Bringing the Basic Income Back to Earth


Review of Raising the Floor: How a Universal Basic Income Can Renew Our Economy and Rebuild the American Dream, by Andy Stern with Lee Kravitz, and In Our Hands: A Plan to Replace the Welfare State (Revised and Updated Edition), by Charles Murray

New York: PublicAffairs, 2016 / Washington, D.C.: Aei Press, 2006

The universal basic income is an idea whose time has come—again. The first time, in 1970, the House of Representatives passed a measure to provide a guaranteed annual income to families of $500 per parent and $300 per child ($3,106 and $1,864, respectively, in today’s dollars). The basic income movement back then was bipartisan: a majority of House Democrats and a majority of House Republicans supported the bill, as did President Nixon. But Nixon was careful to say that his basic income plan would not end poverty once and for all. As Nixon told the country in a televised address several months before the basic income measure passed the House:

Abolishing poverty, putting an end to dependency—like reaching the moon a generation ago—may seem to be impossible. But in the spirit of Apollo, we can lift our sights and marshal our best efforts. We can resolve to make this the year not that we reached the goal, but that we turned the corner.

Nixon’s plan died in the Senate at the hands of Louisiana Democrat and Finance Committee chairman Russell Long, who was worried that a minimum income would encourage “indolence.”

More than four-and-a-half decades later, proposals for a basic income are percolating once again—and once again, support comes from both ends of the ideological spectrum. This time, though, prominent supporters of a basic income are not quite as modest in their claims as President Nixon was. On the left, longtime labor leader Andy Stern says in his new book, Raising the Floor: How a Universal Basic Income Can Renew Our Economy and Rebuild the American Dream, that a basic income of $12,000 per adult per year can “end poverty” (p. 215), stimulate economic growth (pp. 189-90), and “help all Americans to achieve” the “life that you want for yourself and your family” (p. 170). On the right, libertarian public intellectual Charles Murray says in the new edition of his book, In Our Hands: A Plan to Replace the Welfare State, that a basic income of $13,000 per adult per year would “lower[] the rate of involuntary poverty to zero for . . . just about everybody” (p. 37), while also having a “revitalizing effect” on family institutions (p. 78) and civic culture (p. 89).

I agree with Stern and Murray that a universal basic income would amount to an improvement over the existing welfare state. Yet I worry that both authors are promising the moon. Stern’s basic income plan would not end poverty for all families with children; it would have an uncertain effect on economic growth; and it most certainly would not put the American Dream within everyone’s reach. As for Murray, his UBI proposal would do even less to eradicate poverty (even though he would ostensibly provide $1,000 more than Stern), and his predictions regarding a UBI’s likely effect on family structure and civic culture are as implausible as they are grandiose.

The Robots Are Rising

The first three quarters of Raising the Floor say very little about a UBI and much more about Andy Stern. While Stern shares authorship credit with journalist Lee Kravitz, the book is very much autobiographical (and phrased in the first-person singular). Stern tells us about his ascent to the presidency of Service Employees International Union, his role in helping to elect Barack Obama as President, and his membership on the Simpson-Bowles deficit-cutting commission (which ultimately failed to close the deficit after Stern and six other members voted against the commission’s final report). He then takes us on a cross-country road trip where we meet (among other characters) the late Intel co-founder Andy Grove, former Lehman Brothers investment banker Steven Berkenfeld, and an unemployed 28 year-old named Kristina who has the good fortune of sitting next to Stern on a Spirit Airlines flight from New York to Detroit.  

All the while Stern, in a roundabout way, seeks to convince us that the American economy has arrived at a “strategic inflection point.” A “strategic inflection point,” Stern learns from Andy Grove, is “[a]n event, development, or confluence of events and developments over time that result(s) in a significant change in the progress of a company, industry, sector, economy, or geopolitical situation” (p. 28). Stern thinks that the developments that have brought us to a strategic inflection point are automation and artificial intelligence, which—he believes—will lead to “the loss of millions of middle-class jobs, perhaps forever, but definitely for the foreseeable future” (p. 59).

