Economics, Rights Theory

The UBI in Non-Ideal Theory and Ideal Theory

Phil Magness has complained, at length, on Facebook that proponents of a universal basic income (UBI) like myself have failed to grasp with various “public choice” problems that would surely plague the functioning of the UBI. Presumably people would distort the use of the UBI in ways that are counterproductive. I’ve seen other libertarians raise worries that the UBI involves “handouts” and something for nothing. I think these objections are mistaken and I think I can demonstrate as much if you distinguish between two reasons libertarians might endorse a UBI: in ideal theory and non-ideal theory.

Without delving too much into this complex distinction, for my purposes, supporting a UBI in ideal theory involves saying that it is a destination policy, one that is appropriately for a good and fully just society. Once we have a UBI, we should stop there, for we have justice. In contrast, supporting a UBI in nonideal theory involves saying that it is a transitional policy, one that we should pass through in transitioning from our present institutions to ideal institutions.

I don’t think the concerns raised by Magness and others are especially problematic for a destination UBI, but they’re not worrisome at all for a transitional UBI (which I defend). That’s because justifying a transitional UBI just involves comparing all the problems with our present welfare-state (and welfare-states like it in close possible worlds) with how we expect a UBI to function in the present world. So there’s no “unicorn fallacy” here. To satisfy Phil, let’s assume that UBI would face all kinds of institutional problems. The important question is whether it would face worse problems than the present welfare-state that the UBI would replace (or some similar welfare-states to what we have now). And I see no reason to think it would fare any worse than the current welfare state, with its many, many problems. We should expect less waste, less rent-seeking, and so on, just as UBI advocates claim.

Second, while the UBI is a “handout” of a sort, it’s not really significantly more of a handout than other forms of social insurance. I suppose you could get upset about the fact that the UBI is unconditional, but the justification for that is largely consequentialist – it’s just cheaper to do it that way. It’s not because the non-needy people who receive it somehow deserve it or are entitled to it.

Note that since the UBI is transitional, once we got to it, we’d try to get rid of it in order to achieve more liberty, other circumstances permitting. For instance, if we replaced the welfare state with a UBI, I’d push for states to run their own UBIs, and then localities, making the UBI more and more voluntary, given the lower costs of exit characteristic of smaller governmental jurisdictions. And if we actually have freed markets for the poor and low enough taxes and high enough growth that private charity could do what the UBI does, then I’d support getting rid of the UBI.

The best counterarguments to a transitional UBI is that if we transition to a UBI we are less likely to ever get to liberty. That is, it’s a bad path from our present circumstances to liberty. I’m not sure why that would be, so I await an argument to that effect from someone else.

  • Dshapiro

    Hi Kevin. Isn’t one of the concerns that a UBI would not replace the welfare state but be added onto it?

    Daniel Shapiro

  • dbeito

    Kevin:

    For centuries, liberty has been part of a package deal which includes mutual aid, community building, and self-help. UBI, by contrast, serves to advance more atomistic forms of individualism (Hobbesian for some, Emersonian for others) which is relatively unconnected to mutual aid or self help. In its worst form, the liberty of UBI aids those who just want to just “get by” collect a monthly check and indulging in such pursuits as watching TV, playing Pokeman, or, worse, participating in gangs or crime. We’ve all met people like this. Their numbers are greater than many advocates of UBI want to admit and UBI would increase those numbers. I have no problem with many of these activities but possible benefit is there to subsidizing them?

    I disagree with this statement:”I suppose you could get upset about the fact that the UBI is unconditional, but the justification for that is largely consequentialist – it’s just cheaper to do it that way. It’s not because the non-needy people who receive it somehow deserve it or are entitled to it.”

    A good portion of those who receive UBI will fight tooth and claw to protect it and vote for politicians who will expand it. Why shouldn’t they? There is no stigma attached to UBI and it is granted unconditionally. For this reason, it is “transitional” to more of the same.

