Why Universal Basic Income (UBI) is a bad idea

It just might be a path to a dystopian society.

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A major goal of my Substack column and “From Poverty to Progress” book series is to present policy reforms to:

1. Promote long-term economic growth

2. Create a prosperous working class

3. Promote a clear pathway that enables youths from low-income families to enter the prosperous working class.

In my first book, From Poverty to Progress, I explain how nations of the past transitioned from a state of perpetual poverty to a state of long-term economic growth that benefited the masses. In my second book, Promoting Progress, I build on this and identify policies focusing on goal #1. In my third book Upward Mobility, I focus on goals #2 and #3.

I propose a radical reform package to:

1. Create a Working Family Tax Credit for all married families with children and at least one full-time worker in the household.

2. Create Upward Bound accounts to enable youths from low-income families to invest in their future via job training, relocation, etc.

3. Phase out virtually all current means-tested social programs over the next four years.

4. plus other policy reforms.

In this series of Substack articles, I evaluate other potential policy reforms and explain why I do not support them (or at the very least believe that I have a better idea).

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See more articles on Upward Mobility:

1. Why achieving Equality is an Impossible Dream

2. Why Progress and Upward Mobility should be the goal, not Equality

3. Why Equality of Opportunity is not enough

4. Why copying is essential to individual success

5. Upward Mobility in the USA (1947-1965)

6. Why Life Choices are key to Upward Mobility

7. The Traditional Pathway to Success

8. Constructing a modernized Pathway to Success

9. The Pathway to Success (first article in three-part series)

10. The case for Upward Bound accounts

11. The case for a Working Family Tax Credit

12. more

I also will be writing a significant number of excerpts from my forthcoming book: Upward Mobility: A Radical New Agenda to Uplift the Poor and Working Class. Most of these excerpts will only be available to paid subscribers.

Other books in my “From Poverty to Progress” book series:

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Universal Basic Income

The Universal Basic Income (UBI) is a proposal that has gained in popularity over the last decade. While there are many different proposals, the UBI consists of the government giving each citizen a set amount of money regularly. Universal Basic Income is:

• Universal (i.e. benefits go out to all citizens regardless of income or demographic status

• Basic (i.e the level of benefits are calculated to enable a modest material standard of living)

• Income (i.e the benefits are exclusively in the form of money and those payments are made at regular intervals).

Think of UBI as a paycheck that goes out to all people regardless of their employment status.

While UBI is a fairly radical proposal, it is not unprecedented. Alaska has had a version of UBI called the Alaska Permanent Fund. Paid for by taxation on oil revenues, Alaska pays each resident a fixed amount annually. In 2020 this amounted to $992 per resident. At this level, it is hard to see many people being able to live on that amount, but it does seem to be a fair distribution of oil revenues. Most proposals for UBI go far beyond that level.

The Benefits of UBI

Before I go on to analyze the problems with UBI, I first want to acknowledge its benefits. Universal Basic Income is:

• Simple

• Has very low administrative costs

• Delivers benefits in the form of cash rather than services

• Creates a buffer against short-term and long-term employment

• Not tied to any locality

• Helps those who are incapable of working due to mental or physical illness

Who supports UBI?

Perhaps surprisingly, the UBI is supported by some thinkers on the right as well as the left. In general, conservatives and libertarians want the UBI to replace the current welfare state, while those on the Left typically want the UBI in addition to the current welfare state.

The Problems of UBI

I will go into more detail below, but here is a list of what I see as problems with UBI. In many ways, a Universal Basic Income is the opposite to the policies that I propose in my book: Upward Mobility.

Most Universal Basic Income proposals:

• Are often very vague about what problem is being solved. Most UBI proposals seem to be a solution chasing a problem

• Are very expensive even in comparison to our current programs

• Spend 50% of the money on people who have above-average incomes and who do not need help

• Are very vague about what to do about existing social programs.

