| 0:33 | Intro. [Recording date: December 16, 2016.] Russ Roberts: I want to remind listeners about EconTalk.org and in the upper left-hand corner please click on the link to the Survey to let us know your favorite episodes of 2016 and give us some other feedback. Thank you so much. |
| 52:00 | Russ Roberts: Mike, welcome back. Michael Munger: Always a pleasure, Russ. Russ Roberts: Our topic for today is BIG, the Basic Income Guarantee. What is it and how does it work? Michael Munger: The Basic Income Guarantee is a substitute for all other welfare programs. And the one argument for it--well, there's really two arguments for it and three arguments against; and we'll probably get into it. But the two arguments for are: This is a kind of social insurance, and in an uncertain, maybe increasingly uncertainty society where markets benefit most of us but harm some people, often through no fault of their own because we're not very good at forecasting the future, we're better off if we can provide a certain minimum level of income for everyone, both politically and just on the merits. The other argument is: We're doing this already and we're doing it inefficiently. So, if we start from where we are, then if we consolidate all of the different dogs' breakfast of welfare programs that we have into one, and instead of hectoring people to do what we want we just give them the cash and say, 'Here's what you've got, do your best,' some people will make good choices; some people will make bad choices; but overall it will be cheaper for those of us that are making these contributions into the welfare system through taxes. And, the people that we care about will get more of it. Russ Roberts: And, was that two arguments in favor? What were they? Michael Munger: Yeah. Right. To make it clearer--it was a bunch of words: One argument in favor is that we should do this on the merits because there's a lot of uncertainty in the system. And as you've talked about on some EconTalks recently, when we say, 'Trade benefits everyone,' that's not exactly true. A globalized system of capitalism does benefit many people, but it harms others because they lose their jobs; there's these movements of different industries; and so we'd like to have a sort of level of insurance that makes all of us--not almost all, but all of us benefit from the surplus that's created by having an efficient global system. Full stop. Second argument is: Look, we're doing this already; we're just doing it badly. So, BIG would be more efficient. Russ Roberts: Okay, yeah, we're going to get into how badly we're doing, because I think some of the badness of that is misunderstood. But let's talk about some practical implementation. How would this literally work? I don't mean who would literally send out the check. I mean: What are people talking about in terms of magnitudes across the spectrum here? Michael Munger: Well, it's hard to keep the two issues separate, on those grounds, if you are going to ask how it's going to work. Because one of the things that I want to advocate is that we eliminate all of the other welfare programs. And this could range from anything from aid to families with dependent children to minimum wages. So, we would eliminate all of the other forms of welfare that go to income insurance. Not health care. Health care is a separate thing. But all the things that go to income support. And we would have to have some way of providing a monthly or quarterly check. Now, I have argued that we already have an infrastructure for doing that; and that is the income tax. The income tax of the United States is handled by the Internal Revenue Service (IRS); and every year on your tax return you have to declare a personal exemption--a standard deduction. And that amounts, I think right now it's about $1200--all that Basic Income would do would be to change that to about $15,000--$15 thousand--dollars. And make it a credit. So, if you don't earn enough income to have to pay taxes, you would receive a check rather than having to send in a check. So it would be administered through the existing Internal Revenue Service. And all it would really involve, a change in the standard deduction. Russ Roberts: So, every American of a certain age perhaps, or every American--different ways you could do it--would get a fixed, the same, fixed amount. Let's say $15,000. Michael Munger: Yes. That's very--that's a lot of money. Michael Munger: It would. And for many of us, we'd have to change the tax rate so as to make it revenue-neutral. So, we'd have to do some changing in the tax rates or the levels where the new margins come in to make it revenue-neutral. So, there'd be no net effect on me--I'd just get a larger standard deduction and then my taxes would go up to offset that. But for people who don't have jobs or don't have enough income where they are paying taxes, there would be a credit; and they would receive a check, rather than paying in a check. Russ Roberts: So, for me and you, we're going to raise taxes--because we are fortunate enough to be gainfully employed, make a lot of money. And therefore, we would still get the $15,000; it's just that our tax rates would go up to offset that? Is that the idea? Michael Munger: That's it. And so for most people, there would be no net effect. |
| 6:05 | Russ Roberts: Well, there'd be no net effect on, maybe, the amount sent back and forth; but there is a marginal effect of those higher tax rates, right? So, our tax rates would have to go up quite a bit to generate the amount-- Michael Munger: Not that much. Not that much, because, remember that much of the revenue would come--I said it was hard to separate--much of the revenue is going to come from eliminating the other programs. Russ Roberts: Yeah. But that's much smaller than what we currently spend. Michael Munger: No--we currently spend--that's fair enough. There are two questions. The question you are asking: In order to make it revenue-neutral for the rest of us, marginal tax rates have to go up to offset the move from $1200 to $15,000. That's right. Russ Roberts: So, to make that clear, just to talk about what people worry about--and I'm not going to argue that this is a central problem with it. I don't think this is the central--I think there are other problems with it. But let's just talk about this one for a moment, because this one gets talked about it a lot--is the so-called disincentive effect of higher marginal tax rates. So, let's say your marginal tax rate is something like, let's say it's 35%, because when you combine state and local, etc., whatever income level, it gets you to 35%. That means if you earn an extra dollar you only get to keep 65 cents of it--the 35 cents goes to the government. Then the issue would be, it already discouraged you from finding a little extra work or working a little harder or working extra hours; and if you raise that to, say, 50, it would get discouraged even more, so there would be some-- Michael Munger: Well, we're talking 3 or 4%. The amount that would be required would be about 3 or 4%. So it would go from 35% to 39 or 40%. Russ Roberts: I don't think so. That's not what I see, when I look at discussions of this. Maybe it's a question of how it's structured. Critics have suggested it's much larger than that. But we can put that to the side at the moment. Michael Munger: There's no question it's an increase, and at the margin there's a disincentive for people who already have jobs to work more. The advantage is that right now the marginal tax rate on the very poor is well over 100%. And it would be reduced to the marginal tax rate, which for most of them is very close to zero. |
| 8:26 | Russ Roberts: So, let's talk about that, about the 100%, because I think that's confusing to most people. Explain why. Michael Munger: Well, suppose I live in Section 8 housing that's subsidized, and I get welfare benefits of various types. So, I get money for my children; I get unemployment; I get subsidies for heat. I lose all of those things if I get a job. Or in the case of, if I'm female, if I get married. So, I am being paid by the state not to work and not to get married. And the first dollar that I earn maybe doesn't have much of an effect. The first few thousand that I earn, I actually lose at least that much in benefits. So, the marginal effect that I'm worried about right now is, very poor people have no way of getting jobs or getting married, starting a family, doing the things that we associate with responsible behavior without losing all of their benefits. And the reason that basic income, which is actually a head tax--economists always say that head taxes are the most efficient because there's no distortion effects-- Russ Roberts: Or small. Michael Munger: Yeah, they are much smaller. So, BIG is a negative income tax. Forgive me--a negative head tax. Which means that I don't lose it no matter how much money I earn. And so, the incentive effects that I'm worried about more than you working less from a 3% or maybe even 10% increase in taxes is the effective marginal tax rates on the very poor--more than 100%. And if we reduce that, a lot of poor people will start working more. And it matters that they become part of society and comport themselves and see themselves as having a stake in society because they have jobs. Instead of being paid not to work. |
