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You may have been seeing the term UBI in the news lately. What is UBI? The letters stand for Universal Basic Income. The idea is that the government provides a set amount of money for every citizen to provide for their basic needs.
UBI has long been a fringe idea, but it has come into the spotlight thanks to the economic calamity caused by the coronavirus. Liberals and libertarians alike are now touting it as a solution to the ongoing economic crisis. Democrats have even teased adding it to their next coronavirus rescue package.
Recent History of the UBI
While not a new idea, UBI has slowly been gaining more traction. Prior to the coronavirus, Democratic Presidential candidate Andrew Yang based his campaign on the concept. He called it a Freedom Dividend. Under Yang’s plan, a value-added tax (VAT) would fund every adult in the country getting $1,000 a month. Theoretically, this would replace many existing welfare programs.
Yang cited the growth of automation as the reason for implementing a UBI. His prime example was the coming of self driving cars wiping out several industries, such as trucking and ride sharing.
Democrats tend to support the plan because it improves the welfare of poor citizens. Libertarians view the idea as superior to current welfare programs, as it puts purchasing power back into the hands of citizens. Current programs carry numerous government mandates.
The Pros
The idea behind a UBI is that if people have enough money to cover the basics, then they will be free to follow the profession they desire rather than the one they need. This will make citizens happier and more productive. The economy would run more efficiently if people were doing the jobs they want.
Economic theory has long held that the economy gets more bang for its buck by putting money into the hands of the lower and middle class. They have a higher propensity to consume, which means the money flows right back into the hands of businesses. This is very beneficial to the overall economy.
When the wealthy are given money through tax cuts they typically save it or invest it. While this has its benefits as well, it does not create the same value as money in the hands of consumers. The wealthy generally have money to save and invest already. There is not a shortage or weakness in this area that needs to be addressed.
The UBI would also reduce government bureaucracy. Instead of funding multiple programs like food stamps and TANF, there would be a one size fits all program. Since the payments go to all Americans, there is no need to sniff out fraud.
The Cons
The biggest hurdle to a UBI is the cost. Estimates put the price into the trillions. Yang’s plan called for a value-added tax, which is basically a national sales tax. Yang’s tax would specifically target large internet companies like Amazon and Facebook.
Plans for a temporary form of UBI put forth by Democrats to combat the coronavirus would be funded by deficit spending. The nation has already put $2-3 trillion on the credit card thus far combating the pandemic.
If the nation is ever going to attempt to establish a UBI, now is the time. The coronavirus has left over 30 million people without a job for an extended period of time. The economy needs a kick start. There is no better way to jolt the economy than by putting money into the hands of consumers.