Basic Income: High Praise but Poor Results

Basic Income: High Praise but Poor Results

Handing out taxpayer dollars in the form of basic incomes is the latest policy rage. The Los Angeles Times reports there’s “a growing enthusiasm for basic income programs.” Vox says “guaranteed income is graduating from charity to public policy.” At KQED, they’re giving Oaklanders tips on how they can apply for the city’s guaranteed basic income pilot program.

But enthusiasm nor a “graduation” in opinion is the basis for sound public policy.

Stockton was the first city in the country to experiment with an income program funded by other people’s money. For two-and-a-half years, $500 debit cards were sent every month to 125 residents in low-income neighborhoods. Pacific Research Institute fellow Damon Dunn, author of “Punting Poverty: Breaking the Chains of Welfare,” says the program is simply another name for putting everyone on welfare and fool’s gold that does not even attempt to offer economic empowerment.

Initial reports found 40 percent of the money could not be accounted for. The funds were transferred to bank accounts or converted to cash and left no trail. Nevertheless, a trend began. Now we have pilot programs in Oakland ($500 a month for 18 months for 300 residents) and Los Angeles County ($1,000 a month for 1,000 residents for at least three years), while Governor Gavin Newsom has proposed $35 million over five years to pay for universal basic income pilot programs.

It’s an odd time to push forward with taxpayer-provided basic incomes at the same time we’re seeing just how counterproductive public assistance can be. Benefits provided by Washington, D.C., that are intended to offset financial losses caused by pandemic lockdowns are primarily responsible for the country’s current worker shortage. Too many would simply stay at home and have someone else’s money support them rather than work.

“Workers who lost their jobs to the pandemic shutdowns and scale-backs are now earning more in unemployment benefits than they did in wages,” the New York Post reported last month. Based on research by Bank of America economists, it turns out that “the combined unemployment benefits mean that anyone earning less than $32,000 a year can potentially receive more income from unemployment aid than from their previous jobs.”

Earlier this month, the San Francisco Chronicle covered a job fair where “employers looking to hire seemed to outnumber job seekers,” which “fit a common refrain from employers that there’s been a huge need for people to fill a wide variety of roles, and difficulty in finding them.”

The story cited workers returning to school, busy learning new skills, and “dealing with child care obligations foisted on them by the pandemic” as reasons why businesses can’t find help. But it’s foolish to ignore the impact that financial incentives to avoid work have on the labor force.

Though not the same as pandemic relief, guaranteed income, too, adversely shapes work habits. The latter is “viewed by some as an alternative to work,” and “would shrink the labor force,” Rachel Minogue, then an economic fellow at the Third Way, now a trade specialist at the International Trade Administration, wrote in 2018. That might make unemployment numbers look good, but, “by definition, a smaller labor force would mean lower economic output and lower tax revenues to invest in the future.”

Stockton insists its guaranteed income pilot program was a success because the portion of recipients working full-time work after the first year was three percentage points higher than the control group. But that claim is hardly consistent with what we know about economic behavior, as well as real-life experience. From 1968 to the 1980s, Washington, D.C., ran four trials in six states to test the viability of a negative income tax, a variant of guaranteed minimum income. The experiment, lasting much longer and involving far more beneficiaries (nearly 9,000 households) than the Stockton program, was no policy triumph.

The hope was that the programs would encourage work. Yet it “reduced the number of hours worked and led to prolonged periods of unemployment for recipients who were not already employed,” according to the Tax Foundation.

Stockton’s claims of success are undermined by the failure of its preliminary analysis to provide a reasonable economic explanation for why the program would increase participants’ success in finding work. In fact, the report is so superficial, PRI Senior Fellow Wayne Winegarden says it’s impossible to draw any helpful conclusions from its “findings.” It would be more credible if it explained why its small experiment worked while larger programs in Finland and Canada failed.

Kerry Jackson is a fellow with the Center for California Reform at the Pacific Research Institute.

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