| 10:18 | Russ Roberts: So, I have a lot of issues with this. Some of them are conceptual, some philosophical. And you might be able to convince me. We'll see. But I want to get a couple of things straight because I think there's some confusion in most of the discussions I read about this. So, when you say the tax rates are over 100%, it's not strictly true that--which would be a polite way of saying I disagree with you--I don't think it's true that when you get a job your lose huge parts of your aid package. There are some aid, some aid programs, that are contingent on work versus not-work. But most of them have implicit marginal tax rates: that is, as you earn more, as you work, as you get a raise, your benefits go down. But they don't disappear. They don't disappear for a long time. Meaning, a long--you have to earn a lot of money before they go away totally. And those are put in place for a variety of reasons that we'll talk about. But the point is, I think you are exaggerating the idea that somehow we are paying people enormous sums of money not to work. We are paying people a little bit not to work. And then we are paying some more to discourage them from working. But there's still an incentive to work. And your claim, I think to be more honest about it, is that this would make the incentive to work larger, in some sense--that is, at the margin. That is, if you earn more, you would still get to keep your $15,000 in the example we're using. But it also, of course, discourages you from working because it pays you $15,000. So there's an income effect there. Michael Munger: There is an income effect. And I'm not as worried about that income effect as I am about the substitution effect of forcing people to--forcing--encouraging people to substitute leisure because the price, the amount that they get, particularly for very poor people. And the thing that we might disagree about is how to measure the effects that are more qualitative. Like, do I qualify or not for Section 8 Housing, for subsidized housing? And the other is just the cut-off: If I earn more than a certain amount, I'm done. If I earn more than a certain amount, I'm not eligible for reduced-price lunches for my child. So it's a--it's called a 'cliff effect.' So it's--for the very poor, the cliff effect means that if I earn a certain amount, I just lose those qualitative benefits. Now, I'm trying to treat that as if we can think of it at the margin. And you may be right: Maybe we shouldn't do that. But one thing that you said I think we can agree on: My claim, right or wrong, is that a BIG would have fewer disincentives to work than the current program. That's the heart of the claim. Russ Roberts: Yeah; that's true if income effects are relatively small. Michael Munger: No, the substitution effect. The income effect, I'm just not that concerned about. I think that many people want to work and just can't, or can't get started. So, what we might disagree about is how lazy the poor are. I don't think they are lazy-- Russ Roberts: I don't want to disagree about that at all. And I don't think that's the issue. I think-- Michael Munger: Of course, I'm being tendentious. Russ Roberts: Yes, you are. It's a cheap shot, actually, I would say. Michael Munger: Yeah. Russ Roberts: A really ugly cheap shot. But the point I want to stress is that--let me say it in a different way. |
| 13:40 | Russ Roberts: I think it's really important to remember what the actual current programs to help the poor are like. And in discussions I've read of BIG--of the Basic Income Guarantee--those programs are, I think either exaggerated or mis-described. So let me make a couple of points, and you can agree or disagree. Number One, most people don't get much money if they don't work in America right now. There's not this raft of welfare programs for non-workers. If you are woman with a child, you have some opportunities. But a single man doesn't have a great life in America right now unless that person has a job. You are eligible for Food Stamps. You can get Medicaid. But you don't have a stipend. Michael Munger: No. Russ Roberts: And it's very tough. So, we distinguish between types of people, right now. And the other thing that's really important that I think is grossly misunderstood is that we transfer a lot of money to people who are technically not poor. That is: Food Stamps and many other programs--lunch programs, etc.--explicitly give money to people who are above the poverty line or above what you would call--to say it more conceptually--they transfer money to people who are well above the level we'd like to transfer money to. We do that because we have to phase the benefits out slowly as income rises, because otherwise there will be these cliff effects that you are talking about. So there are cliff effects. But they are diminished by the fact that they are phased out slowly over the income range. And they therefore give lots of money to non-poor people. So, when people say the current programs are very ineffective in helping the poor, that's because they are designed that way. And they are designed that way for a reason. It's not just an ineptitude on the part of the government. It's a very reasonable idea, that you don't want to discourage work effort--not just to save money, though that's part of the reason--but also just to--well, for a whole bunch of reasons. And so lots of non-poor people benefit from programs that are designed for the poor. And to try to suggest that we can save all this money because we'll only give money to the poor, now--I think is--excuse me, because if we give money to everybody and then we'll save all that money that we used to the poor and therefore the poor can be a lot better off then before, I think is a--is bad accounting. Michael Munger: As you know, the usual and overly simplistic form of the argument is we add up everything that we spend on welfare programs--programs for the poor--divide it by the number of poor people, and say, 'There shouldn't be any poor people. All we have to do is give them cash.' Russ Roberts: Exactly. That's what Milton Friedman argued, by the way. Michael Munger: And Charles Murray. And all of the many people who have argued for a negative income tax or basic income. That may not do that. Why not say--and then--I realize we are getting into what you said we are going to hold constant. But we're going to leave aside. But we're spending an awful lot of money that doesn't get there. So, we have the leaky bucket problem: If we could reduce the cost of administration. And many of those costs of administration are to make sure people spend things the right way. Instead of giving the cash, we give things in vouchers. Or, we give things in forms to make sure that they spend it the right way. And, you can see the argument for that, because we are worried that we want poor people to spend it on what we want--and by "we" I mean experts who are concerned about their objective welfare--thinking that, if you give them the cash, they'll spend it on something else. Now, that sort of paternalism I think is problematic; but it's not obviously false. So, one problem with this the idea: We'll give them the cash instead of the services. The other is, if you add up all the costs of the services, can you really recover that and convert it into a check? Russ Roberts: Yeah. Well, my point is, is that, what I think, when you say 'administrative costs,' I think people just think of the costs of paying the bureaucrats who move the money around. And that cost, as I understand it, is trivial. It's not zero; it's not irrelevant. But it's not going to generate a lot of--these inefficiencies of having multiple programs and multiple bureaucracies, those so-called inefficiencies are relatively small. The other point I'd make is that it's not just what the experts want. It's a Public Choice program, in my view--it's a public choice effect. Taxpayers don't want to subsidize certain types of things. And that's just straightforward. Michael Munger: Yeah. The Welfare Queen is an important trope. So, the person on welfare pulls up in the Cadillac, buys steak and cigarettes. Doesn't happen very often. But it is an important Public Choice argument, that you have this deal, where maybe some people on the Left, let's say honestly care about making sure that the poor get something. But others are concerned that, 'Well, we need to have them spend it the right way. I don't want my money wasted.' And so we impose all these restrictions. |
