How to Cut the Poverty Rate in Half
theatlantic.com
theatlantic.com
Sounds like a socialist idea right? But in fact the libertarian in me loves it - if implemented, it removes the need for vast swaths of government. If everyone is guaranteed a basic income, you no longer need vast systems to manage all the means-tested programs. No social security, no disability, no unemployment insurance, no retirement programs and tax shelters. No need for minimum wage. The list goes on and on.
And that's why it won't happen here...
[1]http://www.salon.com/2013/10/11/rather_than_savage_cuts_swit...
My chief concern is that progressives will ask us to explain how we contend with people who despite being given a stack of currency still manage to squander that, leaving themselves hungry, without shelter, or without savings. They may not say that now, but I think that challenge would eventually arrive. I personally favor family and charity as a last safety net, but progressives routinely dismiss those as impractical or insufficient.
My pessimistic side believes that a portion of the progressive inclination for central planning comes from a fear of allowing people to act stupidly and suffer the consequences. In other words, it's not necessarily that they want to manage the allocation of funds and/or delivery of services and products to the poor, but that they believe if they don't do this, bad decisions will be made, leading to suffering. Meanwhile libertarians such as myself routinely are naively optimistic, believing everyone will make decent or good choices in spending their basic income (knowing to put some into healthcare, some into savings, and so on).
It's complex.
See the UK, where we have complicated benefits and medical care and social housing.
If you drink your money, and cause yourself to become homeless, you'll have no money and have nowhere to live.
I think understanding how people get themselves into that kind of situation, and guiding them into better choices, is useful to society as a whole. That small investment avoids costs later.
Pay every weekday morning - it fixes the food part
Shelter is tough because we are not trying new things anymore. You rent an apartment or rent / buy a home. We don't have many cheaper shelters like capsule hotels[1] or maybe some modular-type apartments. Innovation in shelters is not a thing and seriously hampered by existing laws.
> I personally favor family and charity as a last safety net, but progressives routinely dismiss those as impractical or insufficient.
It was the way of things in the early days, but we really need to stop making it difficult for third-partys to actually provide these services.
1) yes, this is not long term or family friendly, but I've live in worse than what I saw in videos of these things.
We got it in our heads that you must buy a home and our definition of home is fixed. In my wilder moments, I wonder what would happen if a standard "module" size and connection (structural support, door location, water, electric, etc) for apartments happened and you could plug the modules into buildings. I'm sure there are 1,000s of other ideas.
1) small fact, those programs won't loan money to Native Americans on reservations since they cannot take the land anymore. Not sure that's actually a bad thing, but it is odd.
Historically, the inclination came from out of work low-level aristocrats looking for "jobs". Welfare for the poor has always been (disguised) welfare for the rich. This sociologic explanation was highlighted by Nietzche in the 19thC, referred to it as "Master ans Slave" morality.
A basic income should be a security net to catch all, who failed to earn enough for living, but not to much to avoid that everybody stops working and starts party.
One problem of a basic income is the iron law of wages and the private property on housing. Wages tend to balance to a point that they are barely enough to make ends needs. When wages climb, also housing costs and rental prices climb.
So a basic income must accompanied with a big social housing program to allow cheap housing for everybody. Else a basic income would only make the 0.1% who have large assets even richer, because they would earn most of this basic income by renting out housing.
I think that's much less true with this kind of a system than in the situations we more frequently see, because this is not localized. When wages climb in, say, SF then people move to SF and drive up the price. When wages climb whether they're in SF or Troy, MI you don't see the same dynamic. You might even see housing prices fall if people decide it's easier to make a better life for themselves elsewhere, when their presence is pulling resources to regions with a low cost of living.
As a side-effect, we will also guarantee that consumption levels won't easily fall below certain level.
That's a nice goal, but its probably not practical on basic income given current technology and means of production; the more automation advances, the more basic income can be (and, arguably, the more it needs to be) but if you aim to high you end up driving down production and driving up prices uncontrollably.
