What is Universal Basic Income?
Universal Basic Income (UBI) is a form of economic policy where each citizen or resident of a state receives a regular, unconditional amount of money in order to cover basic living expenses. While this idea may initially bear some resemblance to welfare benefit systems present in many modern day developed economies, the key difference to note is that, in theory, UBI is entirely universal, meaning everyone would receive it regardless of income, employment status and/or physical health.
What is the idea behind UBI and how did it develop?
First suggested by 16th century English statesman and philosopher Sir Thomas More in his book Utopia, published in 1516 , where he illustrated a society where every individual received a guaranteed income. He goes on to suggest UBI as a way to prevent and reduce crime in modern states, stating that ‘instead of inflicting these horrible punishments, it would be far more to the point to provide everyone with some means of livelihood, so that nobody’s under the frightful necessity of becoming first a thief, and then a corpse.’
While there have been a multitude of discussions and considerations over the last 500 years since More first suggested UBI, a more recent appearance of the concept on a national scale was in the 2016 Swiss referendum which posed the question of introducing a form of UBI in Switzerland. The referendum received global media attention and sparked a renewed public discussion about whether UBI was a viable economic policy for developed states (regardless of the fact that the referendum failed).
Even more recently, during the Covid-19 pandemic, schemes resembling UBI began to appear around the world, with efforts like direct cash transfer programs being introduced in regions including the US, Hong Kong and Spain (along with 90 other states globally) to mitigate the economic impact of the pandemic.
What are the arguments for the introduction of UBI?
Historically, the motivation behind UBI has generally always been to decrease crime rates in developed states and push for a more equal division of wealth. In the modern day, however, motivations may be different. The Institute for Public Policy Research predicted that 59% of tasks/jobs currently performed by humans could be affected and/or entirely replaced by AI in the near future, and many have been championing UBI as a solution to the potential reduction in employment levels, particularly across developed and saturated markets and economies.
Additionally, supporters of UBI have suggested that a guaranteed, unconditional stipend introduced in the form of UBI would actually boost economic and GDP growth more than it would increase government spending. This is because, in theory, UBI would sustain people as they seek out higher paying and more skilled jobs which they are only able to train for due to the economic security provided by UBI. It is also theorized to increase risk appetite in the general population due to the ‘safety net’ it provides for citizens, boosting capital investment directly from citizens into the economy and again potentially stimulating greater economic growth and stability in the long term.
Many proponents of UBI also believe, rather counter-intuitively for an external observer, that the introduction of a UBI system can actually decrease government spending. According to statements made by the Mercatus Center (an economic research center based out of George Mason university in the United States that focuses on classical libertarian ideas within economic policy) the annual cost of a UBI would have been ‘$200 billion cheaper than the current system’ (released in 2014), as a UBI program is said to reduce administrative costs by simplifying the welfare system and improve work and investment appetite as people feel more financially stable, reducing the overall dependence on government funds.
Arguments against UBI
Typically, the main idea used to argue against the introduction of a UBI program in a nation is the theorized upward pressures on prices, particularly on goods and services in the labour and housing sectors, that would likely result in higher than target inflation levels in most developed economies if they introduced UBI.
There is also a philosophical side to the argument surrounding UBI. Through its fundamental nature, a UBI program would not make a distinction between ‘deserving’ and ‘undeserving’ individuals. This raises the issue of whether it is inherently right or fair to issue the same funds both to those who may actively choose to live a passive and idle life compared to those who willingly give back and contribute to the overall social and economic welfare of a society. This then leads to the question about whether UBI should become a fundamental human right as it would, in theory, guarantee every individual within a society a suitable standard of living, regardless of their social or employment status, further adding to the philosophical dilemma that is the concept of UBI.
Furthermore, critics of UBI often push the idea that the introduction of a guaranteed stipend would actually reduce the number of people in active work (the opposite of the argument mentioned above where citizens would be said to work more if UBI were to be introduced), which would in turn reduce tax revenues and subsidies received by local and national governments. For example, in the 1970s, various negative income tax experiments were held in the United States; researchers then found that there was a 5% decrease in the number of hours worked following the policy change. This reduction in hours only increased as the state benefit the subjects were receiving was increased.
Similarly, in 2024 a study was formed to investigate the impact potential of UBI in a modern setting. 1000 randomized low-income participants were selected from 2 different US states and there were given a UBI of $1000 per month over 3 years. Following the study researchers again found that there was a decrease in non-UBI household income of $1500 per year and a 2% decrease in labour market participation across all of the participant households. This again indicates that UBI may not actually have a positive effect on the economy as labour participation and overall economic involvement by individual citizens would decrease, both decreasing the rate of potential economic growth and reducing government tax revenues as personally generated income levels go down.
Conclusion
While the idea of UBI may be appealing at first glance, if every citizen in a state were to be provided with a ‘safety net’ of sorts to protect them from potential volatility in the economy and/or their lives, the question still remains. Is it ingrained in human nature to take a step back if a security (financially and socially) is guaranteed, therefore leading to a reduction in labour and economic growth, or will the average citizen take the introduction of UBI as an opportunity to boost their skills and working capabilities, having the opposite effect and boosting economic growth?