To substantiate this dire prediction, Stern relies heavily on the work of Oxford researchers Carl Benedikt Frey and Michael Osborne, who estimate that 47% of American jobs are at “high risk” of computerization. A job is at high risk of computerization, according to Frey and Osborne, if “associated occupations are potentially automatable over some unspecified number of years, perhaps a decade or two.” Frey and Osborne construct their list of jobs at high risk of computerization by identifying the occupations that they are “most confident” can be automated, and then using U.S. Department of Labor data and a sophisticated algorithm to assign probabilities of automation to other occupations.

Occupations that Frey and Osborne are “most confident” can be automated include judicial law clerks, market research analysts, bus and truck drivers, tax examiners, auditors, and accountants. Their expanded list of computerizable occupations includes barbers, security guards, nuclear power reactor operators, models, and umpires and referees. To be clear, Frey and Osborne only claim that we will be able to computerize these jobs “in an unspecified number of years,” not that these jobs will actually be filled by robots. Stern, however, is more alarmist. He predicts that technological advances will spell “disaster” for the 47 percent (p. 163).  

Personally, I am doubtful that judges will be receiving bench memos and opinion drafts from armies of robots in “an unspecified number of years, perhaps a decade or two,” or that R2D2 will be cutting our hair. Likewise, I would bet that in 2027 (or even 2037), we still will have humans behind home plate at Wrigley Field calling balls and strikes. (By that point perhaps the Cubs will have broken the curse.) This is not to deny that advances in artificial intelligence will lead to some job losses in the coming years. But these advances will also lead to new jobs (e.g., in software development and computer systems analysis). Recall that the term “Luddite” comes from the 19th century English handloom weavers who believed that new technologies like the power loom would put them out of work. They were in one respect right—industrialization did spell the demise of handloom weaving in the 19th century—but it did not lead to persistent unemployment because new sectors emerged to take its place.

Perhaps, as Stern seems to believe, this time is different. Neither Stern nor I is a fortune teller (and if we were fortune tellers, we might be replaced by robots too). In any event, the first three-fourths of Stern’s book are all setup for his argument in the last quarter: that a universal basic income is “a policy that can raise the floor and reinvigorate our nation’s founding principles while providing new scaffolding for the American Dream” (p. 172). Stern’s argument rises or falls on that claim.  

The Floor Is Falling

Stern’s proposal is to send a $1,000 check each month ($12,000 per year) to every American adult between 18 and 64, and to allow anyone over 65 who receives less than $1,000 a month from Social Security to opt out of that program and into a UBI. The 2010 Census counted 194 million adults in the United States between ages 18 and 64, so—even before adding seniors to the mix—Stern’s plan would cost more than $2.3 trillion. He would finance this by eliminating “all or some number of the 126 welfare programs that currently cost $1 trillion a year” and “all or some of the federal government’s $1.2 trillion in tax expenditures,” and by imposing a financial transaction tax, and maybe—though only maybe—by imposing a value added tax (VAT) of 5 to 10 percent, and perhaps also by levying a wealth tax of 1.5 percent on personal assets over $1 million (pp. 212-14).

There is much to be said for Stern’s plan, even while the details remain sketchy. I, for one, would be happy to see federal programs that provide benefits to low-income individuals and families in kind—like the Supplemental Nutrition Assistance Program (SNAP) and Section 8 Housing Choice Vouchers—converted into a single streamlined system that dispenses benefits in cash. But there are at least three things that can’t be said for Stern’s plan (though Stern says all of them). First, it would not end poverty. Second, it would not ineluctably lead to greater economic growth. And third, it would still leave the American Dream far from reach for millions of families.

Start with the first claim—that a UBI would end poverty. The Census Bureau uses an official poverty measure based on pre-transfer income and a supplemental poverty measure (SPM) based on income after taxes and transfers. Since Stern is making a claim about the effect of transfers on poverty, the SPM is the more appropriate measure here. In 2014, the most recent year for which the Census Bureau has released figures, the SPM threshold for a family of one parent and two children (assuming the family doesn’t own its home) was $24,216. A single parent with two children would receive just $12,000 a year under Stern’s plan. So a single parent would have to work at least 32 hours a week at the federal minimum wage of $7.25 to clear the poverty line with Stern’s UBI. That’s not so easy if the parent is the sole caregiver—especially if Stern is paying for his UBI by cashing out federal funding for child care. (Note that Head Start and other early education and child care programs are on the list of 126 programs that Stern says he potentially would eliminate.)

