?  This question can be deeply misleading.  The problem is that most analyses of the UBI focus on short-term budgetary considerations rather than examining the long-term structural factors that truly drive the economy.

For instance, Democratic presidential candidate Andrew Yang planned to pay for his $1,000-a-month UBI by introducing a new value-added tax on consumption.  Libertarians like Charles Murray have proposed paying for a basic income by eliminating America's Byzantine morass of existing welfare programs.  Both of these plans appear superficially plausible, at least over the short term.

However, budgetary legerdemain aside, it is crucial to remember that sustaining massive transfer payments over the long term depends upon a dynamic, productive, and growing economy.  The trouble is that well over 70% of Americans now work in the service sector, perhaps the least dynamic component of the American economy.  Not coincidentally, a similar proportion of Americans live paycheck to paycheck.  So where is the money to be had?

As Michael Lind rightly observes, many of the UBI schemes currently being touted quietly assume "the permanent existence of high intellectual-property (IP) rents flowing from the rest of the world to tech tycoons, along with global financial rents flowing to money managers."  Lurking behind the UBI are two massive assumptions about the global economy: that American I.P. and finance will continue to return exorbitant profits in the years ahead and that the industries in question will therefore be happy to distribute their wealth to all and sundry.

Neither of these assumptions can be taken at face value. The profitability of I.P. depends on the artificial monopoly rights we call patents, a fact that renders these revenue streams extremely vulnerable to both theft and foreign competition.  The Congressional Research Service estimates that Chinese intellectual property theft alone has already cost United States more than the entire Vietnam War.  In addition, foreign competition in sectors such as software design and robotics will also increase in the years ahead, eating into American profit margins the same way that German and Japanese manufacturing did in the 1970s.

For its part, large swaths of the financial sector continue to be propped up by the dollar's status as the global reserve currency.  Were the dollar ever to lose that status, either because a growing national debt saps global confidence in the American economy or because foreign competitors launch a credible successor currency, we will witness a painful financial correction in short order.

Even in the best of times, American corporations are reluctant to pay taxes.  Despite the fact that the U.S. has some of the highest corporate tax rates in the world, Amazon recently told federal investigators that it paid a federal income tax of 1.2% in 2019.  The average among Fortune 500 companies is 11.3%.  A UBI built on a foundation of I.P. and finance is a sand castle, likely to crumble during the first economic storm.

But perhaps worrying about how to fund the UBI is "the wrong way to look at it," as Canadian academic Evelyn Forget writes in Foreign Affairs, and the program should be seen as "an investment in the kind of society people want."  As Forget tells it, the benefits of a UBI seem self-evident and can be achieved in short order.  Such short-term thinking makes arguments in favor of a basic income difficult to resist.

Prudent evaluation of policy requires a longer view.  The truth is that the UBI presents America with a political double-bind, since deep structural problems will emerge even if a handful of highly productive corporations somehow prove willing and able to fund cash transfers in perpetuity.  Net recipients might easily be reduced to the status of vassals, whereas net contributors will gain significant influence to wield as they see fit.  Thus, Karthik Ramanna, professor of public policy at Oxford, worries that "[i]t is only a short road from a cash-based UBI to one that provides vouchers for Amazon only, meaning that tech titans could use the UBI to perpetuate their own monopolies."

From the perspective of caveat emptor, the most important fact about a basic income is that we don't know how it will work in practice.  We know that a UBI will have unintended consequences, but we don't know exactly what they will be, and they are likely to become apparent only over the longer term, perhaps over the course of several generations.

Maybe UBI optimists like Forget are correct and there will be little impact on levels of workforce participation.  Conversely, we might see massive structural unemployment, with 10–20% of the population choosing to opt out the labor market altogether.  What effects would this have on social order, human development, and family formation?  We don't know.

Myriad difficult questions need to be asked.  For instance, the UBI will significantly increase the purchasing power of hundreds of millions of people.  These numbers will grow as other wealthy nations experiment with a UBI.  Is this compatible with ecologically sustainable economic growth?  Again, we don't know.

Nor is it the case that easy money automatically entails social harmony.  Indeed, a UBI might actually increase social and political conflict.  As Lind notes, conflict might arise because families that have more children will effectively gain more from a UBI.  How will diverse societies negotiate this problem, given that different groups have children at vastly different rates?

Above all, we must avoid the easy sensibility that money is the root of all policy solutions.  A basic income should be seen as a medicine, not as a self-evident good in its own right, and treated with the requisite amount of Hippocratic caution.

Christopher M. England is visiting assistant professor of political economy at the College of Idaho.  His political writing has appeared in outlets such as The National Interest and RealClearDefense.