The UBI should be inadequate
and should replace welfare
Bryan argues that the UBI is wasteful—if you were running your own charity, “you’d target spending to do the most good. And unlike the UBI, the status quo makes some effort to so target its resources.” I’ve got a couple of thoughts here. First, while the status quo does make some effort to target its resources, it doesn’t do a very good job. As Michael Munger points out in Tomorrow 3.0, welfare spending amounts to about $42,000 per family of three in poverty per year, which would be more than enough to lift them above the poverty line if it were distributed to them directly.
…Bryan raises another concern about UBI’s lack of targeting—those who simply choose not to work will still receive money. And there’s a clear reason to worry about this: it will incentivize people not to work.
I am in favor of a Universal Basic Income (UBI) to replace the status quo of benefits, including Medicaid, food stamps, housing subsidies, etc. But I want the UBI to be a relatively small amount, something like $750 a month for a family of three.
A universal system has a big advantage over an income-targeted system. In freshman economics, we speak of income effects and substitution effects. All benefits, whether targeted or universal, create an income effect that discourages working. But income-targeted benefits in addition create a huge substitution effect against working.
With a universal benefit, you get to keep most of the income you earn on top of the benefit (you do lose some due to income and payroll taxes). Instead, Medicaid, food stamps, and so on are income-targeted. You lose all of your benefits once you get a regular job or marry a working spouse. So it’s not worth working.
The moral of the story is that if you cut people’s benefits off at a certain level of income, they have an incentive not to earn that income. Hence the very low labor force participation rate in the United States, less than 63 percent.
Instead of an income-targeted system of benefits administered at the Federal level, I favor a needs-targeted system of benefits administered by charities and by local governments. There are people who are truly unable to work, and there are people who have costly disabilities. Local agencies can figure out who these people are and provide them with supplements to their UBI.
You can think of my proposal as an inadequate UBI (that is, not enough for people to live on), supplemented by local charity. My goal would be to get more people working, increase the incentive for people to marry (because under the current system you lose benefits by marrying a working spouse), and aid people with the most severe needs as determined by local agencies.
An issue with local charity administration if those charities are funded by governments is that our precedents require that they be administered in a thoroughly neutral, nondiscriminatory manner that also does not discriminate against foreigners (of any immigration status), out-of-staters, or any other protected status. Then the entities themselves are double-regulated by 501(c)(3) status, which also requires similar neutral standards even if the funding is private and not from any government. This makes it so that every charity "spigot" can potentially cause a lot of problems. Determining who is truly needy while also complying with the regulations is very challenging and expensive. Charities generally do not have the bandwidth to do real means testing that also complies with nondiscrimination requirements.
These precedents also make it so that any state that rises above the norm in charitability attracts indigents in large numbers. Most famously, this happens in San Francisco, but it also happens in colder locales like Minneapolis, Burlington, VT, and other places. So, what do? I think the best bet would be work programs of various kinds, in part because they can turn profit for the state, don't necessarily involve charities, can pay in-kind rather than in-cash, can be administered in more discriminatory ways, and are better for morals. The weakness of that approach is that it can be highly disruptive to many markets within a state. This was also FDR's inclination on the point of workfare vs. welfare, so this approach can be pitched in a bipartisan way if you put the right spin on it.
It will not be politically possible to keep it insufficient. The creation of insufficient UBI will give demagogues a number to rally around raising, and because the population receiving the benefit will be huge, the voting base to do so will be as well.
Current welfare is a bit different, because most people aren’t on any given program, and it’s at least a bit shameful to be on, eg, food stamps. Won’t be the case for UBI.