    At the turn of the last century, progressives repeatedly noted (often with dismay) that the poor shunned out of pride governmental welfare or top-down organized private charity even when they were eligible. For this reason, the numbers who received governmental poor relief was a fraction of 1 percent though poverty rates were about 40 percent.

    Yet, somehow millions of the impoverished immigrants who flooded into the Lower East Side and elsewhere not only “got by” but moved up the ladder or saw their children do so. Why? Because they relied on such traits as self-help. delayed gratification, and forcing mutual aid arrangements (which they too pride in creating on their own often incrementally). Countless individuals in that generation could claim, not without great exaggeration, that they “made it on their own” without governmental help. In an UBI world, no individual who begins poor and advances to higher incomes can take pride in that achievement, at least in the same way

    It is worrisome to me that very few defenders of UBI (libertarian or otherwise) even want to discuss the important role of mutual aid and self-help They also don’t seem too interested in proposals to create an environment where the poor can advance on their own such as the elimination of zoning, eminent domain, tax credits for private schools, or end to occupational licensing.. Perhaps you have had a different experience but I have found that repeatedly in discussions with them. It seems to be a segment missing from their world view, in many cases.

    UBI sends a message that only a fool would want to shun external help from government and take pride in “doing it on their own.” That is a very, very destructive message to send.

    • Jeff Sylvester

      Couldn’t people take pride in “doing it on their own” if the “it” was more than just survival?

      If you just want to eat and survive, the UBI takes care of you. If you actually want stuff, you have to earn it.

      There have definitely been some who tried to “do it on their own” and never getting out of the gate.

  • One big problem with a UBI is that it is a tacit endorsement of a UBE: Universal Basic Excise. I don’t think we have to go so far as to say “taxation is theft” in order to say that society’s tax burden ought to be minimized to the greatest extent possible. Implementation of a UBI suggests that there is a minimum amount of taxation that MUST occur in any society. In other words, the UBI implies that the minimum level of taxation is whatever can support a UBI. This is the value of the UBE.

    I don’t think it’s particularly libertarian to outline a minimum level of taxation. Why set a minimum? If society can innovate to the point where taxation is no longer the primary public finance vehicle, then it ought to. We ought not be bound to taxation for theoretical reasons, we ought to be able to explore any idea, and a zero level of taxation should always be on the table, at least in theory.

    Otherwise, what are we doing, other than binding all social justice questions to a theory of public finance? Why should we have to do this?

    • Ben Jamin’

      Taxing people for what they produce is theft. However, all taxes are “land taxes” insofar as they lower rental incomes/selling prices.

      The more indirectly we tax land, the more unfair is becomes(theft), the more it distorts incentives and the poorer we all end up as a result.

      If a UBI was funded out from a direct “tax” on natural sources, it would merely be an equal share of Land rent we are surely all entitled to.

      • That’s a pretty unorthodox viewpoint, but I appreciate the answer.

  • A second, less theoretical objection to the UBI is this: Wouldn’t we expect the primary result of the UBI to be nothing more than nominal inflation? If not, why not?

    • j r

      For UBI to bring nominal inflation, wouldn’t it have to get the economy to full employment? If UBI can get the economy to full employment, then it’s probably worth a little inflation.

      • Are you saying inflation can only happen at full employment? I disagree.

        • j r

          Inflation is a catchall term for a lot of different economic phenomenon, so no, it cannot only happen at full employment. I was responding to the “nothing more” part.

          I read the concern about UBI leading to inflation to be about a whole bunch of people with new and increased purchasing power bidding up the price of goods and services as opposed to producing more goods and services. If lots of economic assets in an economy are underemployed or unemployed, all that new purchasing power is going to pull those assets into the economy. The result would be real growth, not inflation.

          • Perhaps you’re right, but I read the BHL’s reasoning for a UBI as being arguments for social justice, not for economic stimulus. A UBI implemented as an economic stimulus would necessarily be temporary, for once it had done its job as a stimulus, it would then only be causing inflation.