| 18:52 | Russ Roberts: Well, the bottom line is, let's go back now to the logistics of the budget problem. The bottom line is: You are going to transfer $15,000, $10,000, $20,000 dollars per person to people who are not poor. I think you have to raise people's taxes a lot more than you think. But that's not the most interesting aspect of this. Let's put that to the side. Just to make it clear why people are suggesting this, one answer would be: Well, yeah, it's silly to transfer money to everybody. Let's just transfer it to poor people. So, why is this argument put in this framework of, 'Well, everybody would get the check?' Michael Munger: There's two reasons. One is to try to control the Public Choice problem, which you have already raised. And that is, if we take money from some and give it to others, we're creating a kind of rent-seeking contest to make sure that you are in the Receive group and not in the Take-from group. Whereas, if everybody gets it, then we've--the incentives for rent-seeking are much reduced, because if we increase it, we have to increase it for everyone. And Friedrich Hayek made this observation about the universalism principle. There's a very nice book by Buchanan and Congleton on Politics by Principle, Not Interest, where they follow up Hayek's idea that almost any transfer we make, as long as it goes to everyone can be justified because this is something that we are not using to discriminate. Now, you might or might not accept that argument. But it is a limit, both on the Public Choice problem of rent seeking and on the--it helps solve the ethical problem of redistribution. Russ Roberts: But that's not the only reason people want to give it to everybody. And I think the main reason people want to give it to everybody is that, if you only give it to "poor people," you have this immense cliff[?] problem. So, if you say, 'Well, anybody who earns less than $25,000 a year gets $25,000,' then you've--basically people who earn $30,000, or $27,000, they are working a huge amount to get $2000. Michael Munger: Yeah, but we could smooth that, if you want to. If we were going to discriminate, we could have--once you get to the poverty level, then you wouldn't get dollar-for-dollar; and maybe we could smooth it out, all the way up to $100,000. We could smooth it. Russ Roberts: Yeah. I don't know why that isn't the more common proposal. Because, most people--just talking about marketability now: If you say to people, 'We need a new government program that gives everybody $20,000,' most people would say, 'Well, why would rich people need to get $20,000?' And I think they have a point. Michael Munger: Yeah, right. And then my response is, 'Well, we'll fiddle with tax rates.' And then you say, 'But wait, there's incentive problems there, and why not smooth it out?' Russ Roberts: Yeah; I'm not sure that fiddle-with-tax thing [?] works as easily as you do. But let's Michael Munger: That's a separate problem, yeah. I'm conceding that it's a problem. |
| 22:00 | Russ Roberts: So, let's summarize. We're talking about this idea that every single person would get a fixed amount--it might be $10,000, it might be $15,000, it might be $20,000. Could I--I've never heard this talked about--could I refuse my check, if I don't want it? Michael Munger: Of course. All you have to do is not cash it. Russ Roberts: Yeah, or I guess not claim the standard deduction. It would be weird--in your version of it. It's a weird thing to--one of the stranger things I find about Social Security is that we have this solution--I've mentioned this many times but it bears repeating: There's this illusion that it's a program for me: They take my money, my paycheck, and it gets put aside for me. And of course that's not true: it goes out the door to pay for not just retirement benefits of retirees but also government spending right now because there's a surplus. That may change; we expect that to change soon, as baby boomers get older and retire and become more numerous. But the point is, is that Social Security for me--it's a welfare program that I also get, I'm eligible for. So, when I get a little bit older--I think actually now because I'm 62 I could start getting it. And I don't really feel like I should. I didn't--I never had the illusion when I was younger that I was putting aside money for my future retirement. And when I suggest to people that Social Security should be means-tested, they say, 'Well, I contributed.' And I say, 'Yeah, but you contributed to food stamps, too.' When you pay your taxes, you don't say, 'Where's my food stamp money?' because you understand the purpose of the program is to help poor people. Not to help everybody, because that's nuts. Michael Munger: But everybody gets Social Security. You're right. Russ Roberts: It's just nuts. Michael Munger: So the point is: Everybody gets it. The fiction is that everybody gets it, and that somehow you are paying in to an account and then you get it. But it's a defined benefit program. There's some relationship, but not a very clear relationship between what you pay and what you take out. Russ Roberts: There's a huge redistributive component, which is to help poorer people who didn't contribute much--who didn't contribute, hate that word--but weren't taxed as much when they were younger. Michael Munger: Yeah. Russ Roberts: But if you ask people, 'This is crazy; this is a mistake; the program's about to go broke; we need to do something. Isn't the obvious thing to means-test it?' and people say, 'No, we can't do that, because then it would reduce the support for the program: Then everybody wouldn't love it because it wouldn't be helping them.' But I'm thinking 'But it's an illusion.' So, I find that--I don't have a way out of that box. Michael Munger: Well, it's already means-tested in a way, because there's a ceiling on the amount of taxes. So, once you pay a certain amount in--so it's actually means-tested kind of in the wrong direction. Russ Roberts: But they have changed that over time-- Michael Munger: So instead of-- Russ Roberts: They have raised that. Michael Munger: Yeah, they did. But for a long time the total amount that you paid was capped. And that meant that you still got Social Security but the amount that you paid in was capped. What you are saying is: There's a relatively small number of wealthy people--well, let me put it this way--wouldn't it be interesting if you could opt out of Social Security. What you are saying is, for most people, you get back more than you put in. Why not be able to opt out of Social Security? Why not be able to opt out of participating if there were a BIG, if there were a Basic Income grant--to say, 'I don't want to participate. I don't want to contribute; and I don't want to get the money.' And I think the concern would be that it would just devolve and that many people would not participate. Russ Roberts: Yeah, I don't know. I like the better idea of saying you can participate but you don't have to accept the money. So, there are many, many people who are not poor, have a very small chance of being poor, who are happy to have some part of their taxes go to help poor people. They may have preferences about how that money is spent. But they certainly don't need to have it kept for themselves. So, the idea of having it, a program that everybody gets $10,000 or $20,000 seems to me to be a major tax, a marginal tax rate nightmare. You disagree: you think it's smaller than I think. But I just think--I think it's quite large. Michael Munger: We agree it's big; we agree it's significant. Russ Roberts: Well, I don't think 4 percentage points is significant. I think it's-- Michael Munger: Well, whatever it's going to be is going to be significant. We disagree