• Undermine the necessity of work to acquire income, particularly for youths

• Require one to do nothing to gain benefits

• Do not promote Upward Mobility for youths from low-income families. Indeed, they are likely to do the opposite.

It is possible to modify some of the most common UBI proposals to lessen the above problems, but then by definition, they would no longer be UBI proposals. But before we go further, let’s review some of the proposals.

Conservative UBI proposal

In his book In Our Hands (which is now available as a free PDF) Charles Murray advocates abolishing the entire American welfare state, including Social Security, Medicare, and Medicaid, and replacing it with a UBI of $10,000 for every adult. This is a very radical proposal. Far more radical than what I am proposing in my book.

Though I see the logic in his argument, I think this would be a bad idea for the simple reason that it would drastically reduce benefits for retirees. All non-retirees would come out ahead, and it would undoubtedly be a good thing (at least in the short run) for lower-income and working-class citizens.

The average Social Security benefit is $18,276 in 2020, so Murray’s plan would cut the retiree’s income in half. In addition, they would lose Medicare. Some could go back to work, but for many retirees, full-time work is not a realistic option. Given that most middle- and lower-income retirees have few other additional income sources, Murray’s plan would lead to a catastrophic decline in their standard of living. I cannot believe that the American people would allow that to happen.

Can we modify it to make it better?

Let’s slim Murray’s proposal down so that it excludes retirees and their benefits. If we abolished all means-tested programs and distributed the proceeds to all adults aged 19-65 via a UBI, it would amount to about $5300 per adult per year. This is a more practical proposal, though still quite radical.

Would this proposal be better than my reform proposals? I think not.

Many big problems would remain. Half of all the benefits from this conservative/libertarian flavor of UBI would go to families with above-average incomes. This is a problem with virtually all UBI proposals.

Some argue that this spending is necessary to create broad political support for a UBI. This is very similar to the argument made in support of social insurance programs. Since upper-income voters benefit from the program, they have effectively been “bribed” to support the system.

While I see the logic in this argument, having taxpayers pay over $10,000 per year to married professional-class families earning six figures would seem to me to be a gross waste of money. This would even be true for those earning the median household income of $68,703. At some level of beneficiary income, the costs of paying for UBI start to outweigh the benefits.

So let’s modify Murray’s proposal again. Perhaps we can start to phase out the amount once the family’s income reaches $50,000. At a 10% phase-out for every dollar earned, families earning over $150,000/year would receive no UBI. Alternatively, we could phase out the UBI once an individual’s wage reaches $35,000 so as not to penalize the second earner in a married household. Either of these proposals would lower the UBI for those with higher incomes and raise it for everyone else. While this proposal would no longer be universal, it would be far more progressive.

This alternative UBI does have many merits. It completely removes the strong disincentives of the current means-tested programs. It would give dignity and independence back to lower-income persons, while not cutting them off completely. A UBI of say $7000 per year would not be enough to live on without working, but it would help.

Let’s make another modification. What if to qualify, a person needs to have at least one full-time worker in the family? This would force a single person or single-parent worker to be employed and a married family to have at least one worker in the family. Combined with a phase-out discussed above, this proposal would promote work and be targeted to those with lower- or middle-income families. And with fewer people qualifying, the overall amount would be increased. This is far from the original intent of the UBI supporters, but it is something that I could get behind.

 The biggest problem that I have with any UBI proposal is that it does nothing to create a Pathway to Success for lower-income youths. Sure, they could use the $7000 per year for job training or relocation, but most likely they will not do so. The modified UBI proposal would give them a strong incentive to get a full-time job and keep working (no small accomplishment), but it would not help with the other steps. For this reason, I believe that my proposal would offer far greater long-term benefits for lower-income youths

A Progressive UBI proposal

Now let’s go onto the liberal version of the UBI. That version adds the UBI on top of the current welfare state. Every adult (and in some proposals every child as well) would get a fixed amount of money every month regardless of work effort.

