Basic Income for the Economy's Sake

In my introductory post on the universal basic income, I suggested some reasons to think that it is a better idea than conditional welfare benefits, in that it would be more successful at relieving poverty. In this post I want to explore another utilitarian justification from the UBI, which is the counterintuitive claim that it would actually help the economy.

There are two obvious reasons for thinking that the UBI would harm the economy. Firstly, funding it would require significant taxation, and, all else being equal, higher taxation stunts economic growth. Secondly, a guaranteed basic income would mean that people are no longer forced to work - it would offer them the option to work less, and some people would choose to take up this option, thus decreasing productivity. Frankly, I think this latter argument has little moral force, as it is a stock argument against emancipation (compare: "the slaves might not work so hard if given the choice, so we shouldn't free them"), and treats people as a means only, which is repugnant. Another way of putting the argument is that having a guaranteed income boosts the bargaining power of those that previously were in desperate positions and so (previously) could be exploited by capitalists to great profit. Relieving this desperation might thus harm productivity - but again, only a moral monster, or a slave-driver, could object to the UBI on these grounds.

In any case, there are two countervailing reasons which may outweigh the above, and suggest that the UBI could actually help economic growth.

Firstly, it would serve to foster a more flexible economy. As Van Parijs writes:

With a basic income, individuals could go through repeated and protracted periods in which their activities earned them less than a subsistence wage - for example, as they retrained between two jobs... [or] as they launched new businesses, and so on. As a result and without the (often opaque and costly) aid of special schemes, adjustments of all sorts would be easier and an entrepreneurial spirit would be encouraged throughout society.

The UBI would also indirectly contribute to the economy's flexibility by relieving the need for various labour regulations, as we have already noted that the guaranteed income would increase workers' bargaining power, protecting them from exploitation. So we could abolish minimum wage laws, restrictions on patterns of working time, and so forth. We could realize the ideal of a genuinely free market, in which all participants - and not only the rich ones - can voluntarily participate.

This added flexibility is the main reason to think the economy would benefit from the institution of a universal basic income. But there is also a second, more speculative, argument. It highlights two major trends of the modern economy: (1) the "spread of significant environmental externalities"; and (2) the development of wealth "held in the form of information rather than material goods". What these trends have in common is that "they greatly enhance the importance of property rights which are extremely difficult to define and enforce." Van Parijs continues:

[I]t seems safe to predict that these trends will persist, and hence that it will become increasingly difficult to make sure that whoever is responsible for wealth destruction/creation actually pays/is paid for the damage/benefit caused.

This is important because markets cannot function adequately in situations of high uncertainty - that's why pro-market economists are always appealing to models in which people are fully informed. Or, from Van Parijs again:

Using Ouchi's (1980) typology, one can distinguish three types of social co-ordination. Bureaucracies are optimal when there are neither sharp conflicts of interest nor significant uncertainties about who is entitled to what. Clans are optimal when there are no conflicts but high uncertainties. Markets are optimal when there are conflicts but no uncertainties. When there are both sharp conflicts and high uncertainties, co-ordination breaks down and chaos sets in. This is what is increasingly threatening to happen in a market economy pervaded by the two trends mentioned above... Assuming that conflicts of interest are with us for ever, the only option open to forestall economically damaging chaos consists in reducing what is at stake in the market game - that is, in making an increasing part of people's material welfare depend on society's overall productivity, rather than on their individual contribution. A basic income is the most natural way of institutionalizing this solution.

I'm not entirely convinced by this second argument, I must admit. Market breakdown just doesn't strike me as a very likely scenario, especially compared to its opposite - the free-rider problem - which would be exacerbated by this collectivising solution.

Anyway, I'm no economist, obviously, so I'm in no position to be making any conclusive judgments about the arguments outlined here. But it does seem to me that the advantages of flexibility could potentially offset the costs of higher taxes. Even if the UBI wouldn't explicitly benefit the economy, it might do a lot less harm than its knee-jerk detractors assume. And this slight cost would be well worth the benefits to human freedom and welfare that it would bring about.