Dylan Matthews’ critique of my UBI view is mistaken, but here’s a better one

July 24th, 2017 at 8:49 am

In pushing back on an argument against Universal Basic Income (UBI) plans, Dylan Matthews engages in a curious non-sequitur. Let me point out where he’s wrong but offer him a more salient contradiction in my position.

Matthews, in defending the idea that “every American gets a basic stipend from the government,” quotes me as follows: “If we instead choose to use our resources on people who don’t need them, we won’t be able to build on the progress we’ve made.”

He then argues, based on a paper by Wiederspan et al, that UBI’s aren’t as expensive as I suggest. The problem, however, is the paper he cites isn’t about UBI. It’s about a means-tested, non-universal program that phases out at (in Matthews’ favored version) twice the poverty threshold, which excludes the majority of American families (68 percent; i.e., 32 percent are below twice poverty).

By shifting from UBI to this targeted approach, Matthews is implicitly agreeing with me. One of my major objections to UBI ideas that don’t cost a lot more than the current system of taxes and transfers, like the one proposed by Charles Murray, is that by consolidating all our social welfare spending and then essentially giving those resources to everyone as a per-capita UBI, poverty will go up. The anti-poverty impact of the current system will be diluted by spreading the same money over millions more people.

In fact, Wiederstan et al clearly recognize this cost constraint, suggesting that if the phase-out threshold is set too high, “the program will be exorbitantly expensive.”

These authors, and Matthews, are thus arguing for something other than a UBI. By dropping the U, they raise a different, albeit still interesting, question. They’re no longer asking if we should have what Matthews describes as a “basic stipend from the government” for every American. They’re instead suggesting that the poor and near poor might be better served if instead of the existing collection of anti-poverty programs, we consolidated them all and just gave them the cash.

This obviates the concern raised in my quote above: turning anti-poverty programs into a cash grant to poor and near-poor people doesn’t squander resources on those who don’t need them. In fact, as Matthews points out, the cost of the Wiederstan et al version he prefers (~$220 billion) amounts to about what we spend on non-health, anti-poverty programs.

This idea, however, raises other concerns. While I like the consumer sovereignty (I very much like that part), simplicity, and scope of the idea, I worry that a sole, stand-alone, anti-poverty fund would be a lot more open to attack than the many existing programs that meet specific needs. My strong sense is that it’s easier for conservatives to reduce cash support than in-kind support. EG, I’ll bet one thing that tanked the Republican health care replacement plans was taking away poor and moderate-income people’s health coverage to pay for tax cuts for the rich.

This, however, is really a political call, and I could be wrong. The idea Matthews touts here, though not a UBI, is an NIT—a negative income tax—which oldsters like myself remember being introduced by conservative icon Milton Friedman and embraced by President Nixon, of all people.

Getting back to actual UBIs, however, I do think there’s a coherent critique of my beef about the U in UBI. If I were debating me on this point, I’d hit me with this: “So, I guess you’re also against Social Security, which is very much a universal cash income program.”

Of course, I’m not (against Soc Sec), but I can maybe wiggle out by pointing out that while Social Security has UBI characteristics, it’s targeted at elderly retirees (I’m just talking about the retirement program, not the disability one, which is quite different in this context). In this sense, it addresses a market failure of sorts, which is the risk of poverty in retirement. In fact, Social Security reduces elderly poverty from about 40 to about 10 percent!

But while its benefit structure (pay-ins relative to pay-outs) is progressive, why does it have to be universal? The answer has always been: to stave off political attack. And there’s something to that. But I also like the intergenerational contract inherent in the program. Today’s retirees bequeathed today’s economy to today’s workforce. In return, we’re going to shave some of the productivity gains off the top for those past their working years. It’s kind of a “circle of life” thing; cue the music, Disney!

