Universal Basic Income — rationale and implementation

SPC hosted Elizabeth Rhodes and Chris Hughes for a panel discussion on Universal Basic Income (UBI). Below is an edited…

Universal Basic Income — rationale and implementation

South Park Commons hosted Elizabeth Rhodes and Chris Hughes for a panel discussion on Universal Basic Income (UBI). Below is an edited transcript of the discussion; the full video is available here.

Q: Chris, why did you write the book Fair Shot and why did you do it in this moment?

Hughes: I grew up in a small town called Hickory, North Carolina. It’s at the foothills of the Appalachian Mountains in North Carolina. My mom was a public school teacher, my dad was at traveling paper salesman, and we had blue collar middle class life.

Then I got financial aid to go to a boarding school, and then later to go to Harvard, and there, I met Mark Zuckerberg freshman year. We started this little company called Facebook and the story has been well document from there. I write the book specifically to make a case that the economic reward that I received from Facebook was entirely disproportionate to the time that I put in. Our economy creates a very small number of people who are very lucky, while there are 99 other people who are working just as hard who aren’t enjoying the same kind of economic opportunity.

Cash, through the form of a guaranteed income, can be the way to not just combat income inequality, but also provide stability in the gig economy of today, let alone what happens in 10 or 20 years with automation and artificial intelligence.

Q: Beth, tell us more about your universal basic income work with the Y Combinator study.

Rhodes: I work for Y Combinator Research, which is the non-profit research organization that was founded by YC President Sam Altman. He is looking at how technology is changing the future of work. With the potential for so many jobs to be eliminated, he wanted to study the unanswered questions.

My background is in poverty research. I recognize how the system is rigged — our existing systems don’t make it easy for people to be economically mobile. The system is difficult and prescriptive and there’s a lot of blaming.

There isn’t a lot of evidence that can be applied to the current US labor market about how basic income would affect the economy. In my work, we’re planning a large randomized control trial across 3,000 people in two states. Some them will be randomly assigned to receive $1,000 a month for three or five years.We’ll have a statistically identical control group so we can compare outcomes for those that receive the basic income versus those that don’t.

Q: Chris, what are the changing forces in the economy that have led you to this interest area?

Hughes: We talk a lot about UBI as something that we need because of the threat of artificial intelligence. That obscures what’s already happening in the economy. In my view, jobs have already come apart in America. In the past 10 years, 94% of the jobs that we’ve created have been part-time, contract, or temporary.

Jobs used to be 40 hours a week and provide sick leave, vacation days, benefits, and retirement benefits. That’s what my parents had. The jobs we’re creating now are fundamentally unstable.

In the book I make the case for $500 a month in guaranteed income for people who make $50K or less. I view it as a kind of income floor, which is really a supplement. The expectation is not for people to live off of $6,000 a year, but to supplement other sources of income. This would cost $290 billion. That’s a lot of money, but it’s a fraction of the cost of a UBI of $1,000 that would go to everyone.

Q: When you tell people you work on universal basic income or guaranteed income, what is their immediate reaction?

Rhodes: People often hold as a core value, “Well, people should work.” It’s not an either/or choice. In fact, I think a guaranteed income actually helps people work in a lot of ways. It minimizes the challenges people are facing now.

Hughes: I talked about this with my dad, who’s 70 years old and was born in the Great Depression, and his initial response was sheer confusion. “What are you talking about? People are just given money, and where is it coming from, and how much is this, and when is it going to go away? Money just doesn’t grow on trees.”

I found it’s a better discussion if you start from the premise that “as long as you’re doing something for yourself, your family, or your community, you shouldn’t live in poverty.” You instead start from a social contract view that we’re all in this together. If you are working in some way, then we should make sure you shouldn’t live in poverty. What’s more, you should have the economic opportunity to figure out what you want to do with your time, who you want to be. It’s a much better conversation when I tap into this idea that we take care of one another.

Q: Let’s focus on the evidence half of what you both said. What do we know and not know about basic income and unconditional cash grants?

Hughes: We have a lot of information internationally about how effective cash is. There are several hundred studies internationally of small and big cash transfer programs alike (e.g., Bolsa Familia, the nationwide program that they have in Brazil). We know consistently that when you provide people with money, their families are healthier, their kids stay in school longer, people are less stressed, and in some cases female empowerment indices even go up.

