Tuesday 5 September 2017

A Policy A Day: Universal Basic Income

In the lead-up to the election, we are examining a policy a day. We're exploring a variety of policy areas, explaining the background and analysing some of the policy options, with a mixture of technocracy and values-based approaches. Inevitably, some opinion will make its way in and we make no apology for that - after all, we're voters too. A list of all the articles is available hereEnjoy!

Today's post is written by Simon Thomas

Unconditional Basic Income (UBI) - the answer to poverty, unemployment, and tax? Or millennials just wanting their smashed avo paid for by someone else? The idea of a guaranteed income is hardly a new one, but it has never progressed significantly past an interesting point of discussion.

UBI (also known as Universal Basic Income, or Basic Income Guarantee) defined: A periodic cash payment unconditionally delivered to all on an individual basis, without means test or work requirement. Whether you want to think of it as free money, a form of social security, or simply a payment for being part of a country’s economy, there are quite a few arguments for and quite a few arguments against implementing a UBI. Happily, the three most common and relevant arguments for both sides marry up quite well:

Pro: A UBI will help to alleviate poverty and simplify welfare systems.
Con: But, it would be expensive.

Pro: Automation is disrupting the labour market, and a UBI may be necessary to support the resulting unemployment.
Con: But, industrialisation has been happening for hundreds of years and hasn’t caused long-term unemployment before. Why should this tech revolution be any different?

Pro: Providing people with financial freedom will encourage an innovation-based and future-proof economy.
Con: But, giving people free money might disincentivise work.

Poverty and Welfare
If you’re a reader of A Policy A Day, then I’m sure you’re also relatively aware of the poverty stats in NZ, but the short story is that they do not read well; it seems that the current means-tested, needs-based welfare system may not be doing its job effectively (in spite of a glowing review from Wikipedia). A UBI as a fix to this doesn’t seem hugely clear until we look at the pitfalls of the current system - after all, isn’t it just providing welfare to everyone? In the current system, I see three big issues.

Firstly, because the current system is means- and income-tested, it can create what’s known as a welfare trap, whereby the income a person could receive from a low-paid job may not be that much more than the welfare itself. This practically incentivises poor people to stay on welfare or, if the person is willing to lie to WINZ, commit welfare fraud. A UBI addresses this issue by its very definition of being unconditional, providing a minimum income while still allowing the person to supplement it with full- or part-time work if they are able.

Secondly, current welfare systems put a huge stigma on social security, which would be immediately addressed by an unconditional income. There is absolutely no stigma attached to NZ Super - a form of social security which is actually quite close to a UBI (the amount you receive isn’t income tested, but the tax you have to pay is) - and while some would argue that pensioners have earned Super through working in New Zealand, everyone gets the same regardless of their contributions to the pension fund throughout their career.

Finally, the current system also necessitates a large amount of bureaucracy and administration to implement and regulate. A UBI addresses this slightly by reducing the necessity for means testing and regulation. There would be a small administration cost, especially to get everyone signed up initially, but it would likely be nowhere near the current cost.

Which all sounds great, but how do we afford it? I won’t be going too deep into the actual economics of it as I am by no means an economist, but suffice it to say that this is a huge barrier that UBI still needs to overcome. There are plenty of people who say that it is economically not viable or that the necessary steps to fund it are completely undesirable, but there are also plenty of suggestions that say that it is completely viable. Plans to fund a UBI range from reforming tax, through rescinding all other (now “redundant”) forms of welfare, to removing all non-digital currency from circulation and placing the amount in a central UBI pot (or a mixture of the above). In fact, a recent study from the US has suggested that a UBI could be paid for with increasing federal debt and still increase the GDP of the US permanently.

This calculator tool, by NZ accountant Peter Brake, shows you one simple scenario and whether you will personally be better or worse off with a UBI.

Automation Is Disrupting The Jobs Market
Even my dad (who can hardly work Facebook) seems to be aware of the advancements being made in automation, robotics, and artificial intelligence. Increasing numbers of articles are talking about how robots will be taking all of our jobs in the near future and, if they are to be believed, we should expect up to half of the jobs currently done by humans to be wiped from the jobs market in the next 20 years. If this does come true - and the trend continues - a UBI or similar will be necessary to ensure that those being displaced can still survive.

Of course, there are arguments against these predictions - mainly that industrialisation has been going on for hundreds of years and has never caused long-term unemployment before, due to the creation of entirely new areas of work, so why would AI and robots be any different? Mark Walker’s paper, below, includes some examples of technology which changed the job landscape for good but think horses vs. cars, artisan weavers vs. mechanical looms, the ice trade vs. household fridges.

