Universal Basic Income

If you take the fear out of capitalism, is it still capitalism?

Photo by Rafael Garcin on Unsplash

About fifty years ago, an economic and social experiment took place in the small town of Dauphin, Manitoba in Canada that may have just sparked a revolution in economic thinking.

The revolution thus far has been a slow one, but it is gaining steam.  

In 1974, University of Manitoba economist Derek Hum, along with Manitoba civil servants Ron Hikel and Michael Loeb, worked with the government of Dauphin to conduct the first large-scale experiment with a universal basic income. Over the four years that the experiment ran, families could receive a basic income of 16,000 Canadian dollars (about $12,000) for the year. The researchers picked Dauphin, with a population of 10,000, because it was just the right size. A smaller town wouldn’t provide enough statistically significant data. A larger town would prove too expensive for the program.

The experiment was a roaring success.  

Measures of physical and mental health improved. Full-time employment increased, and more students completed high school.

The program stopped in 1979 when economic conditions such as oil price shocks and inflation increased the levels of unemployment in Dauphin and more people applied for the program than had been planned.

What happened?

The monthly payments made to qualifying families of Dauphin provided security. The payments were not enough for someone to do nothing and sit on their couches all day. But for people living near the poverty line, a payment of just under $1,000 per month removed one thing from the lives of those living on the edges in Dauphin: fear.

The people of Dauphin who lived at or below the poverty level in 1973 lived with fears that those in 1974 didn’t have to live with as much. Fears of not making rent, losing a job, not being able to pay for medical expenses, or not being able to put food on the table were more real in 1973 than they were in 1974 once the program started   

The research from the Dauphin experiment showed an 8.5% decrease in hospitalizations over the four-year time period. There were fewer alcohol-related accidents and less reporting of mental health issues.

Full-time employment increased because residents could hold out for a better offer instead of trying to make ends meet with part-time or gig work. Students stayed in school longer because their families did not need them to work. Finally, those living in poverty didn’t have to take on excessive debt in cases of emergency.

It wasn’t just Dauphin

A similar program took place in Stockton, California in the United States about forty years later. Stockton is about three times the size of Dauphin, so provides more data. In 2012 the city of Stockton declared bankruptcy, and it had to cut back on social services. In the wake of these hardships, about 25% of the residents of the town lived below the poverty line.   

In 2017, Stockton started the Stockton Economic Empowerment Demonstration (SEED) program. Participants in the program had to live in a neighborhood at or below the town median income. Participants were selected at random. There was a group that got $500 a month and a control group that got nothing.

The results mirrored those from Dauphin.

Guaranteed income recipients increased their rate of full-time employment from 28% to 40%. The control group saw a 5% increase in employment over the same time period.

The share of those who received the payments who said that they could pay for an unexpected expense rose from 25% to 52%.

People in Stockton reported fewer problems with mental health and depression.  

Not surprisingly, those who received the stipend experienced 31% less income volatility than those in the control group.

Can UBI work at a national level?

But can a universal basic income work on a large scale across a whole country?

We just answered this question two years ago.

During the pandemic, a number of countries, including South Africa and the United States adopted some form of payment to some citizens who were hit hard by Covid. The idea behind the payments may have been to keep the economy from collapsing, but the results were striking.

The U.S. Census Bureau reported that monthly COVID-19 relief payments and social assistance program expansions lifted 11.7 million people out of poverty in the early months of the pandemic. Those COVID-19 relief payments lifted about 3.5% of Americans out of poverty.  These payments helped reduce children’s food insecurity by 30%. The expansion of the child tax credit in the United States led to a 46% decline in child poverty – to a record low of 5.2%.

During the pandemic, in the United States, the same thing happened that had happened in Dauphin, and in Stockton. For a short period of time, we removed a large amount of fear from the economy. Fear of not being able to eat, fear of not being able to find work, fear of not being able to pay rent or the mortgage. In 2018, the annual poverty rate in the United States was 13.9%. In 2021, it was 7.7%. Poverty went down, and the health of the nation went up.

And then we let it stop.