Namely, the permanently and severely disabled. These are the people who will have the highest cost of living because they will need additional care and special considerations made for housing etc.
They are also the people who will find it the most difficult to supplement their minimum income by working.
True as far as it goes. Collecting taxes and then turning around and giving the money back might be a good first step, but it should be obvious that it would be more efficient not to collect the taxes in the first place.
Some may object and say that giving money to the poor changes the social makeup of society by redistributing wealth from haves to have-nots. But that doesn't change anything, because the money given to the poor quickly finds its way to the same places it does now.
Once you get to the point that transfer payments are not going to go away, it seems like optimizing the cost and efficiency of said payments while reducing the cost (thus taxes) and size of government become priorities. This is basically one way to remove quite a lot of the government.
I'm still not sure about a fixed payment however. I guess I can see a minimum pro-rated[1] guaranteed income payed on a very tight schedule (weekly, but preferably every weekday morning). I can see it would take more paperwork, but I think the difference in payment versus admin costs probably would make it a better pick.
I get the feeling that a country with the constitution that says voting rights are dependent on not taking transfer payments might have a better chance of acceptance. It is a bit of a radical idea.
1) something like for every 2 dollars earned you subtract a dollar of payment
The latter, which is what is suggested here, involves giving everyone the same amount of money on top of whatever they earn or don't earn.
For the former, the government pays the difference between whatever you're actually making and the minimum amount (if positive).
With BI there is still incentive to work at low paying jobs - you always keep more as you earn more. With GMI you are basically volunteering until there's a job that pays more than the minimum - it's effectively a different way of implementing a minimum wage.
Yes, that why I said I was in favor of it (Guaranteed Minimum Income - well actually a pro-rated GMI) for much the same reason sologoub was in favor of the Basic Income from the article.
> With BI there is still incentive to work at low paying jobs - you always keep more as you earn more. With GMI you are basically volunteering until there's a job that pays more than the minimum - it's effectively a different way of implementing a minimum wage.
That is why I am in favor of a pro-rated version so that there is an incentive to work and people are softly leaving government payments.
Social security isn't means-tested, its contribution-based (the only way that it even approximates being means-tested is that SS income is subject to income tax if your total income is above a certain level.)
> no retirement programs
Retirement programs other than Social Security aren't safety net programs, so inasmuch as there is a need for them without basic income income, it doesn't go away with basic income.
Of course it does. What are the odds, however, that said swaths of government and the constituencies that support them would simply surrender and close up shop?
On the other hand, it is socialism, and socialism has a dismal record of success. Europe tried it, and is now bankrupt and having waves of social problems that did not exist 40 years ago. The USA has tried it and now is permanently divided, either 47/53 or 99/1, depending on who you ask.
I say go back to natural living. Let government handle defense, roads and environmental protection. Let local governments handle everything else flexibly. But stop trying to solve people's problems. It doesn't work, creates other problems, and discourages people from accepting responsibility for their own futures.
Here are a few facts to the contrary:
* Europe is not "bankrupt" from "socialism". In fact, even the most successful European countries (the Nordic states and Germany) are far more social-democratic than the "successfully capitalist" Anglo countries, most particularly the United States of America.
* Why is Europe "bankrupt"? Trade imbalances, and a monetary policy aimed at maintaining those trade imbalances for the benefit of the incumbent capitalist class rather than correcting them for the good of all citizens. It's not just net-importer nations like the "PIIGS" undergoing wage deflations and heavy debt, Germany has actually been leading Europe in wage deflation, not to mention that it does actually have a public debt issue. The cause of the Euro troubles, after the Great Recession itself of course, is the German use of mercantilism; the mercantilist system in Europe is not broken but working as (inadvertently, nobody outside Germany intended for Germany to become a mercantile empire) designed.