on the amount. Even 4% is enough. And maybe it's 7%, 10%. Russ Roberts: Or 20%. I mean, it's--there are a lot of people alive right now; and we're giving everyone $15,000, it seems to me government's going to have to get a lot bigger. And therefore the marginal tax rate is going to have to go up a lot. And this seems bizarre, that you would advocate, that anybody would advocate doing that. It seems to me the much better program would be what was originally proposed by Friedman in I think the late 1950s or early 1960s, and then he wrote about it in Capitalism and Freedom. I think Robert Lampman also proposed it at the University of Wisconsin. This idea that you would--not everybody gets $20,000--that's ridiculous. A person who has nothing might get $20,000. But it would slowly decline as you earn more and more per year, until, as you say, maybe after it's $100,000 dollars, you would then get zero. But why anyone who earns over $100,000 gets $20,000, it seems bizarro to me. I guess at that point it's such a small number of people maybe it's not so important. It's really that whole effect over the $50-$100,000 range that people are worried about, maybe. I don't know. Michael Munger: And the reduction in the amount that you get also is a disincentive effect. It may be less than the marginal tax. Certainly, down in the weeds there's a bunch of problems with this. The main part of the argument that I want to advance is that the current system has bad incentive effects for the very poor. Having the amount not be immediately at least tied to--the amount that you receive is not immediately tied to the amount of outside income you get from other sources is the main thing that I'm worried about. The other details maybe we could work out. But what I'm worried about is to reduce the qualitative disincentives for people to take the first step up that stairway. And, you rightly said--that was a dirty, cheap shot--about the poor being lazy; but I want to raise it; and I want to raise it again. Because I worry that we don't give people enough credit. And we lose quite a few people now, that without these disincentives--minimum wages that prevent them from getting a job and getting experience for the very, very poor people that don't have much education--a big part of my argument is we could get rid of minimum wage laws. I don't know how you value that. But getting rid of minimum wages would have effects that are going to be hard to measure but that I think would be very positive. Russ Roberts: I agree with that. |
| 29:00 | Russ Roberts: The question is--let's talk about this disincentive issue, because--and let's broaden the whole thing, because that's where I want to head. Which is the following. You've written about this in unpublished work, maybe even in published work; and certainly a lot of people are talking about it: which is this issue of it's possible that in the future a lot of people are going to struggle to find work. Right now we're pretending to take care of them through a program like Disability. So, as we've talked about on the program before, Disability has been made a lot more accessible to people. It's ironic--the workplace is much safer than it was 25, 50, 100 years ago; yet somehow more people are disabled. And that's just because we've changed the ease with which you can claim disability. We can debate how important that is. But the point is--there are a lot more--this is undeniable--there are a lot more people who are paid a check from the government who don't work. Who are not women with children. Who are typically men. In the case of disability, a good chunk of them are single men. And a lot of people would say, 'Let's just make this more open. Let's not worry about the disincentive effects of the minimum wage, if they are there.' I think they are there, but some people don't. But let's admit, let's assume that they are there. 'Let's not have to worry about the technological changes of artificial intelligence that are coming,' that we'll make, say, current cab drivers, truck drivers unemployable after--greatly unemployable--give them a very hard time to find a job after driverless cars and trucks come along. We're going to have massive social problem, is the claim. And the right way to do that is to just give these people money. And I think that's deeply appealing to a lot of people. And I want to ask you: Is that deeply appealing to you? Forget all this stuff about the current poverty programs. A lot people would agree with you--and I would, too--that they would be better structured to be just cash-based, not in kind. But we are talking about more than that. We are talking about expanding way beyond, say, women with children. We are talking way beyond, say, temporary Unemployment Insurance. We are talking way beyond relatively ungenerous Disability. We're talking about a--just--'Don't worry. This is the ultimate Safety Net. We're going to make sure that no one has a problem meeting basic needs; and if that comes out the government and the taxpayer, that's fine. As opposed to charity; as opposed to incentive to work.' That's what's on the table. What's your reaction to that? Michael Munger: Well, I think the way you put is exactly the right way to put it. In fact, it's the way that I would have. There's two kinds of programs that we try to mitigate the impacts of globalization and the fast-moving changes in, maybe, the sharing economy. So, Marc Andreessen, who you've had on the show, wrote, in November 2011 an article in The Wall Street Journal, the title of which was 'Software Eats the World' ["Why Software Is Eating the World"--Econlib Ed.]. And the problem is that software is to service industries as robotics and automation is to industrial production. So, we used to say, 'Yes, we're losing all these production jobs; but there will still be work in service.' Well, no. Software can take over all these service jobs. So, truck drivers, cab drivers, people who work in restaurants--all of those things can potentially be done by software. The person at the desk, at the checkout counter at the Walmart--you may be able just to do self-checkout. So all of these jobs may very well be lost to software, just as we saw so many jobs lost to automation in factories. Well, so the question is how to handle that. You mention that there's two things that we do now. One of them is, we call Trade Adjustment Assistance, or, in an attempt to make places like Fort Payne, Alabama [?], where people used to make socks. Now we have Adjustment Assistance and we try to teach people, you know, some other kind of trade. A 50-year-old person that didn't graduate from college who worked in the sock factory for 20 years and assumed that that was what they were going to do forever--that's a pretty big arm to them. It's tempting to say, 'Well, we need trade protection.' And in fact, that's the direction we're going--is, we're going to have trade protection. Because all these people lost their jobs. They are made now abroad. We've shipped our jobs abroad. I don't think any of that's true. What we've done is lost our jobs to productivity, some of which comes from software. But the question is: How can we insulate people politically from that? So, one thing is Trade Adjustment Assistance. The other thing, and you mentioned it, is Disability. And Disability is probably the most pernicious kind of welfare program that I can think of that makes the best argument for a BIG. Disability has two really bad, corrosive aspects. One is, it's a rent-seeking contest. If I can hire a lawyer and pay that person $5000, I've got a pretty good shot. There's towns in Alabama where one-third of the people are on Social Security Disability, because they had skilled representation. A bunch of people are spending a lot of time winning this rent-seeking contest. But, suppose you win? Disability means that they are going to pay me for the rest of my life not to work. And if I work, not only do I lose my benefits; I get arrested. So, we're making sure that people can't possibly find any other kind of gainful employment. So it's the Hayekian nightmare. In Chapter 9 of Road to Serfdom, Hayek talks about security. And the two kinds of security that he talks about is: One, we're going to guarantee people's current income. Which is terrible. The other is, we're going to be guaranteed a certain level of living that means that they can survive, even if they are subject to forces which, through no real fault of their own, they have lost their jobs. And that's the way that