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Why unconditional basic income is no more than a socialist fairytale

Unconditional basic income is being heralded as the solution to all of Europe’s financial problems, but the salary for everyone is not all it’s cracked up to be
Swiss franc notes (above). Critics argue unconditional basic income will give people money for no cause

Unconditional basic income is being heralded as the solution to all of Europe’s financial problems, but the salary for everyone is not all it’s cracked up to be

It’s hard to take issue with a concept that boasts equality for all and the ability to ensure a job for everyone by enforcing an unconditional basic income (UBI). In principle, the idea of giving people money, unconditional of age, employment and location, is an appealing one. At a time when youth unemployment has skyrocketed in Europe, proponents of UBI argue it provides all members of a society with the means to be truly free and will therefore bring about changes in the job market that will close the inequality gap. This is particularly pertinent as many graduates are forced into irrelevant jobs and the gap between poor and wealthy continues to grow.

To this end, a referendum has made it to the very top of Switzerland’s democratic system. Similarly, citizen initiatives are petitioning EU parliamentarians for a cross-European implementation of UBI. Even though the European Citizens’ Initiative for an Unconditional Basic Income hasn’t managed to achieve the necessary one million signatures to bring UBI to parliament, it is a startling indication of the lengths to which the people of Europe are willing to go in order to change the jobs market.

But what’s more startling is the lack of criticism of UBI. With the debate reaching EU heights, it would be wise to first examine all the possible issues related to an UBI, before heralding it as the solution to all of Europe’s economic woes.

UBI fails most financial feasibility tests

First, advocates suggest UBI would further entrepreneurialism and career enhancement by giving “the real freedom to pursue the realisation of one’s conception of the good life”, as Belgian philosopher Philippe Van Parijs has argued. They also argue a UBI will give workers bargaining power, making it easier to command a higher salary and better benefits from employers. However, the economic effects of a basic income are debatable. Critics say employers have little obligation to pay a living wage if the government is sending a supplemental cheque every month. Others argue UBI would disincentivise work, prompting younger age groups to leave the workforce if they are able to receive money for no cause.

Not economically feasible
More importantly, the case for UBI fails most financial feasibility tests. It would have to apply to everyone in order to replace social welfare benefits, and an amount high enough to support people at an adequate standard of living. If this were to be implemented in the debt-ridden eurozone or the US, it would also require a major increase in taxes. This is not something most voters are willing to support, as the increase in average and marginal tax rates would have a disincentivising effect on a large bulk of earners because they would retain far less of any additional money they earned.

In addition, higher taxes are discouraging to innovation and businesses, which may be prompted to move elsewhere, outside a UBI zone. Alternatively, if a UBI payment were to be small enough to be financed by existing tax rates, it could lead to mass starvation and poverty increases in conjunction with payments going to those in no need of assistance. A compromise would increase poverty and reduce incentives to work, all in one package. This is a cure that seems worse than the disease.

It’s also worth questioning the overall effect UBI would have on a regional or national economy. Countries would be implementing a type of subsidy that might make welfare obsolete, but which would cost billions. Few supporters of basic income have been able to prove it would be less costly for states to implement than existing welfare offerings, and, in a time of economic recovery, it seems utopian to suggest states have the economic capacity to implement a system that requires broad-based, constant funding.

What’s more, a basic income could have a detrimental impact on inflation. When guaranteeing jobs, the effect tends to be deflationary, because it depresses
wages. Conversely, a universal basic income free of sanctions and restrictions would push wages upwards, and have an inflationary effect.

Inequality will continue
Another argument for an unconditional basic income is that it would potentially discourage welfare immigration, with citizens crossing borders in order to gain access to subsidies issued in nearby countries. This type of welfare tourism is particularly common within the EU, where countries such as the UK, France and Sweden are growing increasingly concerned over the level of immigrants arriving from poorer EU states. If UBI were to be implemented across the EU, protagonists suggest welfare tourism would halt, as everyone would have the same basic income. Yet this is not realistic given ongoing disparities in overall GDP, personal income and cost of living across EU countries. In order for it to counteract welfare tourism, a UBI would have to be entirely universal and, as such, only offer the same level of income in the UK as it would in Greece, for example.

However, this does not account for differences in cost of living, or whether or not a state would even be able to afford the same level of UBI as another state would. Champions of the scheme often refer to pilot projects and research done in India and Canada, which have proven the positive effects on employment and life quality when UBI is implemented in a small society. However, such findings do not prove the effects such a system would have on a diverse, city society, for example, and it doesn’t account for varying income levels. Average income in India is set at £1,500 – far below the £25,000 plus for the UK. The means necessary to sustain UBI would therefore vary depending on population size and cost of living, and, as such, it is not realistic to envision a universal basic income across borders. Disparities would be inevitable even after UBI is implemented, and so inequality would continue.

