What are some of the biggest problems with a guaranteed annual income?

What are some of the biggest problems with a guaranteed annual income?.

What are some of the biggest problems with a guaranteed annual income?

by on November 14, 2013 at 7:06 am in Economics, Political Science, Uncategorized | Permalink

Maybe this isn’t the biggest problem, but it’s been my worry as of late.  Must a guaranteed income truly be unconditional?  Might there be circumstances when we would want to pay some individuals more than others?  Many critics for instance worry that a guaranteed income would excessively reduce the incentive to work.  So it might be proposed that the payment be somewhat higher if low income individuals go get a job.  That also will make the system more financially sustainable.  But wait — that’s the Earned Income Tax Credit, albeit with modifications.

Might we also wish to pay more to some individuals with disabilities, perhaps say to help them afford expensive wheelchairs?  Maybe so.  But wait — that’s called disability insurance (modified, again) and it is run through the Social Security Administration.

As long as we are moving toward more cash transfers, why don’t we substitute cash transfers for some or all of Medicare and Medicaid health insurance coverage benefits, especially for lower-value ailments?  But then we are paying more cash to the sick individuals.  That doesn’t have to be a mistake, but it does mean that an initially simple, “dogmatic” payment scheme now has multiplied into a rather complex form of social welfare assistance, contingent on just about every relevant factor one might care to cite.

You can see the issue.  Whether on grounds of justice, practicality, or just public choice considerations (“you can keep your current welfare payments if you like them”), we should not expect everyone to be paid the same under a guaranteed annual income.  And with enough tweaks, this version of the guaranteed income suddenly starts resembling…the welfare state, albeit the welfare state plus.  Unemployment insurance benefits wouldn’t end.  More people could get on disability, and without those pesky judges asking so many questions.

The potential problem is that we inherit and in some ways magnify the problems with the current welfare state, rather than doing away with those problems.

Or we could be truly dogmatic about it, and simply pay each person the same amount of money no matter what.  But then do we take away the various forms of in-kind aid which are already in place?  And what about all those former EITC recipients, whose incentive to work is now lower than ever?

Part of the original appeal of the guaranteed income idea, especially as expressed by Milton Friedman, is that it would substitute for welfare programs and bureaucracies, not all of which work well.  On first hearing, the guaranteed income proposal sounds quite “clean.”  In reality, that is unlikely to be the case.

And once we recognize the proposal may be “the current welfare state plus some extra and longer-term payments,” one has to ask whether this is really what we had in mind in the first place.  It seems that if you wanted to reform current programs and also pay people more (debatable, of course), there may be better and easier ways of doing that than reforms which have to fit under the umbrella of “a guaranteed annual income.”

I still think the core idea is a good one, but perhaps “what the core idea is” is less pinned down than I might have wished.

Here is again Annie Lowrey’s very useful piece, which provides an overview of current proposals.

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