There’s US evidence too. There were a half a dozen experiments in New Jersey, Iowa, North Carolina, Seattle, Denver, and Gary, Indiana, where over 10,000 families got a guaranteed income. There’s a good amount of data that shows that people, for the most part, worked just as much as they did before. In Alaska, the Permanent Fund Dividend gives 700,000 people $1500 each fall. Similarly, the Eastern Band of Cherokee for decades have gotten dividends from casino profits. With these cash transfers, kids do better in school, they have fewer psychological disorders later in life, they’re more likely to work later on, etc

Finally, consider the Earned Income Tax Credit (EITC). It’s the largest cash transfer program in the world. In my book, I make the case that this is the framework that we should use to create guaranteed income today. We move $70 billion every year to tens of millions of American families. The challenge that keeps me up at night isn’t more evidence, it’s how we change hearts and minds.

Rhodes: I agree that we have a lot of evidence, but it demonstrates correlations, not causality. We don’t understand what the intermediary factors are. I fear that everyone sort of sees this as a silver bullet, but even after someone receives cash, there are other challenges that people face. We need to unpack those too.

Q: I want to talk about the design question. Why would you design this program the way you did?

Hughes: I’ve been struck by how hard most Americans are trying to save and how difficult it is. We all know the stats: median wages haven’t meaningfully budged in 40 years, yet the cost of living for the average middle class family is up by 30%.

People are doing incredible things to try and save money. In a friend’s book, a woman from the South specifically opened a savings account at a bank that had one and only one branch, in a town that was a 45 minute drive from her house, to create friction so that she would save.

Q: Some other things that pop out about design is how you think about work, and then also your choice to work with the Earned Income Tax Credit. Can you talk a bit about how you’ve thought about those two pieces?

Hughes: The EITC is massively popular, it doesn’t throw people off of other benefits, and is part of the existing bureaucracy. In my view, we should expand it and modernize it, so it’s $500 through direct deposit or debit card, every single month, paid for by income taxes on those earning above $250,000. The EITC has historically been tied to work; I recommend expanding the definition of work to include all kinds of nontraditional labor, like child care, elder care, and education.

Q: Beth, what else is percolating in this sphere in terms of how to go about this?

Rhodes: One model for a negative income tax is to establish a floor (e.g., pin it to the poverty level, which is $12,000 for an individual), then apply marginal tax rates, so as your earned income goes up, then the amount of your benefit decreases. If you set it at the poverty line with the 50% marginal tax rate, it wouldn’t phase out until much higher.

There are some frustrations with the existing system. For example, many people on disability have disabilities that prevent them from working full-time, but they could work part-time. However, the limits of the benefit are so strict that the moment they start working, they lose their benefit. It is a rational calculations for these individuals not to work as many hours as they can. Let’s fix this by smoothing out how benefits work.

When I first heard of basic income, I was opposed because I thought that negative income tax was a better model. However, you can frame it as, “Well it’s presented as a universal benefit that everyone receives, but you pay it back in taxes once you reach a certain income level.”

We also want to ensure these programs are cost-effective to administrate. Some programs like TANF (temporary aid for needy families) use more than half of their budget for administrative costs. These requirements, these conditions, the way that it’s all framed, is part of how this works and whether it’s viewed as a stigmatizing. Stigma has a huge power over people.

Hughes: Cash in particular is unlike any other intervention in that it recognizes the fundamental dignity of the individual to choose her own destiny, to choose what the individual wants to spend their time on.

That everybody should have the autonomy to choose what they want to do with their time, and where they want to invest, is why I think cash is so distinct and so unlike every other intervention that we have. It’s cash, it’s fungible, it is what you make of it.

Q: What’s the moral case for a program like this?

Rhodes: Talking about children is one way to start. Kids are born into a situation that they don’t have [control over].

Hughes: We’re going under a culture shift in the country, and I think a lot of it is generational. I think there’s something about folks who have a sense of mutual responsibility, that we take care of one another. There’s also a sense of idealism. We are so beaten up that we can’t think big in our politics all the time.

Marriage equality is, in some ways, my favorite issue to compare this to. 20 years ago, the idea that gay people would be able to get married was so far out of the mainstream. There was an opportunity to change hearts and minds by saying, “love is love.” We made immense progress very quickly and there was also a generational cultural change. A lot of people who saw it this way grew older and began to vote.

We’re trying to be very intentional about bringing as many voices into the conversation; let’s not have it be viewed as a very partisan thing.

Q: One argument I’ve heard against UBI is that if you give money to everyone, that you end up increasing the price of basic goods that people need. Is there any data on that?

Rhodes: That’s almost always one of the first questions that comes up. We’re not fundamentally changing the amount of money that’s in the economy. Even quantitative easing, which was effectively printed money, did not noticeably affect inflation. This is not adding additional money, it’s redistribution.