Enacting UBI Would Bust Federal Budget, Rob Americans of More Prosperous Future
I have written before on the benefits and drawbacks of the various universal basic income (UBI) proposals bubbling up the last few years in the American political scene, specifically the economic, political, and moral dimensions of these policies. All share the same essential structure: cash payments sent to all American adults without preconditions and for the rest of their lives with nothing expected in return. The most vocal UBI proponent is Democratic presidential candidate Andrew Yang, who describes his proposal as “capitalism where income doesn’t start at zero.” This, of course, is just another name for democratic socialism.
How radical are the proposals being offered by those seeking the Democratic nomination? Consider one of the most popular UBI proposals, which would pay $1,000 per month to all American citizens once they turn 18. According to the Tax Foundation, this would cost the federal government $2.8 trillion dollars every year. This is equivalent to more than 80 percent of total federal revenues in 2019. Over ten years, the cost would be nearly $30 trillion dollars. These numbers are so shockingly large as to be nearly incomprehensible to the average voter, perhaps a tactical advantage for those offering such proposals. These modern UBI proposals, however, are not intended to offset all other forms of means-tested federal spending, but instead would add the budget-busting trillions of extra spending onto existing federal entitlement and welfare programs.
Historically, Americans tend to resist dramatic upheavals to the existing economic and political order. This reticence is due in part to the inherent flexibility of our constitutional system to adapt to changing ethical and humanitarian standards, such as expanding suffrage and property ownership or ending state-mandated segregation. Also, in America, unlike in Communist Russia or China, most people here have something to lose. American families currently hold over 100 trillion dollars of wealth, with roughly three quarters held in financial assets (e.g. stocks and bonds) and most of the rest held in real estate. In addition to these vast and historically unprecedented wealth holdings, Americans are also loathe to jeopardize their communities and the future for which they have been preparing for themselves and their families, for the false “promised land” on offer by those selling the new technocratic socialism.
Times are ripe to promote schemes like UBI when unemployment is high, or the economy is in the dumps. Recall that it took the Great Depression to get the New Deal enacted.
To put it mildly, current conditions do not lay a strong foundation upon which to sell the American people on a thorough restructuring of our economic system. As of this writing in late 2019, the unemployment rate is 3.5%, including historically low rates for Black and Hispanic Americans. Wages have shown strong gains for the last four years, with wage growth for those in the bottom 25% outpacing the top 25% over that same period, reaching a median annual growth rate of 4.5% in November 2019 for those earning the lowest wages. If we can sustain these low unemployment rates and high wage growth levels for another few years, this will be nothing short of transformative for those struggling most in our country. That’s why we should do whatever we must to sustain this economic performance.
These are clearly not the conditions to support a radical, untested financial upheaval for every American. Given this, how are modern-day UBI proponents planning to sell us on their scheme? To their credit, they generally do not try to pretend as if the current incredible economy is not real. This remains the favored tactic of the old school socialists like Bernie Sanders who have resorted to arguing that low unemployment is somehow not a positive.
Instead, modern UBI proponents are trying to convince everyone that we are a few short years away from the end of the economy as we know it. They offer stories about impending massive job loss and disruption through automation and artificial intelligence. This is an old story often told. These UBI peddling pessimists have always seen more risk than reward through automation and increased productivity, and they’ve always been wrong.
The fact that over the next few decades we may also be able to undergo yet another national economic transformation should be seen as a strong net positive, with real but manageable transition costs, just as were borne during the transition from farming to industry and to a service and information economy. These transition costs are real but pale in comparison to the costs of destructive government intervention, as they not only create costs of their own but rob us of a more prosperous future.
Damon Dunn is a fellow in business and economics at the Pacific Research Institute.