We are currently in the middle of a crisis. A disease is spreading like wildfire across the globe, ravaging all those in its path. That disease is, of course, corporate clichés. The jewel in this hollow crown is that ‘crises are hidden opportunities.’ Charlatans the world over will be familiar with this sentiment – that there is no such thing as a crisis, only a chance for growth.
Hopefully there are still others like me who find such statements deeply, deeply irritating.
But perhaps, just this once, the charlatans have a point. Many have been calling for COVID-19 to be the catalyst for genuine social change – for the furlough scheme and our new sense of national obligation to spark an overhaul of our welfare systems. We now realise what governments are capable of, and as such the calls for a Universal Basic Income (UBI) have taken centre stage.
Introducing a UBI would clearly represent a paradigm shift in the realm of social policy.
The academic model of paradigm shifts which I am most familiar with is the Kuhn Cycle. Thomas Kuhn’s theory is that intellectual and social paradigms will experience some form of crisis, which leads to the eventual abandonment of the theory. In recent history, these crises have been entirely endogenous to the paradigm. Various iterations of capitalism and communism in the 20th Century had their hamartia embedded deep in the fabric of the paradigm. Think of 2008, when unfettered capital flows led to a spectacular collapse of capital markets. Or September 1992, when the monetary consensus produced an unbridled monetary disaster.
The social changes arising from COVID-19 are therefore somewhat unique in the realm of modern paradigm shifts, as their catalyst is largely exogenous. Unless you believe COVID-19 was sent by God to curse our debauched society, it seems apparent that our structures of social governance have little to do with the emergence of a global killer.
This makes for interesting analysis, as the appetite for social change has not emerged organically as chinks in the paradigmatic armour start to emerge, but rather with explosive haste after an external shock. The question remains whether this political flame is burning a little too bright, destined to sacrifice longevity for short-term intensity. Skilled political operators such as Dominic Cummings understand that high passions tend to burn out if you are willing to weather the storm.
It is in light of this that I would like to offer my two cents to the discussion around a reformed COVID-Consensus. Discussions about introducing a Universal Basic Income should not be allowed to burn out, and I believe a UBI could be palatable to both sides of the political spectrum. I would therefore like to advance a libertarian case for UBI, in the hope that it might persuade some of those who are so far unconvinced.
Libertarianism and Redistribution
From Van Parijs to Rutger Bregman, much has been made of the left’s association with UBI. But there is no reason why UBI should be the left’s intellectual property. Nixon once supported UBI, and it is also true that Milton Friedman advocated a Negative Income Tax (NIT) as a redistributive alternative to UBI.
Friedman’s justification for this was that libertarianism is rooted in freedom, and freedom is impinged upon by poverty. A starving man cannot be considered free, and a homeless woman does not enjoy equality of opportunity. Negative Income Tax would therefore serve to ‘top up’ the incomes of people who were earning below a threshold point, while those above the threshold would pay a normal (positive) level of tax to fund the programme. Such a policy is a clear example of redistribution, but was deemed a moral imperative by Friedman who saw extreme poverty as an issue which merited state intervention.
Redistributive policy is therefore not antithetical to libertarianism. Rather, any form of redistribution must satisfy some conditions to conform with libertarian ideas. We shall therefore outline a brief sketch of the key ideas of libertarianism, and then examine whether or not a UBI would satisfy these conditions.
“If NIT is acceptable to libertarianism, then UBI ought to be as well”
Freedom
So let us firstly ask the question of freedom – the lexical bedrock of libertarianism. As we have already established, Friedman was willing to throw his hat in the ring in favour of NIT. So you cannot rule out redistribution per se on the grounds of freedom. There must rather be something integral to the manner of redistribution that either satisfies or violates the principle of freedom.
The premise behind a libertarian notion of freedom is that all people are born equal. The only way to treat people equally is to maximise their freedom – allow all people to pursue their conception of the good life in a way that suits them. Liberty is, therefore, an alternative conception of equality. Rather than equality of outcome, a libertarian would strive for equality of treatment before the law, and equal status in society at birth – free from any kind of external intervention. To my mind, a UBI is far more successful in satisfying this criteria than an NIT.
NIT, as a qualified and graduating benefits system, appears far more to resemble the Marxist maxim of ‘from each according to his ability, to each according to his needs’ than a UBI does. Under UBI, all citizens are treated equally before the state and the law, with all people receiving the same state benefits irrespective of status or income. Rather than some people being taxed and some people receiving benefits (as is the case for an NIT), all individuals have the same relation to the state with a UBI.
It is also worth noting that one’s freedom to pursue ‘the good life’ is clearly qualified by financial constraints. Many actors, musicians, artists, even school teachers and nurses, are currently struggling to survive because of poor wages in a stagnant labour market. The libertarian dream seems to need some kind of state support to allow for genuine freedom. UBI would supplement the income of these people, such that starvation is not the cost of freedom.
Minimal State
Another libertarian critique of UBI would be that it enlarges the state to an unacceptable degree. If everybody is to receive a benefit from the state, then surely that would require a ballooning of the state’s infrastructure (and purse)?
Once again, this needn’t be the case. Davide Tondandi highlighted in his 2008 paper that UBI may have higher gross expenditure than an NIT, but the net cost of the two projects are likely to be the same. This is because under a UBI, all individuals pay tax while also receiving the benefit. The total size of the operation is therefore larger, but the net costs are likely to be the same.
Furthermore, the infrastructure required for a UBI programme would be substantially lower than the frankly ludicrous benefit systems that we currently have in place in the Western world. The bureaucratic labyrinth required for a means-tested benefit system is astonishing; wildly expensive, and entirely unnecessary. A fixed, unconditional payment to all citizens would streamline the state’s bureaucratic arm, thus shrinking the size of the state, cutting costs, and allowing people to receive benefits without having their privacy invaded by the state.
Personal Independence
A final criticism would be that UBI disincentivises work, encouraging laziness and dependence on the state. This is a powerful and important point. If all citizens were paid an unconditional income, the risk is a generation of ‘free-riders’. But it is worth noting that NIT has its own issues with disincentivising labour.
Under NIT, the link between labour and wages is weakened around the ‘threshold point’ where you move from a negative to a positive tax rate. Economic theory states that a person chooses the hours they work based on a personal trade-off between leisure and income. People will therefore increase their hours worked until the ‘marginal utility of labour’ (the extra happiness they get from earning a bit more) is equal to the ‘marginal cost labour’ (the happiness they lose by sacrificing an extra bit of leisure). At this point, their happiness is maximised.
However, as you approach the ‘threshold point’, the marginal utility of labour will decrease as your extra labour will not be proportionately increasing your income. The increase in your wages is offset by a decrease in state support. The link between labour and income is therefore broken, and people will not be adequately incentivised to work harder or increase their hours when they are below the threshold point.
NIT is therefore also guilty of producing unwanted side-effects (or ‘externalities’ to stick to the economics jargon) in the labour market. A UBI system would not experience the same issue, as increasing your working hours will always increase your income proportionately. If Friedman can tolerate the labour market effects of NIT, there’s no reason why the UBI effects should be beyond the pale.
So why is it so unpopular?
The main conclusion to be drawn from all this is that if NIT is acceptable to libertarianism, then UBI ought to be as well. If my analysis is to be accepted (a big if), then the question remains as to why UBI is still considered a fringe, Neo-Marxist idea. I believe the simple answer is language.
Words like ‘universal’ and ‘unconditional’ result in UBI being put in an intellectual box which it doesn’t need to be confined to. It is high time we opened our eyes to the immense potential of this idea, irrespective of our political affiliations.
Big pigeon energy 