Entrepreneur Andrew Yang is running for president as a Democrat. Yang has made a Universal Basic Income (UBI) of $1,000/month to all American adults the centerpiece of his campaign.
The idea of a UBI has proponents on the political right and left. Proponents on the right tend to emphasize that an unconditional UBI would be more efficient than our current mishmash of welfare programs, which require a large bureaucracy tasked with determining each applicant’s eligibility and then making the paternalistic calculus of what services or products the truly deserving should be given. While I’m skeptical even of this argument in its favor, I state it here to show that there are small-government reasons to support a UBI.
As justification for his proposal, Yang rightly notes that our decline in manufacturing employment over the last few decades is not due to trade or immigration but automation. So he should get credit for having more insight into this problem than President Trump, for example.
That said, just because Yang has some understanding of the problem does not mean that he has a workable solution. Indeed, his proposed UBI would be a social and economic disaster.
According to Yang’s campaign website, he would pay for his $1,000/month UBI to every American adult by
- reducing current welfare spending by giving people already receiving benefits the choice to opt-in to the UBI instead (but not do both), reducing spending by up to $600 billion (a very generous estimate);
- adding a Value-Added Tax (VAT) on business to “generate $800 billion in new [tax] revenue”;
- adding “$500-600 billion in new revenue from economic growth and activity” spurred by the UBI; and
- reducing costs of healthcare, incarceration, and homelessness of “$100-200 billion as people would take better care of themselves and avoid the emergency room, jail, and the street.”
First of all, even granting Yang’s generous figures and presuming no negative distortion to the economy (which is unlikely), the total amount to fund a UBI this amounts to, between increased tax revenue and decreased government spending, is $2.2 trillion. There are currently more than 250 million American adults. Giving each of them $1,000/month adds up to $3 trillion/year, leaving $800 billion of Yang’s UBI unaccounted for.
Second of all, Yang’s figures are fanciful.
Lets begin with Yang’s #1 source of funding: reduced spending on welfare benefits. The progressive Center on Budget and Policy Priorities (CBPP) notes, “About 9 percent of the federal budget in 2017, or $357 billion, supported programs that provide aid (other than health insurance or Social Security benefits) to individuals and families facing hardship.” Thus, even if every person receiving these benefits opted-in to Yang’s UBI, he still has overestimated the savings by roughly $200 billion.
One might object that these are not the only entitlement programs that could be cut. The CBPP notes, “Four health insurance programs — Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), and Affordable Care Act (ACA) marketplace subsidies — together accounted for 26 percent of the budget in 2017, or $1 trillion.” Unfortunately, Yang doesn’t want to cut healthcare spending. He wants to increase it: he supports Medicare for all. Thus, it is possible — if not likely — that any savings he might gain from cutting welfare benefits would be overshadowed by increased healthcare spending before any of it could be used to fund a UBI.
If we look at his second and third sources of funding, we see the risk of what I have elsewhere described as “a cannibalistic circularity of redistribution.” Technology is displacing jobs (never mind that it is also creating jobs), so a tax is proposed, in Yang’s case at each stage of production, to give to people who have lost their income so that they can then spend it … on items produced by those same companies, ultimately paying part if not all of the tax in increased prices. You can’t “increase your bank account by writing yourself a check.” Increasing prices and/or reducing profits through taxes (Yang’s source #2) in order to subsidize spending will not result in “economic growth” (Yang’s source #3). At best, the result will be net zero, but only if everyone is required to spend 100 percent of their UBI check every month. If not, it will shrink the economy, not grow it.
Last, Yang’s #4 source of funding is optimistic at best. Who’s to say that people will use their UBI to take care of their health, stay out of trouble, and stay off the street?
Worst case: I presume $1,000/month, no-strings-attached, could buy a lot of illegal drugs, for example, funding an addiction that could land someone on the street and/or in jail and wreak havoc upon that person’s health. I’m not a fan of paternalism, but the reason our current programs are so paternalistic is (ostensibly, at least) precisely out of concern for things like the health and shelter of welfare recipients. I’m more sympathetic to UBI arguments that acknowledge that cost than those like Yang’s that try to claim the opposite.
Of course, I hardly think most people would suddenly become drug addicts and do not wish to imply that. The point is simply that drug addicts exist, and Yang’s proposal would guarantee them $1,000/month just as much as a struggling undergraduate who wishes she had time to do more yoga and afford to eat organic. A more medium-case scenario: someone like me who totally would have blown at least a portion of $1,000/month on video games, Mountain Dew Code Red, and Taco Bell when I was in college, doing nothing positive for my health, to say the least.
All that is to say, while an $800 billion shortfall is the best-case scenario for Yang’s UBI, I’m not convinced any of his funding sources would get him anywhere near even that. Leading people on with the promise of $1,000/month without proper attention to these details is not simply imprudent, it is irresponsible and could be dangerous. I’m not convinced any UBI is feasible, but Yang’s would bring a slew of unintended consequences that would amount to an additional $3 trillion social problem, rather than alleviating the ones we have now.
As is the case with so many similar social panaceas, if it sounds too good to be true, it usually is.
Image credit: Andrew Yang by Marc Nozell