Citation: http://seekerblog.com/2012/01/17/euro-crisis-german-unit-lab...
* When have the successful Western nations been at their richest, in terms of total economic growth and socioeconomic equality? In their peak social-democratic years of the Postwar Consensus, precisely when what Americans decry as "big government" was used to shore up demand for labor and pump productivity into the economy through national infrastructure projects.
* Open question: does public and private debt growth have a causative relationship with the use of social-democratic fiscal policies, or with the use of certain trade and monetary policies instead? It's important to note that the late '60s and early '70s switched the entire Western world from the Bretton-Woods regime of trade and currency regulations (not to mention capital controls!) to today's neoliberal, neo-mercantilist regime of virtual debt-money. Today capitalist governments manipulate their currency whenever they want in order to suppress labor wages and increase exports, even despite normal market mechanisms acting against them (as in the cases of both China and Germany, who under "clean" markets would be effectively forced to consume and import more stuff, lest their money degrade into worthlessness from capital glut).
The federal government spends:
-878B in Social Security and disability
-961B in healthcare
-422B in welfare
So that's about 2.26T just in these three categories. For a single year.
We've got about 320 million people in the US.
So this comes out to about 7,000 a person for these three categories.
You want basic income? That's fine, just use it as a replacement for some of these programs. Instead of running a vast bureaucratic network managing these benefits, just hand out a check every quarter.
This is hilariously simplified and a slightly more sophisticated system is what's known as a "negative income tax."
Here is Milton Friedman (yes, Milton, not Tom) advocating for an NIT: http://www.youtube.com/watch?v=xtpgkX588nM
Want to keep going? When it comes to education, it's about 10k per child for k-12 spending if you include state and local spending. A high school of 2,000 kids should have a budget of 20 million... and with a student/teacher ratio of 20, would be equivalent to $200,000 per teacher. Take 50% of that to run facilities/admin and you've still got a six figure salary.
I see two lines of inquiry here. First, does this work on a small scale? Many HNers have lots of disposable income. I see lots of people buying expensive electric cars or talking stock options. So put your money where your mouth is. Go find 10 people who are poor and give them each 15K. I'd offer three stipulations. 1) It has to be anonymous, 2) It has to be one-time, and 3) you should anonymously follow-up after 6 months.
I suspect at the end of six months you'll just find the same poor people, even though technically you've offered them half a year's salary at 30K. But this is very easy to prove one way or another. Somebody like Zucerberg could probably run a sample of 100 or 500 without much problem. I'd love toe see the results.
My second line of inquiry is: does this work at scale? In other words, is the political system capable of simply giving out money? I seriously doubt it. From what I've seen, a simple program, especially involving lots of money, will grow in complexity very quickly. Yes, technically you should be able to direct-credit anybody with a bank account within seconds. I have deep reservations that anything like that would actually happen, though. If you got 50% of the money to the poor you'd be doing well, and I wouldn't bet on that much traction.
The larger point is that literally trillions have been spent over the decades on poverty. Programs have been created and executed by some of the smartest people in the world. People who have managed empires of tens of billions of dollars have went down this road. And poverty still abides.
I'm not saying it's intractable. I'm simply saying that caution is in order here. "Prove it" is the correct response when offered really simple solutions to problems that have stumped thousands of others. Don't write a flashy article, don't persuade me in an opinion column, don't show me some economic study. Prove it.
Isn't this rather like complaining that a hungry person will be hungry next meal-time even if you give them a meal now?
The hypothesis on the table is that you can only measure by poverty by income. That is, if you gave a person making 0 per year 30K per year they would suddenly have an apartment, healthcare, transportation, and all those other things that most other people who make 30K per year have. A certain amount of money over a certain amount of time is the thing to be adjusted (maximized?)
To test this, use a substantial amount of money and a non-trivial time period. 15K and six months come to mind because the sum of money is large enough to do quite a few things and the time period is long enough to allow various random things in life to occur. I'd think you could also test at greater income levels. In fact, to do it right you'd use 15K, 30K, and 45K and time periods of 6, 9, and 12 months.