In Raising the Floor, Andy Stern proposed a UBI of $12,000 per year for every person aged 18 to 64 and those 65 and older receiving less than $1000 per month in Social Security payments. According to the Congressional Research Service, his plan would cost $1.8-2.8 trillion per year (in 2017 dollars).

In fairness to Stern, he does propose “ending many of the current 126 welfare programs”, but he also proposes expanding many others. And his funding proposals are very vague and do not include massive cuts that are anywhere near the size of his proposed spending increases. His proposal would lead to a substantial increase in social spending.

Many other liberal supporters of UBI openly call for adding UBI on top of all the other means-tested programs. This clearly distinguishes their proposal from the conservative/libertarian proposal discussed previously.

This alternative UBI has all the problems of Murray’s proposal but with many more on top. The biggest problem is that the additional UBI would compound the disincentives of the current welfare state. With a much higher income without working, the disincentive for work would be that much worse. And half the income would go to above-average income families who do not need it.

UBI undermines work incentives

While supporters of the UBI claim that their proposals have no disincentive to work, I believe they are mistaken. While it is true that recipients are not penalized for working, UBI proponents fail to recognize the enormous incentive to work if someone has no other means of supporting themselves or their family.

Humans have a natural desire to survive and reproduce. Throughout human history, humans have had to labor to survive. Of course, all human societies have in some way supported children, the sick, the injured, and the elderly. But except for elites, all healthy males and females have been expected to labor to support themselves and their families.  

Human values have aligned with this reality. This is why there is a stigma around non-working adults. The combination of a desire to survive and a desire to not be stigmatized by others has made work the default means that humans survive.

The incentive to work is not just a financial calculation of the costs and benefits of working additional hours. This is typically how economists look at the problem. Indeed, the UBI does not reduce the monetary value of working an additional hour. Also important is the financial calculation of the costs and benefits of the time devoted to work compared to the time devoted to leisure.

Many economists ignore that financial incentives can be looked at in opposite ways. Some people will think “What is the marginal financial impact of working?” This is how an economist (and many others think). Those people are effectively trying to maximize their income. But others may think “I only need $15,000 per year to survive and maximize my leisure time so once I get that income, I can stop working.” Those people are effectively trying to maximize their leisure time. Both are equally rational and self-interested.

The material incentives of UBI do not undermine those who are trying to maximize their income, but UBI seriously undermines the desire to work for those who are trying to maximize their leisure time. And many young people fit into the latter category.

If a young person can only earn a minimum-wage job without benefits in the short-term, and they can “get by” on $12,000 per year by sharing rent with their friends, UBI looks much better than working. Worse, every year that goes by without the youth learning valuable job skills makes them less and less employable. Eventually, they become trapped in or near poverty.

A UBI of $12,000 per year will strongly encourage youths, particularly low-income youths, to avoid work throughout their twenties and enjoy their free time. Given the choice between working a boring full-time job that nets $26,500 (including UBI) and staying home and having fun with their friends and earning $12,000 from the UBI, many youths will choose the latter. The combination of tax-free money and a lot of leisure time will be hard to resist.

Universal Basic Income undermines material and moral incentives almost as much as means-tested benefits. As society experiences progress, it generates more and more technology. And that technology generally gets cheaper and cheaper. This means that young people can enjoy a very high standard of living compared to the previous generation without working.

This undermines the incentive to make the short-term sacrifices necessary to promote long-term upward mobility. The UBI will only increase the standard of living without work even more, thereby decreasing the desire to sacrifice in the short term. The UBI cannot get around this problem unless it has work requirements to be eligible, which few of its supporters desire.

In the 1970s many hippies ran off to rural areas to join communes. These communes were supposed to be utopian societies where everyone cooperated and shared everything amongst themselves. Virtually all quickly fell apart when reality set in. But what if each member earned $12,000 per year without having to work? We might still have “thriving” hippy communes where no one works.