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What is behind the Unconditional Basic Income?

UBI pictureThe Unconditional Basic Income (UBI) is an old idea which has returned to the political and economic debates. It brings together personalities as different as Bertrand Russell, Tobin , Elon Musk or  Varoufakis . According to Chohan, it is a “form of unconditional transfer payment to the entirety of the populace, without means testing or work requirements”.

The inspirations are obviously different. Nonetheless, we have to answer the following questions: firstly, what are the motivations for advocating for the UBI? Secondly, is it feasible and in which conditions can it be applied? Lastly, is it desirable?

There is a wide range of reasons that motivate this discussion. Van Parijs argues that the UBI is justified by the pursuit of “liberty and equality, efficiency and community, common ownership of the earth and equal sharing in the benefits of technical progress, the flexibility of the labor market and [by the] dignity of the poor”. Therefore, it is easy to see why the UBI might be defended by opposite sides of the political spectrum. One may claim that with the UBI everyone will receive an equal value which will provide people the freedom to make their own choices without being coerced by the state. Others may see in the UBI a way for workers to have a minimum level of conditions, to answer to technological changes and to reduce the asymmetry of bargaining power in labor relations.

Naturally, there are different ways to build the UBI. Following the OECD methodology, we can have a budget neutral UBI where the total amount of social transfers paid to inhabitants in the working age would be simply divided equally by each of them. As seen in fig.1, this would be far below the poverty line.  Alternatively, the UBI could target an amount equivalent to the guaranteed minimum-income benefits’ level or the current poverty line but this would have a negative impact on the budget which would generate a huge government deficit or, instead, a massive increase of taxes.  For example, for the USA, a UBI at the poverty line would cost about $2.1 trillion, equivalent to more than 13% of GDP.

UBI graph

Bearing all this in mind, it is time to ask the following question: is it desirable? In my view, a “liberal” UBI based on dividing the value of social transfers equally would be potentially disastrous socially and likely to contribute to increased poverty and inequality. Moreover, it would contribute to the decline of the welfare state. A more “generous” UBI could be equally tragic but at the level of public accounts and would not be the best allocation of government funds – just imagine if that increase in spending would be allocated progressively. To sum up, there might be many reasons to advocate for UBI but its implementation is a big challenge and, in the end of the day, it is not better than the current progressive welfare state.

Luís de Almeida, Masters in Economics, Nova SBE

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Author: studentnovasbe

Master student in Nova Sbe

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