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Money for nothing

Basic income guaranteed to all is a step in the right direction, but there are superior alternatives

June 6, 2014 2:00AM ET

PBS recently aired a short segment on a policy proposal known as the Basic Income Guarantee (BIG). The idea behind BIG is that all citizens in a given country should be guaranteed a basic income whether they work or not. This idea has been embraced by people on both sides of the political spectrum, from left-wing academics such as David Graeber and Frances Fox Piven to right-wing free-market thinkers such as Milton Friedman and Charles Murray.

Although the two groups agree that the policy is desirable, they see it as a means to entirely different goals. For right-wingers the idea is to use BIG as the price for purchasing an entirely free-market-based society. The welfare state — everything from food stamps to public housing to public health care — would be eliminated, and BIG would allow people to take care of their own needs. For left-wingers BIG would free people from having to do jobs that do not give them any satisfaction and allow them to pursue creative goals that they would not otherwise pursue for lack of financial support.

While BIG is a good means to raise aggregate spending and income levels in an economy plagued with deficient demand, both positions gloss over some rather serious issues. The right-wingers seem to think that BIG can make public welfare institutions unnecessary. This is unlikely. These institutions provide services that the private sector is often bad at allocating.

It is well known, for example, that the costs of health care are lower for those who need it least and more expensive for those who need it most. It is also well known that the property market is prone to speculation and that this can price people at the bottom of the ladder out of the market; that includes young professionals starting families as well as the poorer members of society. The fact of the matter is that, as economists have recognized for decades, the private sector often fails to meet the needs of citizens because of its reliance on the profit motive, and so the government sector needs to intervene to make sure that outcomes in certain sectors are equitable.

Those on the left also gloss over some of the social complexities that the welfare state seeks to address. Imagine, for example, that a BIG office opened up in a drug-addled neighborhood. Any citizen could go to this office and receive an income of, say, $2,000 a month. Even though the monthly income is intended to free people to pursue their creative impulses, without added social support the money could end up funding drug habits instead. This, in turn, would have the twin effect of leading to poorer health outcomes for drug addicts and making the violent enterprise of drug dealing even more profitable than it already is. Many children who grow up in such an environment would also likely emulate their parents by simply collecting BIG payments and buying drugs with them. What is needed in such circumstances is a program that at once increases income and ensures that people do not remain idle because, as is well known among labor economists, it is idleness and unemployment above all else that lead to problems such as drug addiction.

Under the Artistic Freedom Voucher, every citizen would be offered a tax break for donating a given amount of money to registered artists and other creative workers in any manner he or she sees fit.

There are also economic problems that BIG raises. The most obvious of these is the question of who should receive it. It seems rather obvious that if anyone could turn up at the BIG office every month to collect a check, there would be an enormous influx of immigrants into any country that set up the system. Are we then to assume that it would only be documented citizens who would receive BIG? If so, does this raise moral issues of its own, especially for those on the left who aspire to be flexible when it comes to immigration policy?

Although there is no problem with funding BIG from a purely monetary perspective — a government like that of the U.S. can and probably should run extensive deficits most of the time — the program does raise the specter of inflation. If enough people left their jobs and signed up for BIG, would the actual production of goods and services in the economy fall sufficiently to generate increased scarcity and thus inflation? Also, if people stayed on BIG for long periods they would, in the eyes of employers, be effectively unemployed. This would make them very unattractive to hire if they ever wished to re-enter the labor force. This could lead to labor shortages as the economy expanded, and thus to inflation.

One alternative proposal is the Jobs Guarantee (JG) program. The idea behind the JG is that the government guarantees everyone who is willing and able to work a job at a fixed wage. The government then invites charities and nonprofits to sign on to the program and offer citizens work on neighborhood projects and others that are judged to be beneficial to the community as a whole. The JG has been successfully implemented in countries such as Argentina in the past on a somewhat limited basis.

The JG does not seek to replace existing welfare institutions. It also targets social problems such as crime and drug addiction by offering people who lack direction a job through which they can contribute to their community (the anecdotal effects on reducing crime in Argentina were substantial). The JG is decentralized and voluntary. That means it does not involve a bureaucracy, as it is implemented at a community level and no one is forced to take a job. Since existing welfare programs would remain in place, people would not be starved into taking a JG job. The proposal, like BIG, does raise the troubling question of whether immigrants should be eligible, but offering work rather than a large sum of free money is probably less open to abuse.

The JG could be supplemented by another proposal by economist Dean Baker called the Artistic Freedom Voucher (AFV). Under the AFV, every citizen would be offered a tax break for donating a given amount of money, maybe a few hundred dollars a year, to registered artists and other creative workers in any manner he or she sees fit. Baker argues that this would allow people who would otherwise be reluctant to do so to leave jobs they dislike and engage in creative activities that benefit the community. It would also circumvent the control that monopolistic forces currently have on cultural production.

Overall, the fact that BIG is receiving media attention is a huge step forward. It allows us to debate clearly and out in the open the abilities that modern governments have to improve the lives of their citizens. BIG is achievable today, and if it were implemented it would increase employment and alleviate much human suffering, but it would not target social problems in as focused a way as the JG program would.

Philip Pilkington is a London-based economist and member of the Political Economy Research Group at Kingston University. He runs the blog Fixing the Economists.

The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera America's editorial policy.

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