Not only would Stern’s plan fail to end poverty, but it would also make life worse for many single-parent families living in poverty today. That’s because many families in this category receive more than $12,000 in federal benefits already. SNAP, which covers approximately 45 million Americans, provides a maximum benefit of $6,132 per year for a family of three and an average benefit of around $4,500. The maximum earned income tax credit (EITC) for a parent with two children is $5,572 per year, and the maximum child tax credit is $1,000 per child per year. Other programs on the list of 126 that Stern would consider eliminating include Supplemental Security Income (SSI), Temporary Assistance for Needy Families (TANF), Section 8, the National School Lunch and School Breakfast Programs, and—as noted above—Head Start. For a single-parent family of three eligible for the average SNAP benefit, close to the maximum EITC, and some combination of other federal “welfare” programs, Stern’s plan to eliminate these benefits and replace them with a $12,000-a-year UBI would actually lower the floor.  

And then there is Medicaid. In fiscal year 2011, the federal government spent an average of $3,247 per adult and $2,463 per child enrolled in Medicaid (those numbers have likely risen since). To be sure, the amount that the federal government spends on each Medicaid recipient is not necessarily the same as the value each Medicaid recipient assigns to benefits; even so, these figures illustrate that if Medicaid is eliminated to pay for Stern’s UBI, then an even larger share of low-income families will be rendered worse off by the change. Stern tells me on Twitter that “health care is too complicated to cash out” and so he wouldn’t do it. But of the $1 trillion in costs that Stern traces to existing welfare programs, a quarter can be ascribed to Medicaid and the Children’s Health Insurance Program (CHIP). Eliminate Medicaid and CHIP to pay for a UBI and you make many low-income families worse off; keep Medicaid and CHIP and the math becomes that much harder.

Some of the shortcomings of Stern’s plan are design flaws not inherent in a UBI. Most significantly, a UBI could include children—which would help to offset some of the pain that would be felt by single-parent families due to the elimination of SNAP, the EITC, and other existing income security and housing assistance programs. For example, instead of providing $1,000 a month to each adult between ages 18 and 64, the federal government could (at the same cost) provide a monthly income to each household of $724 for each member between ages zero and 64. (Actually, this latter option would be slightly cheaper because fewer senior citizens would choose the UBI over Social Security.) For a family of one parent and two children, a monthly income of $2,172 ($724 times three) would almost certainly exceed the value of benefits that the family receives through the programs that Stern would eliminate.

Stern’s rationale for excluding children from his UBI proposal is curious. He says he is worried about the complications: “just think about all the issues that come up when you try to get your mind around giving [a basic income] to a ten-year-old” (p. 204). But there is nothing terribly complicated about it: we could allow parents to claim the UBI on behalf of their children, just as we now allow parents to collect SNAP benefits and claim tax credits on behalf of their children. Many European countries have distributed cash benefits on a per-child basis for years. Of course, allowing parents to collect the UBI on their children’s behalf might encourage parents to have more children—though note that the existing system of tax and transfers already encourages low-income individuals to have kids. For example, a single individual earning $10,000 a year receives an additional $4,000 through the EITC and child tax credit if he or she has a child, plus potentially more through SNAP. So the welfare state already generates incentives to have more children, and there is little reason to believe that the additional incentive from a child-inclusive UBI would have a dramatic effect on fertility. (Indeed, research by Stephen Bronars, Jeff Grogger, and Melissa Schettini Kearney leaves us with little reason to believe that the incentives embedded in the existing welfare state yield a dramatic effect on fertility.)  

