Universal Basic Income — Just Another Welfare Program That Will Fail

Universal Basic Income — Just Another Welfare Program That Will Fail

Earlier this year, a universal basic income bill was introduced in the California Assembly. Should it become law, every resident 18 and over would receive $1,000 a month from the public fisc. Now U.S. House Speaker Nancy Pelosi is talking about including a guaranteed minimum income in the next round of coronavirus aid legislation.

What is it about California that spawns so many lousy public policy ideas?

In a late April cable news interview, the San Francisco Democrat, clearly trying to exploit the pandemic crisis, mentioned that “others have suggested a minimum income, a guaranteed income for people” provided by the government.

“Is that worthy of attention now?” she asked. “Perhaps so.”

Early results of a basic income pilot program in Stockton, which sends $500 debit cards every month to 125 residents living in low-income neighborhoods, indicate otherwise.

Called the Stockton Economic Empowerment Demonstration, it is the first U.S. city to provide a guaranteed income. The 18-month trial is funded by a nonprofit organization rather than taxpayers. No one would be surprised, though, if at the end of the test period, city officials will insist SEED has worked so well that it will have to become a permanent program financed by taxpayers. It will then be, as Pacific Research Fellow Damon Dunn has said, a welfare program by another name.

In the 1960s, we were told welfare programs were going to beat poverty in America. But after more than a half century, they’ve failed to make a difference.

The federal poverty rate had been falling sharply in the years before President Lyndon Johnson declared an “unconditional war on poverty” in 1964. Then came $22 trillion in spending on anti-poverty programs over the next 50 years. The steep decline in indigence that began in the early 1950s was halted and the poverty rate has remained virtually unchanged since.

The experience has been much the same in California. Sacramento spent nearly $958 billion on public welfare programs from 1992 through 2015. Yet while the state’s 2018 standard poverty rate average was 12.5%, says the Census Bureau, the three-year average of the Supplemental Poverty Rate — which takes into “account of many of the government programs designed to assist low-income families and individuals that are not included in the current official poverty measure” — is 18.1%.

That’s the second worst rate in the nation, just behind the District of Columbia’s 18.2%.

Basic income schemes have fared no better than conventional welfare. Finland set up a pilot program in 2017, handing out about $685 a month to a “randomly selected group of 2,000 young unemployed and long-term unemployed Finns,” says the University of Helsinki.

It was dropped in 2018. Preliminary results were “disappointing,” said the university, but only to those who entertained the fantasy. The reality, reported the New York Times, is that while recipients were “happier than they were on unemployment benefits,” the experiment did not “make them more likely to work” as “proponents had hoped.”

Had Finland decided to expand the plan to the entire nation of 5.5 million rather than shut it down, a 30% tax hike would have been needed to finance the giveaways. That would wreck the economy in a nation where the personal income tax rate can exceed 50%.

A three-year program in Toronto fared no better. It was dropped in 2018 after only 15 months, abandoned because it was incurring high costs. Provincial Social Services Minister Lisa MacLeod said the effort was “quite expensive” and “was certainly not going to be sustainable.”

Universal basic incomes, in which everyone receives a payout, not just a few participants in a lab project, have become a growing political topic. A UBI was even the centerpiece of Andrew Yang’s brief Democratic presidential campaign. But as with all big government ideas, outcomes fail to match expectations.

Stockton’s program, for instance, inspires zero confidence in the concept. Initial findings show that, of the program purchases which could be tracked, 38% of the dollars were spent on food, 24% on home goods and clothing, 11% on utilities, 9% on gas, and 18% on “other,” which includes “services, medical expenses, insurance, self-care and recreation, transportation, education and donations,” says the Associated Press.

However, only 60% of the program money can be accounted for. Forty percent was dumped into bank accounts or converted to cash, leaving no trail.

But even if it was known that the unaccounted-for “income” was also used for legitimate expenditures, the idea is still tragically flawed. Its costs will be staggering, the dependency it creates damaging. That’s the inevitable path of all government social programs.

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Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.