Economics: Is The Time Ripe For A Basic Income?

 

(Drivebycuriosity) - It seems that the idea of an universal basic income is getting en vogue. The supporters propose that the government unconditionally pays all citizens an amount of money to cover basic needs. The idea isn`t new. In the 1960s Milton Friedman recommended a negative tax rate (nytimes). He proposed that people who earn less than a certain amount should get money from the state. Today politicians like Democrat Andrew Yang and billionaires like Zuckerberg propose a government financed guaranteed income. Yang calls this Freedom Dividend.

I find the idea very charming. I would be happy if the government would pay me a nice monthly income for doing nothing. It reminds me of the German fairy tale about the "Schlaraffenland", describing a country where everything is for free and milk & honey flow in abundance. But it would cause many problems. Some people might stay poor because they spend this money quickly for alcohol, drugs, gambling and other purposes. Some people may stop working because they don´t need that anymore. Economists call this a disincentive to work.

The biggest problem is the question, how to finance this generosity. Yang for instance wants to give all U.S. citizens ages 18 and over (about 250 million persons) $1,000 per month. The government would spend about $250 billion a month and $3 trillion a year! In 2018 the Treasury Department had a federal revenue of $3.33 trillion and spend $4.2 trillion. So the Freedom Dividend would hike the public expenses by about 80%. If the government would try to finance the spending spree by hiking taxes it would discourage working & investing and maybe cause a depression. 

But things are changing. Some day an universal income will make sense. Some day the ongoing automation process will have advanced much further and a much greater part of goods & services will be produced by robots and other machines. Not many people will work and things will cost therefore less than today. The owners of the machines and the minority of still working people would be much wealthier thanks to higher incomes, stock market gains & dividends.

Then the Treasury Department will collect much more tax revenues (by skimming much higher salaries, stock market gains & company profits) and could easily afford to pay everyone a basic income. We could reach this wonderful world faster if the government would excite  economic growth & technological progress by reducing taxes, tariffs and regulation - especially for new technologies.