            If, on the other hand, economic stimulus is out of the picture and the goal of a UBI is solely to produce social justice, then the question of inflation becomes of real practical concern. After all, inflation hits poor people hardest, and poor people are presumably those who stand to gain the most from a social safety net.

            So if that net is only giving the poor a bunch of inflation, then it’s probably not a good policy. I’d love to hear what Kevin (or Matt, or Jessica, or et al) have to say about this.

          • j r

            I’m not following you. I didn’t say anything about the purposes of UBI, only the effects. The effects don’t depend on the intentions.

            What’s the mechanism that would cause a UBI to increase inflation?

          • “X would be good for social justice!”
            “But won’t X just cause a bunch of nominal inflation?”
            “But if the economy isn’t at full employment, that might be good!”
            “Okay, but the economy isn’t always in need of stimulus, and besides, I thought we were talking about social justice.”
            “I’m only talking about the effects, not the intentions.”

            I see that last statement as being the major non sequitur in the conversation, but maybe it’s just I who doesn’t understand you.

            Anyway, it’s fairly uncontroversial that a gigantic government transfer payment to (as Matt Z put it in his Cato piece) “every man, woman, and child” would be a big increase in G of consistent distribution across the population. Sounds like a big increase in the money supply, right? Like a big annual tax dividend, such as exists in many natural resource economies all over the world.

            Granted, you can jimmy-rig the UBI to try to avoid the most deleterious aspects of this kind of money-drop, but we’re talking about non-ideal theory here, and so we have to actually account for which non-ideal situations would avoid the fact that a truly *universal* UBI would just be a big nominal income inflation project unless otherwise formulated.

          • j r

            “But won’t X just cause a bunch of nominal inflation?”
            “But if the economy isn’t at full employment, that might be good!”

            OK, I see the disconnect. I didn’t say that inflation might be good. I said that if rising prices bring more assets into employment, then maybe its worth a little inflation. Also, I don’t think that inflation works the way you are claiming.

            There are roughly two reasons why prices go up. One is that people get richer and demand for stuff goes up. The other is that the supply of stuff goes down and people are forced to spend more of their money to get the same amount of stuff.

            If the economy is at full employment, a boost to G leads to a boost in aggregate demand, which leads to the latter situation. If the economy has a lot of idle resources, a boost to G leads to a boost in aggregate demand, which pulls those resources into use and leads to growth.

          • I’m not sure I see the disconnect yet. I agree with what you’ve just stated and now I’m wondering why you don’t see a constant perpetuity in the form of a UBI as something a lot like a constant money supply increase.

            But therein lies my question. I’m not saying that the UBI is just an inflation-producing machine, I’m just saying that from my vantage point, it’s a reasonable criticism. If there is an argument against this that doesn’t require “ideal theory” to resolve, then I’m all ears, and I’d like to be shown wrong.

            But, on the other hand, if there’s something to my criticism, then it would be nice for UBI proponents to own up to it. Is this why UBI fans and NGDPLT fans have such high overlap? Two things in one! Increase NGDP by 5% annually by paying out a UBI! Etc. etc.

          • j r

            I’m wondering why you don’t see a constant perpetuity in the form of a UBI as something a lot like a constant money supply increase.

            I don’t see why that is a problem. Milton Friedman said that he’d like to see the Fed replaced by a computer that increased the money supply at a constant rate. So, maybe there is a relationship between my views on monetary policy and not being overly concerned with the inflationary aspect of UBI

            Just to be clear, I’m not saying that inflation doesn’t matter or that UBI is good because it would have stimulus effects. I don’t know if a UBI would lead to a bidding up in prices, but if it did, I am guessing those increased prices would draw more resources and labor into the market, which would equal more growth and not more inflation.

          • Yes, your views on monetary policy are preventing you from exploring this issue in the way Kevin requested: in light of non ideal theory. There is a way for you to discuss this while retaining your views on monetary policy, but it involves recognizing that your views are not unanimous and that your favored policies may pan out in non ideal ways even if implemented perfectly.

