1
$\begingroup$

UBI - universal basic income (everyone gets a set amount per period)


If you've heard anything about me, it's that there's an Asian man running for president that wants to give every American $1000 dollars a month

  • Andrew Yang 2020 Candidate (#YangGang)

But would this really make a difference?


Alaska is already experimenting with UBI, and it's working great! Every year, Alaskans get around $1000, and this has actually contributed to people working more often, and businesses opening up more jobs. Whatever the case, the important thing is that UBI is a success in Alaska, but why not the entirety of America? Two reasons.

  1. America's population is 450 times that of Alaska

  2. There are just too many difference factors (opposing parties, different state laws, etc.)


So when we give American's $1000 every month, what will this actually achieve? Well first, paying it won't be a problem. Yang has clearly laid out a very specific plan on where he would get all this money, but the real question is how would people react?

I have a few ideas on this, and I'm not sure if it's correct or not.

1) More immigration? People see UBI as a benefit for living in the States

2) Bad environment? Lower class people will buy more drugs, alcohol, and stuff like that, creating a negative atmosphere or a bad stereotype in America

3) Help renew the economy? More money is now into circulation through shops and businesses, creating a more stable and expanding economy***

Recap. What I think will happen is when UBI is put into place, we should see a lot of immigration to America. In addition, some low class people will buy more abusive substances, therefore creating a bad rep for the country. But the positive side is that America's economy can now renew itself since people are buying more goods, therefore circulating more money into the system. Am I right? Probably not. What am I missing here?

Any advice would be highly helpful. Thanks!


***The 4th industrial revolution is here. Robots are replacing millions of jobs across America, causing people to not have enough money. When people don't have enough money, they reduce their spendings. On what exactly? Groceries, clothes, fast food, etc. This causes a chain reaction of events that leads to the economy becoming dry since no one is spending their money. Am I correct here?

$\endgroup$
2
$\begingroup$

This is a huge question and I doubt any SE answer could address this fully, but I would like to elaborate on a few points.

Effects of the Alaska Permanent Fund Dividend

I would argue that the primary success of the Alaska Permanent Fund Dividend is its positive effect on decreasing poverty. The effect on employment seems to be more neutral. Here is an exerpt from the latest research paper by the National Bureau of Economic Research related to the subject,

The employment to population ratio in Alaska after the introduction of the dividend is similar to that of synthetic control states. On the other hand, the share of people employed part-time in the overall population increases by 1.8 percentage points after the introduction of the dividend and relative to the synthetic controls. The unconditional cash transfer thus has no significant effect on employment, yet increases part-time work.

Given prior findings on the magnitude of the income effect, it is somewhat surprising for an unconditional cash transfer not to decrease employment. General equilibrium effects could explain why we do not find a negative effect on employment. Indeed, in our unique setting, the whole population in the state receives the dividend. Therefore, it is plausible that the dividend increases labor demand through its effects on consumption. And indeed, we find that the non-tradable sector shows more favorable effects than the tradable sector. In the tradable sector, employment decreases and part-time work increases, while in the non-tradable sector the effects on both employment and part-time work are close to zero and insignificant. Overall, the evidence is consistent with positive macro effects offsetting any negative micro effects, and leading to an overall null effect of an unconditional cash transfer on aggregate employment in the long-run.

In my opinion, that employment didn't decrease is surprising and positive. But I have heard some people spin its effect on jobs negatively by mentioning how it didn't increase employment. My guess is as time goes on people will spin this data in whatever way they see fit.

On the 4th industrial revolution

Yang asserts that millions of manufacturing jobs have disappeared in the Midwest and that is how Donald Trump got elected. As the following chart shows manufacturing jobs have declined in number since 2000 without much recovery,

manufacturing jobs

But stagnant wages have been an issue since 1970, and I think this has caused some push back among many economists that argue the effects of automation have been over-amplified over the effects of de-unionization. That said UBI could act as an expensive large scale form of unionization.

On the framing of payments

I hear a lot of people talk about how the government would "pay for something" and personally I don't like the framing of this question. It often weakly implies that the government can't run a budget deficit. In the Fifteen Fatal Fallacies of Financial Fundamentalism, William Vickery eloquently addresses this as follows:

Deficits are considered to represent sinful profligate spending at the expense of future generations who will be left with a smaller endowment of invested capital. This fallacy seems to stem from a false analogy to borrowing by individuals.

Current reality is almost the exact opposite. Deficits add to the net disposable income of individuals, to the extent that government disbursements that constitute income to recipients exceed that abstracted from disposable income in taxes, fees, and other charges. This added purchasing power, when spent, provides markets for private production, inducing producers to invest in additional plant capacity, which will form part of the real heritage left to the future. This is in addition to whatever public investment takes place in infrastructure, education, research, and the like. Larger deficits, sufficient to recycle savings out of a growing gross domestic product (GDP) in excess of what can be recycled by profit-seeking private investment, are not an economic sin but an economic necessity. Deficits in excess of a gap growing as a result of the maximum feasible growth in real output might indeed cause problems, but we are nowhere near that level.

Note that while the above was written in 1996, the last sentence still applies in the year 2019. Notably, inflation is still below the 2% target. Instead we should always be asking does this expenditure make sense? "Make sense" is of course a broad term but vaguely we are concerned with whether it would increase GDP, increase life expectancy, decrease child mortality, etc. Or to put it differently, is this the best way to spend trillions of dollars?

On the effects of UBI

Bad environment? Lower class people will buy more drugs, alcohol, and stuff like that, creating a negative atmosphere or a bad stereotype in America

I think this is an unjustified fear. None of the UBI pilots so far have seen increased drug rate use in participants.

But the positive side is that America's economy can now renew itself since people are buying more goods

UBI implemented through a VAT tax and debt monetization is effectively a redistribution mechanism from those who consume more and those who hold more cash. Broadly, poor people should get more money to consume, which should boost GDP:

The IMF report said the way income is distributed matters for growth. "If the income share of the top 20% increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the bottom 20% is associated with higher GDP growth."

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.