Noah Smith: Basic income’s backers complicate their cause with some bad arguments

Presidential candidate and entrepreneur Andrew Yang speaks at a campaign event Tuesday, April 23, 2019, in Las Vegas. (AP Photo/John Locher)

Democratic presidential candidate Andrew Yang, an entrepreneur and philanthropist from New York, has drawn less attention than most of his counterparts. But he has been noticed for one big, bold proposal - a universal basic income, or UBI, which would give every American $12,000 a year with no strings attached. Yang has thus become the most public champion of an idea that is gaining currency in some corners of the left and the right.

Basic income has a long and interesting history, with similar proposals dating back at least to the 1500s. It was championed in the 1700s by Revolutionary War pamphleteer Thomas Paine, and in the early 20th century by populist Louisiana Gov. Huey Long. In the 1960s, economists on both the political left and right, including big names like Paul Samuelson, Milton Friedman, James Tobin and John Kenneth Galbraith, all supported either basic-income schemes or the similar idea of a negative income tax. President Richard Nixon tried to implement a guaranteed income program, but it was defeated in Congress, while Nixon’s 1972 election opponent George McGovern floated an even more ambitious plan. Yang is therefore reviving an old idea - it’s only the size of his proposal that is new and radical.

But the case for basic income is being hampered by dubious arguments being made on its behalf. Yang, for example, claims that UBI is necessary to save people from the penury they will experience once automation makes them obsolete as workers:

Technology is quickly displacing a large number of workers, and the pace will only increase as automation and other forms of artificial intelligence become more advanced. One-third of American workers will lose their jobs to automation by 2030 according to McKinsey.

This assertion echoes similar sentiments from many in the technology industry, such as Tesla founder Elon Musk and YCombinator Chairman Sam Altman.

The problem is, there’s no indication that automation is going to make human workers redundant anytime soon. Technologists probably tend to believe in automation-induced job loss because they’re familiar with the inventions that are constantly forcing people to change what they do for a living. But even as these new technologies have been rolled out, the fraction of Americans with jobs has remained about the same over time. Meanwhile, evidence that automation causes job losses throughout the economy is slim.

In other words, automation so far shows no sign of having the kinds of effects Yang claims are imminent. The dire-sounding number Yang cites from McKinsey should be given little credence. Studies like this simply ask engineers how many existing jobs could be done by machines; even if the engineers' guesses are right, they fail to say how many new jobs will be created in the process, so they don't give any picture of technology's overall impact on the labor market.

Thus, when UBI proponents make the dubious claim that basic income is necessary to save people from the rise of the robots, they undermine their case. They also send the message that they think a huge percent of American workers are simply too useless to be gainfully employed in the future - hardly an appealing message.

The second dubious reason to support UBI is the idea that it can replace traditional forms of welfare spending, like food stamps and housing vouchers. Libertarian economist Milton Friedman supported a negative income tax for this reason, and modern-day libertarians often espouse this view as well.

But there are reasons UBI will never be a one-size-fits-all solution. First, it’s expensive. Giving all Americans $12,000 a year costs a lot more than giving money to poor people only. Income taxes would need to be raised on the middle class and rich — effectively swallowing up the UBI payments for all but the poor. But such high taxes can distort the economy in various ways. Second, food stamps and housing vouchers are typically used to increase consumption of food and housing — things that society generally believes poor people ought to be spending their money on. So although UBI might allow the government to spend somewhat less on other forms of assistance, it shouldn’t be viewed as a full replacement for these programs - and people are unlikely to embrace it as a replacement.

These flawed justifications for UBI have won the idea an eclectic base of support. But they serve to distract the public from the simplest, most reasonable case for UBI. Basic income, unlike minimum wage and the earned income tax credit, provides money for those who are unable to work. In doing so, it doesn't pay people not to work, because poor people's benefits don't decrease when people get jobs (at much higher income levels, the taxes needed to pay for UBI might discourage work, but that is a different issue). In other words, UBI is a form of welfare that doesn't require people to be able-bodied but also doesn't incentivize them to be indolent.

Basic income is an interesting idea worthy of more attention and more experiments, like the one in Finland. Proponents should stop trying to frighten people about automation or create a false tradeoff between UBI and other forms of welfare. Instead, if they are going to argue for UBI, they should simply emphasize the idea's simplicity and fairness.

| Courtesy Noah Smith, op-ed mug.

Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University.