            Inflation does not always have the effect you describe. Non ideal theory means acknowledging this on some level and being able to talk about it.

          • j r

            I am talking about it. I am saying that if UBI raises purchasing power, which raises demand, which raises prices (ie inflation), the effect of those higher prices will be to draw more factors (ie land, labor and capital) into the economy as people try to take advantage of the increased demand and higher prices.

            If the economy is already running at its maximum output, then the effect of that higher demand cannot be met with higher supply, the effect will be demand-pull inflation. That would be a problem.

            But the question still remains: where is the economy with regard to its long-term equilibrium rate of growth and what affect would UBI have on that?

          • It’s clear from at least two of my comments above that my suggestion is that this *will not* raise purchasing power – or what if it doesn’t? What if it instead reduces it?

            See, your last comment begins by saying, “If your concern is irrelevant, then the UBI will have some good effects.” Then, instead of continuing by saying, “If not, then… XYZ,” you bring up a different issue entirely: Whether the economy is at maximum output or not – something you want to talk about but I do not.

            And by the way: UBI is fiscal policy, not monetary policy.

          • j r

            Are you trolling me?

          • Nope, but wow.

          • j r

            I don’t know what else to think, because you don’t seem to grow what I’m actually saying. Maybe it’s that what you’re calling “nominal inflation” isn’t really a thing.

            If prices go up faster than the economy grows, you have inflation. If prices go up and the economy grows at the same rate or faster that’s not inflation, that’s not gross.

            It’s possible that a UBI would cause prices to rise while the economy stagnates, but rising prices would serve as a pretty good incentive for folks to start engaging in economic activity, hence spurring growth and negating inflation.

            You want to just say ‘assume inflation’s without bothering to consider the mechanisms that would bring inflation. Why would you do that?

          • It’s hard for me not to think that you’re just being deliberately obtuse. The mechanism that would bring inflation is the appearance of an annual, uniform perpetuity paid to every man, woman, and child in the country. That’s an increase in M without any clear change in demand.

            You’re saying this wouldn’t be bad if demand rose in response to the money supply growth, but this ignores all that rational-expectations-across-multiple-time-periods analysis that happened in the 60s and 70s. You mention Friedman’s position, but you seemingly omit the part about the whole reason perpetual, flat money-supply growth is an attractive idea to Friedmanites is because expectations theoretically adjust to the point that the x% money supply growth no longer affects demand unless something else is going on.

            All that, and you keep dropping the context of the actual conversation we’re having, which is not about monetary policy, but about the UBI. So the implementation of a UBI in a non-ideal type of analysis presupposes that central banks keep on keepin’ on with all the monetary policy that they’re doing and that the UBI is unrelated to that. It’s a fiscal maneuver, not a monetary one.

            So, to spell it out completely, suppose that implementation of a UBI results in a flat annual payment to every man, woman, and child in the country (by definition of a UBI) and that expectations and prices adjust to this, and hence there is no long-run impact on aggregate demand. Then, inflation increases but purchasing power stays the same.

            How is that a social welfare policy?

  • Phil Magness

    For reference, here’s a link to my reply in which I argue that the public choice criticism still holds in non-ideal conceptualizations of UBI. In fact, the political obstacles to UBI may be a defining feature of this policy when approached in a non-ideal political world.

    http://philmagness.com/?p=1768

    • Ben Jamin’

      Tax and benefits are really two sides of the same coin.

      Lets say a UBI was funded purely out from the rental value land ie a 100% LVT, with no other changes to the tax/benefits system.

      Where are the problems with that? Aside from the small admin cost of running a parallel State property tax, there are only upsides that I can see.

      Improved allocational efficiency, and a reduction in inequality. It’s all good.

  • Ben Jamin’

    A UBI is part of the share from the rental value of Land to which we are all morally entitled to.

    So, not a handout but an equal share.

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