But UBI’ers might say I’m being too narrow in where I see market failures. They often argue, against the evidence, I’d say, that the UBI is necessary as technological unemployment is or will be rampant. So, if my criterion for universality is a pervasive market failure, like aging out of your working years, then the lack of jobs certainly qualifies. (FTR, I have argued for a guaranteed jobs program.)

But it may be the case that this whole sort of thinking—we intervene where the market fails—is not shared by UBIers and may demarcate older from younger people in this space. My approach is pretty “neo-classical” (though to be clear, I see market failures around many more corners than the median economist of my generation) and I think many younger people, to their credit, are looking at economics’ track record in recent years and concluding that we need a whole new paradigm.

In other words, there are many interesting currents swirling around right now. But as we try to make sense of them, we should, for clarity’s sake, be disciplined in our analysis and not conflate UBIs with NITs.

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10 comments in reply to "Dylan Matthews’ critique of my UBI view is mistaken, but here’s a better one"

  1. Jay Medina says:

    The market failure I see as being addressed by a UBI would be increasing returns to capital and falling returns to labor. I’d like to see a perhaps small UBI on top of our existing welfare system, funded perhaps by a small wealth tax.

  2. dwb says:

    “The anti-poverty impact of the current system will be diluted by spreading the same money over millions more people.”

    Under the assumption government cash is the only way to reduce poverty, sure.

    You are only half right here: It might be true that the same money is spread out over more people. However, by eliminating the work penalty (i.e. through means testing), a UBI-style system allows people to earn supplemental income. Jobs and wage growth reduce poverty.

    A “means-tested, non-universal program that phases out at” some income level may or may not discourage work, it depends how it is implemented. This is really just upgrading the Earned Income Tax Credit.

    I think that the real problem with UBI (and EITC), as you say, is the optics of giving cash to able-bodied people. There is no good answer here, only bad answers. If you give cash, people will complain that beneficiaries are spending it on crabs at Mikes Crab Shack. EBT cards are controversial as it is. My wife is as liberal as it gets, but constantly complains about the woman at Safeway who uses her cards for steak. We end up with 347 benefits programs for exactly this reason. You can get people to vote for “health care,” “child care credits,” “food”, and “housing” but not “cash to able bodied adults.” Of course, then we end up with an administrative nightmare.

    “I worry that a sole, stand-alone, anti-poverty fund would be a lot more open to attack than the many existing programs that meet specific needs. My strong sense is that it’s easier for conservatives to reduce cash support than in-kind support.”

    This is the problem right here. Progressive economists’ reflexive opposition to “value” and “efficiency” in government programs, mainly because we define government benefits by the amount of money we spend, not on delivered results. American consumers are accustomed to getting more value, for the same or fewer dollars. This is why republicans typically win the “cuts” debate. Progressives paint scary stories of Granny eating cat food, while Republicans look for “value.” The apocalyptic predictions never seem to materialize. We should always and everywhere be looking for ways to achieve the same end with fewer actual government dollars spent.

    Now is an excellent time to be reforming entitlements, even if it means cutting them. People who were for fiscal stimulus in 2008 should be against it now.

    As far as UBI, the libertarian economist in me is in favor of it on efficiency grounds, but it’s a political non-starter. It will be hard to get centrist Democrats and independents to vote to give cash to able-bodied adults. What we are likely to end up with is some bulked up version of EITC. It’s unfortunate that Democrats are reflexively against working with Republicans to reform entitlements, because some form of reform is needs to happen – and it’s better to do it now while the economy is good.

  3. D. C. Sessions says:

    We have lots of programs that are highly regressive, such as the mortgage interest tax deduction. The middle class has made that one untouchable despite the relatively modest benefit it provides them. Offering the middle class a straight-up per-capita tax credit in return would go a long way towards offsetting the cost of the extension beyond the seriously poor.

    Of course, the even-better-off will lose out — as they would with any rollback of the past 30+ years of tax cuts for the wealthy.