Just as Stern’s plan would have an ambiguous effect on families in poverty, so too would it have an ambiguous effect on economic growth. Stern emphasizes the “multiplier effect” of a UBI: since lower-income households have a higher marginal propensity to consume, he believes that implementing a UBI and paying for it in part through higher taxes on the rich “will have a major ripple effect on the entire economy” (p. 190). And indeed, writing a $1,000 check each month to every adult in America would likely be stimulative. On the other hand, eliminating SNAP and the EITC would offset some of the stimulus, and a VAT—which is effectively a consumption tax—would further counteract the stimulative effect of a UBI. And forecasting the macroeconomic effect of eliminating “all of some” tax expenditures is complicated. Getting rid of the exclusion for employer contributions toward employee healthcare would reduce consumption of healthcare. Getting rid of the mortgage interest deduction would cause house prices to fall (which would likely lead homeowners to cut back their consumption too). This is not to say we shouldn’t do it. But we should not expect that Stern’s plan will “renew our economy,” as his subtitle claims.

Finally, we arrive at Stern’s assertion that a UBI of $12,000 per adult would “help all Americans” achieve the American Dream (p. 170). This is perhaps the boldest—and most dubious—of Stern’s predictions. Stern highlights the example of Scott Santens (p. 261), a UBI advocate in New Orleans who lived alone for several years on $12,000 to $14,000 and says he “manage[d] to get by just fine.” But “just fine” is a far cry from “the American Dream,” and while Santens’s demonstration project is admirable, it’s important to note that Santens was living on $12,000 a year without children. (Indeed, when Santens says that $12,000 is enough to “cover basic needs,” he emphasizes that he is “not including costs like health care and child care”—much less the cost of feeding additional mouths.) A future in which millions of Americans lose their jobs to robots and have to live on $12,000 a year is not anyone’s idea of the American dream. Although a UBI would be better under those circumstances than no safety net at all, it would still leave today’s workers with quite some distance to fall.

In Our Dreams

Charles Murray’s In Our Hands is a much thinner book than Stern’s, and the basic income plan that Murray proposes is quite a bit less redistributive because it would cash out more existing programs. Indeed, Murray, a scholar at the American Enterprise Institute, makes no bones about the fact that he would end all income redistribution if he could (p. 3). He sees a UBI as a second-best way to get the government out of people’s lives. Murray would have the government say: “Here’s the money. Use it as you see fit. Your life is in your hands” (p. 10).

Whereas Stern is rather vague about the details of his plan, Murray is quite specific: $13,000 a year for every adult over 21, of which $3,000 must be devoted to catastrophic health insurance (p. 7). Half of the UBI would be phased out gradually as income rises from $30,000 to $60,000; anyone earning more than $60,000 would receive $6,500 (p. 8). Murray estimates that his proposal would cost a bit more than $2.5 trillion, and he expresses none of Stern’s uncertainty as to which programs should be eliminated to pay for it: Social Security, unemployment insurance, Medicare, Medicaid, CHIP, all Affordable Care Act subsidies, the EITC, the refundable portion of the child tax credit, SSI, SNAP, TANF, school lunches, Pell grants, all federal housing assistance (including Section 8), and several other spending items that he lists in an appendix (ranging from refugee assistance to the September 11th Victim Compensation Fund).

Murray says that his UBI would spell the “end of involuntary poverty” (p. 37). It would not. As noted above, the SPM threshold for a single parent with two children in 2014 was $24,216. SPM income is measured after payroll taxes and out-of-pocket medical and child care expenses. Accounting for payroll taxes (but not medical and child care expenses), a parent working 40 hours a week for 52 weeks a year at the federal minimum wage would be $10,290 short of the SPM threshold, so $10,000 in cash from Murray’s UBI would still leave the family (just) below the line. And without Medicaid, the family’s out-of-pocket medical expenses would rise sharply. In Illinois, catastrophic health plans for a family of three cost more than the $3,000 a year that Murray would set aside—and still carry deductibles of several thousand dollars. Factor in that Murray’s proposal would eliminate all federal funding for child care, and the straits of the single parent become even more dire. Indeed, with all the tax credits and programs that Murray would eliminate, his UBI plan would most likely exacerbate involuntary poverty for single-parent families.