So when you come back, you're not looking for poverty to be "solved", whatever that means. You're looking on the previous time period to see if that person lived the same as somebody who was making a similar amount from a job. Did they have access to shelter? Food? Did the money last? And so on.
I'm by no means suggesting that poor people are going to blow it all on booze and cocaine (of course, some will), but that you're measuring the wrong thing. This is a classic example of managing to whatever the metrics are, instead of the underlying condition. Put a different way, we shouldn't care how much money anybody makes, but whether they live a comfortable, happy life and have access to opportunity. But whatever my personal bias, an experiment like this would put in sharp relief whether or not the hypothesis had legs or not.
It's a poor premise. There's a wearing down effect that poverty has. Over time one can rely quite a bit on past wealth - for example clothing starts wearing out after a year (shoes) but can last decades depending on wear. [estimated periods:] A house needs re-roofing in 20 years, a boiler needs replacing in 10 years, a car needs replacing when it's 15 years old, et cetera.
It's quite easy to live on a low income for a shorter period. In 6 months you're still using all the things you had when you were better off - probably you still have some foodstuffs. Coming the other direction in 6 months of higher income you'd still be spending on those things that have worn out.
The $15k for 6 months would make a dramatic change, IMO, but not necessarily one that a casual observer would notice. As an example, I would probably still be wearing worn out clothes but the house would be in a good state of repair, we'd have a fully working cooker and washing machine, etc..
>we shouldn't care how much money anybody makes, but whether they live a comfortable, happy life and have access to opportunity //
Yes, amen.
Some other potential pros not mentioned in the article: - lowers barriers to entrepreneurship - allows parents to stay home and take care of young children - lowers barriers for re-education - could reduce costs of social services (through elimination of complex programs)
Side effects I'm curious about: - how will BI impact minimum wage? - how will BI impact entry level jobs? - how will BI impact cost of basic goods?
Also, the 'poverty line' should actually be location dependent because of the difference in food and rent costs in different places. Should BI be location dependent too?
When you think about it, this makes sense. If it's easy to come by, it's proportionately "worth less."
Think, for instance, what would happen if one billionaire bought up the entire world supply of Bitcoins for ideological reasons (meaning: he never reaches a point of diminishing marginal utility as the price of BC increases). First, there would be a price bubble as everyone holding bitcoins gets the highest price they can. Then, everyone who had formerly used bitcoin but now sold to the billionaire would migrate to some other crypto-currency, leaving the billionaire eventually holding utterly worthless cryptographic certificates accepted by nobody at all.
You can repeat this as many times as you like to make the poverty rate arbitrarily low.
Or is the problem more around behaviours and societal stuff than money?
A Channel 4 documentary is a poor source of information but the breadth and depth of the problem is shown in programmes like Skint. The nihilism of multiple generations, the apathy, the learned hopelessness. http://www.channel4.com/programmes/skint/4od
While these people may not be objectively poor[1] the children have obviously sub-optimal lives.
[1] People have homes, and food, and heat.
The article points out "the only thing standing in the way of dramatic poverty reduction and dramatic inequality reduction is, as always, politics"
Unfortunately we'd almost certainly see a rise in the cost of living (food / energy prices). If people can afford more, they'll be charged more - that's how free markets work.
There is no quick way out, and the various "basic income" schemes are untested on such a wide scale, and their consequences unknown.
Those who favour basic income on the hypothesis it will be balanced by a reduction of government redistribution jobs ignore a very important trend: governments never shrink - they grow with time (IIRC, in the US over 40% of the GDP is eaten by the gov)
http://www.morganwarstler.com/post/44789487956/guaranteed-in...
It looks like it's strictly less than 25%, though there could well be categories of spending that's excluding.