Unreliable social contract
Now, while the economic feasibility of basic income already provides significant fodder for debate, there are also arguments related to the social contract that UBI implies. In order for basic income to work, people must live up to the social contract that implies they earn the basic income through work, but two Danish academics studying the implementation of basic income in Denmark have found such contracts may not be fulfilled.

“One of the prominent standard arguments in the Danish debate against basic income is that it is simply morally wrong to allow able-bodied people to live on public transfers without doing anything in return,” explain Erik Christensen and Jørn Loftager in their report Ups and Downs of Basic Income in Denmark.

Christensen and Loftager also argue basic income could work to keep individuals away from the labour market. “The worry is that basic income would contribute to existing marginalisation forces within society, and create a dependency upon the state that could detract from the individual autonomy of people receiving the money,” they said.

An unconditional basic income discourages career progression and innovation, could potentially have detrimental economic effects and relies on a non-binding social contract. This leaves many questions unanswered on the possible effects of UBI, suggesting a basic income is not so much a solution to all our problems, but a utopian nightmare we’d do best to wake up from soon.

  • neuralwarp

    You are arguing against paying benefits because it will create a poverty trap and immigration magnet, but we already have a system that does that. UBI is a way to streamline the old system: but the savings when added to the benefits package will allow people to invest in their futures. UBI is also a form of direct quantitative easing. UBI has actually been shown to work in field trials.

  • Eric Mutch

    “Ever thought about money?” https://www.youtube.com/watch?v=20-C8IdCqkw&feature=youtube_gdata_player

    Quote” An unconditional basic income discourages career progression and innovation,”

    How does giving someone freedom to do the stuff they are passionate about discourage innovation?

    Why would someone on less UBI in India move to get a bigger UBI in UK, if cost of living is also bigger in UK?

    If its about sending UK UBI money to India, what would said Indian live on in the UK if they sent all the UBI they were given back to India?

  • Mark Crawford

    Inflation is only ever a problem when people lose confidence in the government. Those who have the economic background to really think the issue through – such as the former banker Frances Coppola – have determined that UBI would more than likely only be inflationary if a significantly large percentage of people withdrew from any sort of productive activity whatsoever. Whether that would happen would depend upon its implementation – which is an empirical question only to be answered through careful experimentation. Likewise, the question of economic feasibility can only be answered through experimentation in the mode of the original implementation of Keynesianism and the New Deal (as Deleuze and Guattari say, these approaches turned large economies into “axiom laboratories” – which is exactly what Europe needs right now). This  need for experimentation to develop the UBI idea is one reason why this article is so misguided.

  • Bjerre George

    Dear Sandra kilhof,

    Regarding to your opinion about Basic Income not being economically feasible, I have copied & pasted the following paragraphs from Wikipedia. http://en.wikipedia.org/wiki/Basic_income

    “Winners of the Nobel Memorial Prize in Economic Sciences who fully support a basic income include Herbert A. Simon, Friedrich Hayek, James Meade, Robert Solow, and Milton Friedman.” Wikipedia

    “In 1968, James Tobin, Paul Samuelson, John Kenneth Galbraith and another 1,200 economists signed a document calling for the US Congress to introduce in that year a system of income guarantees and supplements.”

    Could you please indicate any Nobel Prize Winner in Economics that thinks Basic Income is not feasible. Thank you in advance.

  • Dorian Gainsboro

    I’ll just paste the most thorough comment from reddit after this has been on the r/BasicIncome subreddit for 3 hours.

    The article was so rife with inaccuracies, from the insinuating title to the biased content; uncalled for skepticism and just plain misinformation I had to write a response. It’s like the author decided to throw in every argument against BI. Just from reading the article, I think the author believes in a totally stateless society who believes every problem in the world is because of the government.

    Starting with the title:

    > Why unconditional basic income is no more than a socialist fairytale

    Ironically, BI tends to be more capitalistic than socialistic ([[more discussion here](http://www.reddit.com/r/BasicIncome/comments/23japh/basic_income_is_fundamentally_a_capitalist_idea/)). Most governmental policies aren’t black and white in that they are somehow either capitalistic or socialistic. Usually there is a spectrum to how “capitalistic” or “socialistic” a policy is.