creative destruction works. It's very difficult to predict. Now, we can say maybe they should have predicted better. But one of the Hayekian observations is it's hard to predict. In a dynamic economy, the people who are investing have a hard time predicting. You can't really expect line workers to be able to predict very well what sort of business should I go into and develop skills in. Disability prevents people from making any kind of adjustment. So, getting rid of Disability; getting rid of Trade Adjustment Assistance. And remember, we are talking about $15,000. $15,000, I really can't imagine trying to live on $15,000 a year. It's not that much. It just means that the $15,000, I wouldn't lose it if I get another job and make another $10,000 or $20,000 that I try to use to improve my life and the life of my family. Russ Roberts: Yeah, well the-- Michael Munger: So, you're absolutely right about the Disability problem. That really is an important one. We're locking people in, though. And a BIG would not do that. And we would get rid of all the apparatus. We may disagree about this. We have a big apparatus for judging whether people qualify for these benefits. If you count Disability and some of the other Trade Adjustment Assistance. Russ Roberts: Yeah, it's important to remember. Trade Adjustment Assistance is, for reasons that are not well-understood by me or maybe anyone--it's a very small program. In principle, we have a program to help people who lose their jobs because of globalization. Which--you can debate whether that should exist or whether it's a good idea. It does exist. And for reasons that I don't fully understand, it's very small. Michael Munger: Yeah. Russ Roberts: Many people who qualify for it either don't know about it or choose not to use it. So, it's not a very--it's not an effective cushion against the globalization effects that many people are worried about, and for reasons that I don't fully understand. But, if we talked about BIG as an alternative to that, plus, say, Disability, plus minimum wage, plus the Earned Income Tax Credit, plus food stamps, etc., etc., etc.--the other issue is: You just said, '$15,000 is a small amount of money.' That's why it's not going stay at $15,000. You really think that--you say this is not going to use as much rent-seeking? You don't think there is going to be rent-seeking by people trying to make it $20,000 and $25,000? Michael Munger: Well, that is the argument for giving it to everyone. It would be too expensive to raise it much. Now, but this is generally a good argument, it's a good counterargument, and I think you could expand it. So let me--I'm interrupting you but you made the first step in this argument. So, remember, my idealized claim is, we get rid of all of these other programs. We combine all of them into a BIG, and we fix the BIG at the current poverty level; and we're done. We walk away and we never touch this again. Well, that's asinine. I don't think anyone actually believes that. Politicians cannot get re-elected by saying, 'I promise to do nothing.' And so, it's like the 1986 Tax Reform Act--there's a great book about the '86 Tax Reform Act called Showdown at Gucci Gulch, where a bunch of tax rates were cut; but even more revenue was created by getting rid of many loopholes and set-asides and little special tax treatment. So the result was revenue-neutral or maybe a slight revenue increase. The problem was that over time that Christmas tree of dispensations has been decorated again. And so you're right--there is a really big problem with my argument. And that is that, over time, we'd have a BIG; I don't think what would happen is we'd raise the BIG. I think what would happen is we'd get a bunch of other programs tacked back on top of it. And a lot of the beneficial effect that I'm claiming would disappear. Even if it exists--which is debatable. |
| 39:00 | Russ Roberts: Well, let's move to the philosophical question, and it's a little awkward--my view is, I prefer private efforts to help poor people, private efforts to help people who are out of work because of technology or trade. And by private efforts I mean things that we don't see right now because there's no reason for them to exist because we have such an extensive public effort. So, charities that give people money or take care of them or give them skills are very thin, and that's because there's a lot of government activity; and that's because people are not going to donate money to a charity that tries to do what the government already does: I'm already funding that through my taxes; I have no reason to fund it through private efforts. Now, when you say that, people say, 'Well, there's a free rider problem.' So, talk about that--why people make that argument. Michael Munger: Well, I am deeply conflicted about this. So, as long ago as 1831, Alexis de Tocqueville in his book Democracy in America talked about the difference between France and the United States. He was worried that democracy in France--and this was his word--would enfeeble the impulses that people have to join private associations and to say, 'Here's a problem; we should do something about it.' In a democracy or at least the kind of democracy that Tocqueville saw in France, basically people just say, 'I gave at the office.' Or, 'I paid my taxes. Since I pay taxes I have no reason to participate in this.' There's a school; and somebody should work on this: 'Yeah, you are right, the state should do that.' I see someone getting beaten up in the street or someone is very poor: 'Well, the state should do something.' I have no obligation to do it. Well, Tocqueville thought that that wasn't happening in the United States. Suppose we really did institutionalize this in the way that I'm arguing that we should. There is the problem that then people would say, 'We have a lavish program. You get all this money. You must have wasted it. I don't feel any obligation to participate in giving to charity, in working on problems of homelessness, because it's your fault. We already paid our taxes.' I think that's a legitimate objection that I think that many people have the perception that the existing welfare programs are sufficiently large that that ship has already sailed. Russ Roberts: I agree with that. Michael Munger: But I do think that's a problem. Russ Roberts: I agree with that. I think that ship has sailed. It sailed, oh, around 1933, 1935 actually. And one of the only interesting papers I ever wrote as an academic is that paper--we'll put a link up to it. Basically, private charity in the United States, while still a very healthy sector, no longer goes to help poor people. It goes toward education--people donate to their college. It goes toward medical things--the wing at the hospital. A membership at the art museum. So, people don't help poor people any more, because the government crowded all that out and did it long ago and [?]-- Michael Munger: But you also mentioned the free rider problem, and that is: Suppose that I think we should all contribute voluntarily to the provision of a public good. And charity is a public good. But I think you're not going to, so I'm not going to. Whereas, if I could be assured that you were going to contribute, I would be willing also. And that's the role of the state, is to enforce that agreement that we all have to pay our voluntary contributions, which become taxes and are no longer voluntary. I'm not so sure that that part of solving the free rider problem really works. I think what you just said about your paper which is interesting is, that has been attenuated over time anyway; and we have displaced our charitable impulses--not completely, but at the margin--from the poor to art museums, to operas. A lot of these are--we're just trying to make some contributions that wealthy or middle class people already care about. And that's not really charity in the traditional sense. That's not: Let's take care of those who can't help themselves. That's: Let's provide a voluntary local public good because it's good for the community I belong to. Russ Roberts: Exactly. So, the claim I want to push, for a minute, is that, because we have gone through the state rather than voluntary--and people--let me make one point clear. People think we could never do it privately because of the free rider problem. And I agree that the free rider problem reduces the amount people would donate. But they would still donate a lot. And the question is whether that smaller amount than the public-coerced taxing would be