This is actually a desired effect of a basic income. The poorest people often live in areas that are essentially cash starved with low real estate prices. There is often little incentive or ability to improve or maintain their homes. A basic income would provide the ability for many in such areas to spend on non essentials like home maintenance which could lead to higher prices and higher employment. Which in turn could lead to more pride in ownership and eventually end up re-invigorating those areas.
I agree that some of the basic income given to some members of the working poor will end up being spent on productive improvements that benefit themselves and the people they hire to do it, but a lot of it will simply be gobbled up by inflation of essentials.
The workers, I would hope. Unfortunately, many people don't understand their own self-interest.
How about a freemium economy? The fries are free but the salt and ketchup cost money.
The biggest lesson I've learned from running a company is blanket money tossing tends to be an excuse for intellectual laziness.
That's not at all "by definition" - incarceration, for instance, is a horrible standard of living and is hugely expensive.
It's been tried. It didn't work. How can the author of this article be so ignorant of history, not just of the many experiments in communism and socialism, but of relatively limited, well-intentioned programs like AFDC in the U.S., programs that are now recognized as having made the problem worse?
Giving the poor money is not, and never will be, "simple". Reasonable people may differ, but I personally think putting the money into education would be a better investment.
My second was "there would at least be one and only one number to vote on and administer in this area of government"
My third "oh...wait, you can't live on 3k anyway. The rest of the machinery would have to stay and this would be in addition. Worse, next year its 3.5k, and then next 4k..."
So my counter is this:
Will it work if we give everyone 30k a year? Because that would actually simplify and change things.
Anything less and this isn't a serious proposal.
$3k is a sizeable chunk (~25%) of what someone makes in a year at minimum wage. Some people working two minimum wage jobs are able to cut their hours. This decreases the supply of labor. Meanwhile, those making little enough that any increase on taxes leaves the BI system handing them net surplus are better able to meet their needs, realizing some additional demand - some of which will be demand for labor. This raises wages and lowers unemployment.
Would it fix everything 100%? Probably not. The question is whether it's an improvement, and whether that improvement is worth the costs and the risks. I don't know that it would be, but it seems close enough to be "a serious proposal".
Personally, based on personal back-of-the-envelope guestimates, I've been thinking something closer to $6k makes more sense. But the hypothesis that the optimal value for BI is positive is stronger than that it falls at any particular amount.
We run a car too (£1.30/l for petrol), if we weren't working we wouldn't need the car and we'd be able to get an allotment to supplement our food supply. I consider us to be quite well off yet, of course, relatively poor. We don't qualify for free school meals so apparently there are a lot (400,000 children in England alone do qualify) of people worse off than us and still surviving.
$30k per year sounds like it would be a massive disincentive to seek a wage, whether that would also amount to a large population who don't work or not is anyone's guess really (but I'd say yes).
I'm working back from median household income in the US.
https://en.wikipedia.org/wiki/File:Median_US_household_incom...
I think the proposal's underpinnings are "lets pay everyone enough to live on, shrink all the complexity down to one number so we can all understand and impact what that one number is, and hope that those who produce for love of the game do so to an extent that allows us to keep the system running". Basically communism with a uber-capitalist kicker (slogan proposal: "Musk's gonna Musk").
From your comments, it sounds like you'd think that if we put 30k more per person on the table, the incentive to work would go away, and the poor are needed to work so it would break the system. Well, I believe we've already crossed this line with current entitlements and programs and there's already an advantage to not working.
This is a far right alt source so read it carefully and do your own thinking (could say the same for CNBC though!):
http://www.zerohedge.com/article/entitlement-america-head-ho...
In conclusion:
1. 3k is just another entitlement added onto a haze of entitlements.
2. The value would be a single number. We're giving it away inefficiently now, why not clean that part up and hope democracy/the light of day will bring a moderation to it. Likely not, but better than what is.
3. 30k would be a better number if all other entitlement of any kind were truly going away and we were going to truly play it strait up.