    > But what’s more startling is the lack of criticism of UBI.

    Maybe you’re not looking in the right places, because a lot of your criticisms have been repeated many times already by other people and then debunked.

    > First, advocates suggest UBI would further entrepreneurialism and career enhancement by giving “the real freedom to pursue the realisation of one’s conception of the good life”, as Belgian philosopher Philippe Van Parijs has argued.

    A bit of a misrepresentation. UBI *may encourage* entrepreneurship (not entrepreneurialism, that’s not a word) because it gives people a basic fund that one can fall back on so people will be more open to taking risks and investment of capital (both of which is required when starting a business requires). Also, it’s not so much “the real freedom to pursue the realisation of one’s conception of the good life” but more about giving people the ability to meet their basic needs in light of all the jobs lost through automation or also the [disconnect between productivity and employment](http://www.technologyreview.com/sites/default/files/images/destroying.jobs_.chart1x910_0.jpg).

    > Critics say employers have little obligation to pay a living wage if the government is sending a supplemental cheque every month.

    Well actually UBI is a response to the fact that more and more often, employers are already feeling they have little to not obligation to pay a living wage which by the way, is already a very real thing for a sizeable amount of people.

    > Others argue UBI would disincentivise work,

    Because people want to barely survive and don’t have aspirations and such, yes?

    > prompting younger age groups to leave the workforce if they are able to receive money for no cause.

    The current welfare system does this because once you earn over a certain income, you don’t qualify. It doesn’t ease you into work, it suddenly cuts you off at an arbitrary number. BI guarantees you receive a base amount so no matter whether you’re rich or poor, no stigma or arbitrary cut off conditions will stop you from improving your life. The assumption that BI will lead to the same conditions as the current welfare system is wrong because one is conditional to an arbitrary amount you make and the other is guaranteed to you regardless.

    > More importantly, the case for UBI fails most financial feasibility tests.

    Source? Which test are you referring to? The ones by people who believe in an infinite growth paradigm with no regard to the limitations of growth?

    > This is not something most voters are willing to support, as the increase in average and marginal tax rates would have a disincentivising effect on a large bulk of earners because they would retain far less of any additional money they earned.

    False assumptions again. Implying that “most voters” support anything that lowers the amount they are taxed; so would most people support abolishing publicly funded institutions like schools, libraries, hospitals etc in the name of lower taxes?

    > In addition, higher taxes are discouraging to innovation and businesses, which may be prompted to move elsewhere, outside a UBI zone.

    You can make this argument for practically any policy that requires taxes.

    Not to mention that tax rates aren’t the cause for whether people decide to innovate or not. Replace the policy of UBI with practically any governmental policy that requires taxes and you can make that same argument. So unless you’re arguing that we shouldn’t have any governmental policy at all because… “taxes”, this argument is moot.

    > Alternatively, if a UBI payment were to be small enough to be financed by existing tax rates, it could lead to mass starvation and poverty increases in conjunction with payments going to those in no need of assistance

    That’s dramatic of you. Actually, there is already a trend towards poverty because the labour market is oversaturated while many jobs are at risk of disappearing or decreasing in necessity for human labour. This is in combination with the fact that automation is, or if you disagree, will eventually become cheaper than actually hiring workers.

    Also, UBI means rich or poor, you get UBI. That’s sort of the point. This is to diminish the social stigma involved which is a major contributing factor to class warfare.

    > Few supporters of basic income have been able to prove it would be less costly for states to implement than existing welfare offerings

    On the other hand, the current system of trickle down economics was never proven to begin with. In fact, more often than not it isn’t trickled down but rather hoarded at the top. Why do you think wages have remained mostly stagnant while profits soar for big corporations? At least there are a few basic income supporters proving it would be less costly; I don’t see any proof for trickle down economics. There is more proof trickle down economics failed rather than worked.

    > When guaranteeing jobs, the effect tends to be deflationary, because it depresses wages.

    You forgot or rather seem completely oblivious to technological advancement. There is this concept called [ephemeralization](http://en.wikipedia.org/wiki/Ephemeralization) in which we find ways to do more with less. Machines can do more repetitive work more efficiently than humans. “Guaranteeing” is a euphemism for “forcing”; forcing people to obtain “jobs” while there is actual technology already better at doing tasks more efficiently than humans for the sake of “this vague concept that “everyone must earn their keep” is a very unattached and contrived train of thought.

    > Conversely, a universal basic income free of sanctions and restrictions

    > …with citizens crossing borders in order to gain access to subsidies issued in nearby countries.