structured differently. And I want to make--people say, 'Oh, that's ridiculous. No one would give. It would be so much smaller.' I just want to make the observation that currently there are millions of dollars donated to support scholarships to private schools for poor people--even though poor people can go to free schools right now. So, it really should have been crowded out. There's no reason--if you came to me and said, 'I'm collecting money to give charity to poor people so they can afford a good school, I'd say, 'Well, what do you mean? They already have a good school. It's free. You'll never be able to raise any money for that.' And yet, people donate, because they care; and they have a passion to see people get educated. And they give lots of money to get people out of the really bad public schools that they're in even though there's a free rider problem. So, there's an issue, then, of magnitude--which I certainly concede. And the question is how big--I'm not saying there's no free rider problem. But I'm saying a private charitable fund or a group of them is viable. The question is: How big would it be? The point I want to emphasize now is that it would be, I presume, different than the public aid, which is basically no strings attached--if you meet the criteria. Now, the criteria are weird and different and bizarre, and you can debate whether that's good or bad. But what you're advocating, and what many people advocate, and that's the part I want to turn to now, is: We need to go away from a world where we have all these weird bureaucracies and all these other things--to try to figure out if you are qualifying, you need a lawyer. And I agree: Let's get rid of all of that. But to get rid of it by saying, 'There's a new program where there's no rules--just that you're alive,' and you get a $15,000 check, might not work as well as a private solution--that would give less but would be structured in a more customized way for the individuals. That's my claim. Michael Munger: If we're talking that you and I are able to persuade people to move people in that direction, I might very well go along. And what's sad about it is, in 1831 at least, that was what Tocqueville thought was the uniquely good feature of American society--was we mostly did kind of solve that problem. We didn't worry so much about the free rider problem. We said, 'As long as I make a contribution, others will, too.' And that is an equilibrium. In fact, if all of us think that others are also participating, we're willing to participate. And if those expectations are fulfilled, it works. The problem is that if a bunch of people cheat--don't participate: I cheat, don't participate--having the state step in as an alternative is not a very good substitute. So, if you and I and the others who think that could actually implement a program where private charities were able to solve this problem, I guess I would be much less supportive of a BIG. My concern about what we see, what we have at present, is the combination of programs that we have--minimum wage laws--and as you said, there are questions about minimum wage laws: do they create unemployment? I think they do have an impact on many young people who otherwise don't have many opportunities to get any kind of experience. You don't have the chance to say, 'I got up at 7:30 in the morning; I made it to work by 8; I've done it for 2 years, and if I work for you, you can rely on me.' And so you can actually pay something. So, in Europe, they solve their--they don't have minimum wage laws, for the most part. What they have is internship programs, or apprenticeship programs. So, the United States, in the particular way that we have said we're worried about people getting enough money to live on, 'Let's have minimum wages,' we have singled out a particular part of our population that's most vulnerable. That's the population that might be well-served by charity, also. I don't disagree with you. I just worry about being able to make that kind of wholesale shift, when even the shift I'm thinking about through a BIG is probably politically impossible. Russ Roberts: Yeah; I'll concede that my view is not clear[?] in the data right now, for sure. |
| 47:48 | Russ Roberts: But I want to continue the philosophical point and conversation. And again, I want to tilt it toward this issue of not just people who are poor today--say, who are homeless, who are unemployable at the current, who have not been able to find work at the current level of the minimum wage. I'm worried about, say, 20 years from now, when it is possible that there may be very large numbers of the American workforce that can't find work at all because of the role of Artificial Intelligence (AI). And what I'm thinking about--I'm trying to get a little bit of a Veil of Ignorance here. So, Rawls asks us to consider this idea that you don't know your place in the income distribution: you don't know whether you'll have some of the skills that may be relatively rare that will allow you to have a very good job in 20 years despite the increase in artificial intelligence, robotics, etc. So, we are behind the Veil of Ignorance--we are thinking about--the way I like to think about it is: Let's take one's brother. So, your brother, let's say, a cab driver, a truck driver. And you know that in, say, 5-10 years, let's say, you are pretty confident that your brother is not going to be able to use those skills any more. And it may be that there's almost nothing else that's attractive. That's my worry. And it's possibly true. So, how would you prepare for that? What would you do for your brother, who you love? Not everybody loves their brother, but let's say you do. Would you just say, 'You know, I know you are having a tough time, so I'm going to give you $2000, I'm going to give you $1500 dollars a month--that's $18,000 a year. And that way you don't have to worry about it. I know it's coming; and I'm lucky; my skills are not devalued by technology; I'm doing fine; I'm healthy. $18,000 a year is not a big deal for me; I'm going to give you $18,000; that way I'm going to make sure that you're going to be okay. You're going to be less worried. In fact, I might make it $24,000. I'm going to give you $2000 a month. I can afford it. It's going to be okay. What do you think of that? Michael Munger: Well, I think that many families probably have always operated that way. And it's only been in the last 50 years or so in the United States that we've seen government as a replacement for that. So, 100, 150, 200 years ago that's exactly how a family would have operated. I don't know if it's better or not. The point that you're raising is: Suppose that many people felt that way. Wouldn't it be more efficient to operate it through a government program called a Basic Income Guarantee? And we act on that impulse collectively and solve the free rider problem? The secret that I have--and so I think that you think that many of the claims that I've made so far are wrong. You're going to think this one is ridiculous, so I might as well go for the whole shebang. Russ Roberts: Trifecta. Michael Munger: Heh, heh. Russ Roberts: You know I don't think they are ridiculous. The whole thing makes me uneasy. Michael Munger: No, you think they are ridiculous. That's fair enough. It's okay. Let's own that, Russ. Russ Roberts: No, and it's not-- Michael Munger: And it's okay. Russ Roberts: No, it's not ridiculous, and I'm uneasy about the fact that--you know, it's very easy, I have a very good financial, monetary life, and my children probably will too. And it's--there's something a little bit repulsive about hearing me say, 'Oh, private charity will solve it.' So, I'm-- Michael Munger: Well, at least you are not a tenured professor. Russ Roberts: Yeah, that's right. Michael Munger: I'm used to a--you actually went out into the private sector. Russ Roberts: Sort of. Michael Munger: So it is particularly amazing to hear tenured professors talk about [?]