  4. reason says:

    This all seems a little bit odd to me – we already have universal benefits. They are called basic deductions (sure they only go to people earning income). These should be phased out as we phase in a UBI. And we should also phase in, extra taxes (such as a carbon tax) that are required for different reasons. Financing it is not the real problem, it is that people have a problem with giving cash to able bodied adults who aren’t in their own family (even if there is unemployment). But if somebody really doesn’t want to work (preferring poverty), would you really want to work with them or be served by them?

  5. Tom says:

    I would think it would be very hard, politically, to get rid of a wide-spread UBI or NIT. It’s hard to claim you are doing anything but reducing benefits when you reduce the monthly check someone gets from the government. It’s very simple and easily quantifiable. If 30% or so of the population was getting an NIT payment, I would think it would be really tough to reduce it. It’s easier to cover it up when you’re fiddling with little-known or understood tax provisions or changing benefit eligibility rules.

  6. Serene says:

    Would they like to attempt to bridge this confusion? I’d love to talk to them, Jared.

  7. Smith says:

    UBI is a stupid idea, as is negative income tax, and EITC. Every word, every thought, every utterance of UBI distracts from the real economic problems of stagnant wages, eroded labor power, corrupt and self dealing union leaders, Obama’s failed attempt to change exempt threshold after he left office, the very definition of too little, too late.
    Instead of thinking of ways to further destroy the middle class by taking more money from them to give to the even less well off, how about fixing the economy by taxing the wealth the way we used to when the country prospered. As late as 1963 income over $3 million was taxed at 90%.
    Universal benefits are needed, but not by giving money out. All your readers missed citing perhaps the costliest universal benefit of public education. New York, New Jersey, and Massachusetts spend $20,000 per pupil per year. For what? Are we really getting our money’s worth? But it would not be $20,000 per student if it wasn’t universal I’m sure.
    Tax high incomes by restoring tax rates. Tax low incomes again because they (47% Romney said) need to have skin in the game. But gradually raise the minimum $15 after observing NY and California.
    Real poverty is caused by less than one full time wage earner per household. Address that.
    Inequality is caused by inadequate wage floor, so legislate it, higher minimums, 35 hour work week, 5 week vacation, less contingent employment, no more closing profitable factories to boost profits, less expensive medical care instead paying for health care profits.
    You infantilize the workforce or empower them. Probably only one of those choices will arrest the opioid epidemic.
    See how this is possible

    • Smith says:

      The $3 million figure is 2017 dollars, meaning the equivalent rate is 90% for every dollar over $3 million today. Clinton’s modest proposal was 43% above $5 million, Sanders 52% above $10 million.
      Taxing 90% for the amounts above $3 million a year would provoke changes in the economy that would lessen the power of the top 1 percent and top 10 percent income earners. This combined with empowering labor or passing laws and regulations to force better compensation for work is more workable than UBI.
      The 40 hour work week (with OT at time and a half for non exempt) was a law, the guaranteed pension (we call Social Security) was a law, end of child labor. Union support was crucial to those legislative feats, but the point is that progress was legislated in Congress, not negotiated by AFL-CIO. Same today with $15 minimum in NY and California. Healthcare rights and benefits in western democracies are largely legislated into existence, in the case of Germany, since Bismark set up healthcare in the 1880s.
      Terrible idea, UBI, and EITC should not be expanded and already spends too much on families with near median incomes. This expansion to median incomes adds to the cost greatly while adding very little proportionately to their income. Again, where is the movement to make EITC automatic based on projected earnings? Like normal withholding?

      • Smith says:

        I think the EITC expenditures on very phased out incomes is adding 5 to 10% to the cost of the program, which is $56 billion. But I’m not sure, maybe more, maybe less. Does anyone know?

  8. Zach says:

    Decades long failure failure of the Fed to get aggregate demand to the correct level is a market failure that UBI would fix. The Fed would have a much easier time fighting deflation if there was a predictable UBI component since it would directly combat the 0 bound problem.