    To clarify a misconception, the universality refers to the idea that rich or poor, you are guaranteed a basic amount. There are still limited restrictions that can be applied (e.g. – be a citizen for X amount of years, those age X and above only, etc).

    > The means necessary to sustain UBI would therefore vary depending on population size and cost of living, and, as such, it is not realistic to envision a universal basic income across borders.

    UBI is to cover absolute basic needs. Not to sustain middle class living standards as implied. Also, last I heard, we live in countries. So to implement UBI, it would be implemented by country. So a UBI implemented in one country doesn’t apply to the citizens of another country. I feel almost stupid saying this.

    > Now, while the economic feasibility of basic income already provides significant fodder for debate,

    Actually your entire article was full of “arguments” were either just rubbish and full of misconceptions with a lot of half truths and false assumptions.

    > In order for basic income to work, people must live up to the social contract

    You mean like how people pay taxes? Kind of an irrelevant argument unless you’re advocating that we abolish all forms of government programs and the government itself.

    > “One of the prominent standard arguments in the Danish debate against basic income is that it is simply morally wrong to allow able-bodied people to live on public transfers without doing anything in return,”

    Oblivious to the fact that a larger and larger amount of people are paid to do barely anything while a sizeable amount of people are doing work that isn’t even being recognized in the current economic system.

    > basic income could work to keep individuals away from the labour market.

    …. Basic income is basic income: it’s basic. I’m sure people aspire to greater things than just barely surviving. People will feel they no longer have work to survive, but work to better society. I think that’s a better motivator.

    > The worry is that basic income would contribute to existing marginalisation forces within society, and create a dependency upon the state

    What are you trying to say? That we should have a completely stateless society with no government?

    > An unconditional basic income discourages career progression and innovation, could potentially have detrimental economic effects and relies on a non-binding social contract.

    Of these three ideas, only one of them is still plausible, but even that’s a non argument. I already answered these somewhere above. Also, every policy “could potentially have detrimental economic effects”.

    Well goodness! This took longer to write than I expected. I’ve actually grown to enjoy responding to these ridiculous and contrived arguments. I think this article managed to throw in every single major argument against BI ever known. I guess now people can refer to this post for reference whenever they are wondering how to respond to criticisms of BI. Haha.

  • Mel Lon

    Yes, far too little criticism of UBI yet, thank you! Criticism means developing an idea.
    I would like to see the criticism keep up though. Do not try to measure a radical new idea with old scales. How can you know what taxes will do once every person can stop worrying about their basic needs? How can you know what the job market’s reaction will look like when, unconditionally, everyone can chose their destiny?
    Change requires leaps of imagination.
    Let’s really imagine what it would be like, and let’s imagine the real problems the change will bring, for example: how will we cater for the need to lead for all those that will lose their Power through UBI?

  • Sandra Kilhof

    All your comments, pro or con, are much appreciated. The article above sought to shed light on the opposing arguments to UBI, which hadn’t previously been covered. This opinion piece, like any article on UBI out there, relies on studies and estimates on UBI, as we cannot assume whether a UBI system such as that implemented in trials in Canada and India could be applied in greater areas or across the EU, as some UBI suggestions would like to see happen. To this end, there are many opinions for and against UBI. This article focuses on those criticisms that have been brought to light by economists and theorists such as Karl Widerquist (I recommend reading this compendium http://eu.wiley.com/WileyCDA/WileyTitle/productCd-1405158107,subjectCd-EC60.html). It gives an overview of the biggest arguments for and against UBI, such as the dependence on an improbable social contract and the necessary implementation of taxes in order to finance this monthly cheque. Like I stated in the article, its hard to take issue with a concept that boasts equality for everyone. That said, it’s always important to examine all arguments for and against a major political or economic move, especially one that could be incompatible with our current liberal economic system. On that note, significant research has of course gone into this article and despite the opinions of UBI proponents, the economic feasibility of UBI is still questionable, as highlighted by scholars here http://www.usbig.net/pdf/manyfacesofubi.pdf and here http://basicincome.org/bien/pdf/2004WattsMitchell.pdf. That said, I also encourage our readers to check out our earlier coverage of UBI, which has centred on arguments FOR UBI. http://www.europeanceo.com/business-and-management/2014/01/is-unconditional-basic-income-the-reform-europe-needs/ and on http://www.worldfinance.com/infrastructure-investment/government-policy/will-unconditional-basic-income-solve-europes-problems or check out the debate here: http://www.worldfinance.com/banking/wrong-headed-economics-for-and-against-unconditional-basic-income-video