-- Russ Roberts: Carry on. What else--give me your latest ridiculous idea. Michael Munger: Okay. The most ridiculous claim is that the BIG won't have to go up. It will go down. And the reason is, that, I think that in the economy that we're heading towards, it is true that wages are going to fall; and for many people, they'll be near zero. But prices are going to fall by more. Which means that real wages may actually go up. Russ Roberts: Lots [?] Michael Munger: Let me say that again. Russ Roberts: Yeah, for lots. Michael Munger: Wages are going to fall by some. Prices are going to fall dramatically. And I know you disagree about this. But my claim is that being able to rent rather than own, have a more efficient use--I won't need to have a car; I'll be able to rent a car, a driverless Uber--I won't have to have garages. Our streets will be more efficient. There's all sorts of--but we're not just buying time but we're also buying space. So, we'll all be able to have smaller houses. The cities will be more efficient. The price of almost everything will fall. And we see this to some extent now. Facebook is nearly free. Twitter is nearly free. Google, Wikipedia--so many things that we used to have books for or servants, we now get essentially for free. If prices fall enough, then the amount of a BIG that will be required may not be so large. So I may then be able to have a smaller apartment. It may be possible for me to have food delivered much more cheaply and efficiently than we are able to do it now. So, my hope is, that if that's true and we can compensate for the fact that wages are going to fall by making sure that everyone is able to get access to a now-much-cheaper set of basic services, BIGs won't have to go up. They'll be able to fall. So, there: I said it. Russ Roberts: Well, I don't disagree with any of that, actually. I think the real purchasing power argument, the standard of living argument, I think is true. I do think there's going to be--there's still an enormous Public Choice issue, which I know you are aware of, about how people who are living great, materially, but don't get to go to, say, their own island in the Caribbean because they are on the BIG, whether that's going to have some difficult societal issues. Right? So, somebody who makes a very, very low wage but it goes very far, compared to somebody who makes a very high wage that goes ridiculously far, might be troubling. There may be social issues. Michael Munger: Absolutely. But a BIG makes that better than a system when we don't have some sort of easily available compensation if the form of cash. So, I think you are right. But a BIG--that's the argument--you just made the argument for the BIG. Russ Roberts: Uh-oh--I didn't realize that. My mistake! Michael Munger: Because without it, it would be even worse. You are absolutely right. Way to go. |
| 54:23 | Russ Roberts: So, let's go back to the--you took my Veil of Ignorance argument in a very clever--but not the direction I intended. So I'm going to come back to that. You made the point that the increase in government programs over the last century have destroyed--the way I would describe it--destroyed some of the bonds between us. I don't have to worry so much about my parents, I don't have to worry about my siblings, because there are government programs to take care of them. And other people would say the causation goes the other way: Because our connections to each other are not what they used to be, we need government programs to cushion the blow and to make those connections for us. Or, they'll argue it's-- Michael Munger: It's probably recursive. We partly dissolve the bond, and the dissolving bonds reduce the obligation. Russ Roberts: Yup. But I was actually making a different point. Which is: I don't think I'd give my brother $24,000 in cash as a way to soften the blow if he lost his job to a driverless car. I think I'd want to help him try to find an alternative strategy for meaning in his life, than just say, 'Oh, don't worry. You can live off me.' Right? So the really ugly way to put the BIG argument is: 'Life is hard for some people; and so it's okay that they live off of the rest of us because we have good lives. Our lives are meaningful; they are great. So we just need to give them comfort through money.' My view--and this is my real problem with BIG--it's not so much whether taxes go up or it's inefficient or we should have criteria for who gets it or what. The question is: Is it really a good idea? To tell people that--I mean, I don't know which is worse. It just strikes me as--I lost my train of thought here. But I'm trying to make the point that the idea that giving people money will have solved the problems of what makes life difficult in the 22nd century, say, strikes me as the wrong way to go about thinking about the problem. The right way to think about it is: What gives life meaning? And, Adam Smith said, 'You want to be loved and lovely.' And giving people money is the last thing to do, to give people respect and dignity. Now, the question is: Is there any other alternative? I'm willing to face that. If there's not, then I'm all for giving money, because I don't think--I don't want to romanticize poverty. I'm not saying, 'Oh, everybody needs to struggle; and my brother lost a job. He needs to go through the soul-searing experience of trying to remake himself.' I'm not saying that. I'm saying that it would be very tragic. Anyone losing a job is a tragedy. The question is: What's the right way to cope with that, and saying, 'Oh, don't worry; here's a lollipop,' just strikes me as ugly. At the same time, saying, 'It's good for you. You'll come out better for it. I'm not going to give you anything.' That's also ugly. When I make the case for a private program to do this, whether it's through my family or a different set of civil-society institutions, I'm making the claim that those would have a different texture. It's not just that they would do the money more effectively. We don't disagree about the objective. What we disagree, perhaps, about, is the means. And I'm going to go with the jobs-are-overrated claim. It is true that for a relatively brief period of human history--at most about 150 years, really about only about 100 years--we have defined ourselves in terms of jobs and careers. Not family. Not organizations that we belong to. Not the sort of culture in which we are embedded locally. What we've done is define our jobs as being what we're about. In fact, you meet somebody at a party, one of the first questions you ask him is, 'What do you do?' And what you mean is: What is your job? Russ Roberts: Yep. Michael Munger: Well, I think, what do you do, question, could mean something else. And John Maynard Keynes famously predicted a 2-day workweek: As productivity increased and real wages rose, even though wages might fall, prices would fall by more. He said--and Karl Marx said this also--you know, you would have so much time that you'll define yourself by something else. And people will find meaning in communities--through Facebook. In fact you've done a couple of very nice podcasts recently about the ways that people are able to find each other through Instagram, through Flickr. We create these communities through hashtags. And, for a long time it's been sort of face-to-face, family--we meet for Thanksgiving, 'Oh, here's my brother and I don't really like him.' I might be able to construct communities of meaning through other kinds of online platforms. And become someone who is revered, respected, and lovely--because I have enough time and resources to do that. So, I think people are going to construct meaning if we reduce the constraints on them. We talk about jobs as being important. Most people don't like their jobs very much. I love my job. I'm grossly overpaid and underworked. I have a wonderful time. Many, many people--and I've certainly had jobs like this--it's not that great. They'd quit in a minute and find something else that was more meaningful if they could. The question is--and you have raised it well--is this something that having a sort of sterile, guaranteed stipend that comes from this impersonal entity, government, does that advance or retard that vision that I think we share about people constructing their own communities about meaning. Which might or might not involve jobs. |
| 1:00:08 | Russ Roberts: That was very well said. I don't get to read Franklin P. Adams very often on EconTalk. Franklin P. Adams is a poet who was famous for coining, making "Tinkers to Evers to Chance" famous, the double-play combination. Michael Munger: Uh, huh. Russ Roberts: But his other somewhat noted poem is called "The Rich Man," which I'm now going to read. It's short. The rich man has his motor-car,
His country and his town estate.
He smokes a fifty-cent cigar
And jeers at Fate.
He frivols through the livelong day,
He knows not Poverty, her pinch.
His lot seems light, his heart seems gay;
He has a cinch.
Yet though my lamp burns low and dim,
Though I must slave for livelihood--
Think you that I would change with him?