Poverty levels went back up to 12.4% in 2022 after the relief ended.

Oh well, you can’t have capitalism without the fear part, can you?

Can you?

Critiques of UBI.

Universal basic income isn’t a panacea, but it is a program that seems to work.

It appears that a universal basic income can take some of the fear, anxiety, and despair out of life for those in a society living at or below the poverty line. This makes a society that adopts a UBI happier, better educated, and more healthy. People receiving the benefits from a UBI also tend to spend that money on everyday needs putting that money back into the economy. I imagined that a UBI would decrease crime because you have fewer desperate people in a society with a UBI, but I couldn’t find conclusive data, so the jury is still out on that.

I doubt the universal part of UBI is needed because, for a good portion of the population, the UBI wouldn’t make much of a difference. This means testing the UBI would help offset some of the costs of the program.

Let’s start there with critiques of UBI.

It would cost too much.

The money for has to come from somewhere. Where is it going to come from?

There are a few answers to this question. One is that a UBI would cut down on a lot of the bureaucracy and programs that we now have to service those at or below the poverty level. UBI wouldn’t mean that you can get rid of every one of these programs, but if people are getting $500 per month to spend as they see fit, they will need less aid from food, health, and housing programs that have been set up to serve these communities. A reduction in the caseload of these programs might save money (and fit nicely in that four-day workweek I talked about last week).

Another area where this money can come from is increased taxes. Some have argued for a Value Added Tax (VAT) that would mostly impact more wealthy individuals, or to increase tax rates to pay for these programs.

It encourages laziness.   

The data from Dauphin and Stockton doesn’t support this argument. Full-time employment went up while these programs were in place. The stipend that was provided in Dauphin and Stockton was nowhere near enough to just do nothing and watch Netflix all of your life. $500 - $1,000 will keep the lights on and food on the table, but it isn’t enough to not do anything.

The truth is people want to work. This is something that Anthropologist David Graeber found in his 2018 book, Bullshit Jobs, that I talked about a few weeks ago. Graeber found that people were most depressed with their work situation when they had jobs that they thought were meaningless and unnecessary.

It is too socialist/It is too capitalist.

UBI must be a good program because people on both extremes of the political spectrum find things to hate about it.

Some people think that a UBI is too socialist because it gives people something for doing nothing. These people don’t understand the definition of socialism. I encourage them to reread their Marx and Engels and get back to me. Socialism is where everyone collectively owns the means of production. UBI is a social safety net program, similar to social safety net programs that exist in most countries around the world.

I’ve heard arguments from the other side of the political spectrum that a UBI is not targeted enough and that it is a capitalist in that it doesn’t target payments where they need to go. This argument is unhappy that a UBI just gives money to people and lets them use it in a capitalist system any way they choose. Yeah, that’s kind of the idea.

These people getting a UBI, are generally going to know what’s best for them. A UBI lessens the bureaucracy they have to navigate to just get by. How much time is spent by those living in poverty filling out forms, waiting to talk to someone and applying for assistance? Let’s streamline that process where we can.  There is even an argument to be made the UBI is a way to save capitalism from itself, by helping create a more inclusive form of capitalism and not the winner-take-all, law of the jungle system, that capitalism can become.

I am sympathetic to the argument that forcing a UBI on a culture that doesn’t want it can be problematic. For example, indigenous communities that largely exist outside of a capitalist system, but are contained in a capitalist country (say in the Brazilian Amazon) might operate in a more collective society. In such a case, a UBI might do more harm than good. This is a fair point – so adjustments could be made in such an instance.

In Conclusion

A universal basic income or even a targeted basic income seems like a pretty enlightened policy that can help a society be healthier, happier, more egalitarian, and less fear-based.

As of this writing, 33 countries have tried, discussed or implemented a UBI at some level. The COVID-19 pandemic really opened the floodgates and got people to revisit those lessons learned in Dauphin half a century ago.

As more people come to understand what a UBI is all about, maybe, just maybe, capitalism can evolve beyond the amygdala.

If you think so, spread the word.