Murray might respond to this line of attack by noting that these figures are for single-parent families, not married couples with children. And according to Murray, “[o]ne effect of a UBI will be to make marriage economically easier for low-income people” (p. 73). That claim rests on the premise that existing transfer schemes like the EITC penalize marriage among low-income couples, and so replacing the existing system of transfers with a marriage-neutral UBI would encourage couples to wed.

There is indeed some evidence to support the premise that the existing EITC imposes a marriage penalty on low-income couples (although it confers a marriage bonus on other low-income couples). And yet the EITC’s overall effect on marriage rates is likely quite modest. Research by Angela Rachidi, Murray’s colleague at the American Enterprise Institute, indicates that the EITC imposes a marriage penalty of less than $1,000 on average across low-income couples (though a larger penalty in some cases, and a bonus in others). Meanwhile, Hayley Fisher of the University of Sydney estimates that a marriage penalty of $1,000 leads to a drop in the probability of marriage in the 2 percentage-point range. This is not insignificant: increasing the marriage rate among low-income couples by 2 percentage points still would mean that hundreds of thousands more children would be raised by married parents. And yet it’s hard to take seriously Murray’s claim that “the UBI will give marriage renewed meaning and vitality” (p. 80). We’re talking about changes that are marginal, not monumental.  

Murray’s pro-UBI rhetoric soars to even more unrealistic heights when he shifts from considering the UBI’s effect on families to the UBI’s effect on communities. He writes that “[t]he effects of the UBI on America’s civic culture are potentially transforming and, in my view, are likely to constitute the most important single contribution of the UBI” (p. 81). The causal mechanisms powering this transformation are obscure. Murray believes that the welfare state has “crowded out” voluntary civic associations that addressed the problem of poverty in an earlier era. According to Murray, “Lyndon Johnson’s Great Society and the proliferation of social programs that accompanied it . . . proclaim[ed] in effect that there was no longer any aspect of poverty and deprivation that the federal government would not take the lead in solving” (p. 82). Murray seems to believe that once Great Society programs are dismantled, civil society will again take up the slack.

Murray notes that before the New Deal, fraternal organizations such as the Odd Fellows and the Knights of Pythias boasted millions of members and performed social insurance functions (p. 83). Then along came FDR, and then LBJ, and the government began to perform many of those same functions itself (though in Murray’s view, not as well). This nostalgic view of the 1920s is enchanting, but the implications for a UBI are unclear. Government-provided social insurance may displace privately provided substitutes, even if the private substitute is (as Murray sees it) superior. But a UBI is still government-provided social insurance, and Murray never explains why a UBI won’t have the same displacing effects.

* * *

To sum up: Andy Stern foresees a dystopian future in which human laborers are displaced by robots and unemployment is rampant, and he thinks that we can avoid that fate by providing a barely subsistence-level income to all adults. Not just that, but this subsistence-level income (which is less than the value of cash and in-kind benefits that many low-income families already receive from the federal government) will put the American Dream within everyone’s grasp. Charles Murray, for his part, observes a dystopian present in which the welfare state wreaks havoc on families and communities. A UBI, he suggests, will put us on the path to a future in which families are headed by married parents and nobody bowls alone.

Returning to reality for a moment, what would a UBI in the range that Murray and Stern propose actually accomplish? It would not end poverty among single-parent families—or even among single-parent families with working heads. A somewhat smaller UBI that included children might, however, come close to eliminating extreme poverty in the United States—not an inconsiderable accomplishment. Wedding bells would not suddenly start ringing in low-income communities across the land, but marriage rates might inch upwards—again, a development to be celebrated though not exaggerated. And perhaps the security of a UBI would allow some low-income individuals to work slightly less and allocate more time to community organizations. There is no reason to expect a dramatic change, but advances on the margins are advances still.

If we are led to expect much more from a UBI, then I fear we will be disappointed. And a policy that disappoints is less durable as a result. Stern and Murray would serve the UBI movement well if they tamped down their more extravagant claims. The case for a UBI need not rely on hyperbole, and probably isn’t helped by it either.

Posted 19 September 2016

DANIEL HEMEL is Assistant Professor of Law at the University of Chicago Law School.