4. If I'm wrong on this and the number after cutting everything else off is really 8k or 10k or whatever, I'm still fairly skeptical we could pay for it.
5. I've focused a lot of my life on not being poor-ish like we were when I was a kid. I think I'm pretty disconnected from what that word really means, and intentionally so, but thanks for the reality check anyway. If you'd go into more detail, I'd read it. Specifically, say you were poor but wanted to make something, would the amount of money you'd need increase and by how much?
It strikes me that the disincentive to work can possibly be countered by employing on a limited-time basis those seeking the "benefit" in what would otherwise be uneconomic work. Litter picking is a classic example; sorting recyclables is probably a similar thing. Basically anything to act as a token contribution to the community.
>Specifically, say you were poor but wanted to make something, would the amount of money you'd need increase and by how much? //
Certainly. We run a location-based business and want to move it to address a larger market but the cost of moving is prohibitive.
Similarly I've a couple of inventions I'd like to work up; one of which I'd need access to a decent workshop and a couple of months [proper] income to spend on testing and prototype development.
On a slightly different tack there are educational opportunities that my kids are missing out on which require finance - they're low level costs but still out of reach. (Example, we do basic [chemistry|physics] experiments at home, a bit more money would enhance them considerably).
Let's use today's data and assume no changes in economic behavior.
You toss all these other assistance programs in the trash. One central agency administers the money. EBT cards could be administered separately from the basic income card. The rules would be simple, the cards are usable wherever debit and credit cards are. All government agencies would be required to accept them as well.
There are so many aid programs just in the US alone I bet no one can find them all, even at the Federal level the number of programs which partially if not wholly overlap is costly. Then throw in state ones which do essentially the same and we waste an incredible amount on money in just administration.
One way to solve that duplicate effort, get the feds out or get the states out. One agency should be able to administer it all.
Its galling to hand out money and have it gambled away or spend on cigarettes and whiskey. Don't laugh - a generation of women had to scrape by during the depression because the paltry paycheck went into a bottle. That's why we have food stamps etc - they can't be spent on anything but food.
There is a famous event of this happening in the old west, large portions of land was just handed out in a state lottery. It changed nothing. This is not a sustainable solution to the problem of bad income mobility.
Presumably, redistribution increases inflationary pressure in some sectors and reduces it in others, but it only increases them across the board if it results in more money being spent, e.g., by increasing the domestic velocity of money, total economic activity, and aggregate demand. But that's not a bad thing, and the danger of high inflation can be managed by monetary policy -- tightening monetary policy in response to expansionary conditions that would otherwise produce inflation is pretty much monetary policy 101.
> Because the money will be going out faster than it is collected
Obviously, its trivial to aggregate benefit to a dedicated revenue source so that its money is going out no faster than it is collected.
> There is a famous event of this happening in the old west, large portions of land was just handed out in a state lottery.
Presumably, this is a somewhat confused reference to the Homestead Act, which had a pretty significant impact on building the American middle class.
But, even so, a continuous redistribution through basic income is different than a one-time distribution of land.
Second point: Trivial? It has never been done so far. No government has managed to do this yet, it's the main source of inflation today.
Third point: It is different in that it's recurring instead of a one time hand out. The problems still remain. But the idea of "citizen pay" is not a new one. The problems remain: logistically difficult. Economically inflation removes the "wealth" being redistributed so people end up with nothing. Socioeconomically it removes pressure to invent wealth generating enterprises.
You know what all the evidence says? Lock 20 people in a room, each with a dollar, and nobody will care about the dollars as there's no market to do anything with them. If they have food in the room, they will tend to realize that it's gonna be a terrible mess and have violent conflicts if there's anything far from equal share of the food. Everyone reasonable will gang up on any hoarder. At their core, human groups are actually communist: from-each-by-ability to-each-by-need. Check out the book Debt: The First 5,000 Years by David Graeber