Whether or not we are actually going to see a job market collapse this time is, unfortunately, a completely unknown parameter - we never dreamed that programming would be a career until the invention of the computer; who is to say that there aren’t as many jobs to be invented as lost in the coming digital revolution? This wonderfully light-hearted paper by Mark Walker attempts to move past this seeming impasse.

Future-Proofing Our Economy
Some big names in tech have also expressed their views about how a UBI would very likely improve the economy through entrepreneurship. Stewart Butterfield, the founder of Flickr and Slack, tweeted recently that “giving people even a very small safety net would unlock a huge amount of entrepreneurialism.” Mark Zuckerberg went as far as to say that billionaires such as himself should pay for it. As someone who is currently trying to make the most of the safety net provided to me by mooching off my parents, I can personally vouch for these ideas. To be honest, though, this idea goes much deeper than allowing a privileged white kid to take a year or two to learn how to code and try to build a business from it. If the economy becomes such that a UBI can be set to give everyone the freedom to choose their own paths and explore their interests, there will be an explosion of innovation.

Counter to this is the age-old argument that giving people free money will completely disincentivise them from working rather than encourage it. This comes from the [knee-jerk] thought, “If I could live without working, why would I want to work?”. While this is an understandable reaction, it is normally based on the thought that a UBI would completely fund the lifestyle that they have become accustomed to. In reality, any UBI would only provide enough money to afford the absolute basics of living, if that (except, maybe, a UBI in a utopian society where the entire economy is automated and considerably healthier than today’s). In the realistic scenario, further work would be necessary to afford any luxuries (and, likely, some modern necessities).

There have also been multiple studies suggesting that this disincentivisation is an entirely unfounded objection and that UBI experiments have, on the whole, increased labour supply. Of course, it is impossible to say that these results can be replicated in NZ, but we do like to think of ourselves as innovative and industrious - it seems unlikely that a large number of us would be content “sitting around, doing nothing all day”. Whether or not the makeup of this labour supply would be a good balance between professions would need further study, but it seems to me that there would be more than sufficient diversity in interests and skills.

Bonus uncertainties to think about
- How would a UBI affect immigration policy? At what point should someone receive NZ’s UBI?
- What will be the initial costs to implement a UBI and sign everyone up?
- If current welfare is retracted, will there be people worse off? For example, how will a single mum of four kids manage? Will needs-based welfare still be necessary?

Currently, a UBI is only truly being suggested by The Opportunities Party. They have three sections of a UBI: one of which is arguably just targeted welfare for young families; the second replaces NZ Super with a UBI (but also includes a means-tested top-up); and their Youth UBI - which would provide all 18-23 year olds with an unconditional $200 per week - comes very close to truly testing what a UBI might look like and how it would work. It seems that TOP’s main drivers for their youth policy are to help address suicide rates in over-stressed youth and to ease the movement into an increasingly difficult and competitive job market while allowing for increased exploration of fields such as technology, entrepreneurship, and the arts.

The Greens have historically advocated for discussions around a UBI and, in this election, have released an alternative route to reduce some of the issues of the current welfare system. Their policy, titled “Mending the Safety Net”, includes increasing the amount someone can earn before their benefits are cut, and reducing the amount of time spent on investigating those on welfare. They state that their welfare policy should, “guarantee a basic, liveable income”.

As far as major parties go, Labour has previously commissioned some research into UBI, so it may be reasonable to assume that they would at least enter discussions around implementing one. Their Three Years Free policy for tertiary education provides generous support to those seeking further education and training, but it is by no means an unconditional basic income.

There are obviously some rather large uncertainties facing implementation of a full UBI: Is it necessary (is the jobs market actually facing severe disruption)? How will we pay for it? Will it ruin the economy by disincentivising labour? However, I have not been able to find a single concrete reason why a UBI would definitely fail. This, then, leads me to believe that, as a potential silver bullet solution to multiple issues facing NZ, there should be significant resource placed into researching, designing, and testing a UBI.

There is a ridiculous amount of information about UBI on the interwebs, from Reddit threads to a plethora of research papers undertaken by Basic Income Earth Network. I’ve struggled a lot to try to decide what to discuss in this article what to leave out (or simply link). If the idea of a UBI interests you, I strongly recommend committing a couple of afternoons or evenings to reading around some of this material. Even if you just Youtube “UBI” you’ll find a good number of TED Talks to listen to.

Simon Thomas is a Biomedical Engineering graduate but has temporarily shunned that to work on an education-based social enterprise, The Learning Collaborative. He is relatively new to political discussions but has become increasingly intrigued by it all. Simon considers himself to be left-leaning but does not currently feel attached to any particular party.

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