You bet I would! And that's your point about work. Work is--it's overrated. It's better to--there's this other story, it's probably apocryphal, where some steel worker says to Teddy Kennedy (Edward "Ted" Kennedy), 'You ever held a job? You ever worked in a steel mill? You ever--?' And Kennedy says, 'No.' And the worker says, 'You're lucky. It's overrated. It's not--,' I didn't tell that well. I forget. The actual wording is better. But you raise a great point, which is: There are other ways to get meaning in life. Perhaps. The idea that you support your family, used to be a male prerogative. It's no longer the case. Whether it's a good thing or bad thing doesn't matter. Our world has changed. Michael Munger: Yeah, it's gone. Russ Roberts: Men don't get the satisfaction that they used to from taking care of their family, because women can take care of their family now. Financially. And that's changed as culture. It evolves. I guess the question I have is that--and I take your point, both parts of it. One is that I'm underworked and overpaid and love my job; and I understand not everyone does. And not everyone needs to take care of their family or feel that they provide for their family any more. But I'm not so sure that that's gone to zero, for men or women. And I don't know that if intervening in that emergent phenomenon through a very large program is the right way to help us get to better world in the future. But, it's been a provocative conversation. And, do you want to say anything in closing? Michael Munger: Well, the last point that you raise, I think may be the key one. And that is: Providing for my family is a combination of creating an environment of love and support and having time to do things together; and providing them the material things that my family needs. If we move a little bit more towards the first and away from the second, I think it will still be possible for people to provide for their families. My question is: What's the best way to accomplish this without suffering the admittedly corrosive effects of displacing these activities to an impersonal state? And getting away from the focus on families? I happen to think that a BIG will help. I certainly understand arguments to the contrary. I think this is something we are going to have to deal with. |
Michael Munger of Duke University talks with EconTalk host Russ Roberts about the virtues and negatives of a basic guaranteed income--giving every American adult an annual amount of money to guarantee a subsistence level of well-being. How would such a plan work? How would it interact with current anti-poverty programs? How would it affect recipients and taxpayers? Munger attacks these issues and more in a lively conversation with Roberts.
READER COMMENTS
Michael Byrnes
Jan 16 2017 at 7:41am
I’m only about 20 minutes in, but I wanted to provide a link that I think listeners would find useful. Responding to a CBO report called “Effective Marginal Tax Rates for Low- and Moderate-Income Workers”, John Cochrane did a post called “Taxes and Cliffs“, in which he discussed the problem. Cochrane’s goal was not to endorse a Basic Income (he raises the idea but dismisses it as impractical), but just to illustrate the marginal tax rate issue.
It’s useful because he (and the CBO) put some actual numbers into the discussion. As it turns out, a hypothetical single parent with one child faced an effective marginal tax rate (on all federal and state taxes and transfers) of at least 60% on all income earned from about $10,000 to $24,000 per year, with that rate peaking at about 95% on income from $18,000 to $20,000.
That’s for a single parent with one child. Obviously a single person would have a lower marginal rate, wheras more kids or marriage may raise the rate.
Floccina
Jan 16 2017 at 10:17am
Arnold Kling proposes a program that is halfway between:
If I read him right it would be a a card like a SNAP card that could be used for food, energy, housing, clothing, appliances etc but could not be used for Alcohol, tobacco or recreational drugs.
My thoughts on a BUG are here
I think the BIG should be:
1. Only to adults.
2. Taxed away at a 50% rate or at least at a 35% rate.
3. 2 adults can live especially in our low income areas for a low amount (see here) so I would say $200/week is enough.
4. On healthcare you need to worry less about marginal tax rate because people value insurance lower than the cost. Meaning much if benefit is to general public not having to see the sob stories about the uninsured on TV and to providers. So My proposal is here.
Huge deductibles related based on last each citizens year’s income.
Mark
Jan 16 2017 at 11:37am
There are rich conversations in the podcast about many of the areas in this conversations. From a logistical standpoint, it seems like there is a bait and switch taking place regarding Medicare and Social Security.
Based on the numbers in the conversation (and most conversations about basic income) taking place, it seems as if SS and Medicare are being included in all estimates about the savings from shifting away from the current model. When you exclude SS and Medicare, the federal government spends roughly $600 Billion per year in welfare/income security programs. Spread over every adult citizen, that would support a basic income of approximately $2,500 per year. Only when you include Medicare and Social Security into the equation could you get anywhere close to a basic income value that could support the most tempered of social goals.
The problem then is that you are greatly under-funding the retirement population relative to their current levels and don’t have a mechanism to account for the typical excess cost growth in healthcare above inflation.
Don Crawford
Jan 16 2017 at 12:14pm
We know that some programs such as SSI disability and unemployment have built-in huge 100% disincentives to working. We know that others such as Medicaid and Section 8 housing also have very strong disincentives to getting any income from any source, including charity and family! Russ was also right that other programs such as school lunch programs phase out so gradually that we give them to people we don’t really think need them–to avoid the disincentives to working. Our highest priority in all of these programs should be to incentivize people to become engaged in meaningful work and training. It might be interesting to have someone from the DOE FUND on the program–that’s a private charity that helps “undeserving” men get their lives together and get job skills and get jobs to become self-sufficient. They can speak to Russ’s point that it takes more than money to help people.
Conrad Barski
Jan 16 2017 at 1:03pm
One thing I was surprised wasn’t discussed much: If everyone gets $20,000 by default, maybe it would be hard to find someone to stock the shelves at your local grocery store, because usual job candidates will substitute leisure time. All of a sudden, these types of jobs pay a high premium. If this is pervasive enough, maybe a loaf of bread will cost $12. All of a sudden, the cost of basic staples (i.e. price inflation) is so high that $20,000 is no longer enough of an income floor.
Kevin
Jan 16 2017 at 1:36pm
Thanks for this very interesting discussion.
Respectfully, I do think that the contributors need to move into the poorest neighborhood in a large city, and live there for 5 years as they have very little understanding of the poor, their incentives, thoughts, and perspective on these issues. The poor are not econ professors who have simply taken a different path. They have been shaped by the programs being spoken about. I laughed out loud when Dr. Munger dismissed the trope of the welfare queen who drove a nice car and ate steak. After sharing grocery stores in an impoverished inner city of a very generous state for many years, I can assure you that steak is on the menu with some frequency. Nice cars? Yes, because a car is one of the only assets left to put cash in that the person is not punished for. They cannot save money under many welfare regimes, but cars often don’t count (its variable by state). A single man does not get many benefits, but that is why he lives with a woman who does and never gets married. Reading about it never does it justice. The poor have a completely different world view often shaped by our current system.
I am not sure what I think about a minimum income but there is plenty to like about it. One is that it makes the whole system for all citizens transparent. Everyone knows what everyone else is getting from the government because now the same thing is available to everyone. That alone, for civic contribution is a huge win. Murray wrote about some of these in his book.
By disconnecting the money from children it would also decrease any incentives to have children you could not afford. I think you would have to limit it to adults by age, not simply when they have a child. No matter when you have a child, the money does not come until you are 18.
I would also make sure that the minimum income is not impacted by marriage. If it is set at 10 thousand, then after marriage the couple has 20 thousand.
I would also favor this system replacing medicare/SS over time. So, adults above x age will continue on current systems, but those less than it will plan on only having the minimum income available. Then we have one straightforward system without so much income effects.
I think the money should also phase out with increasing income, or as a feature of the normal tax code.
Richard Fulmer
Jan 16 2017 at 2:03pm
I disagree with the oft-stated belief that automation will eliminate most jobs, leading to vast increases in the ranks of the unemployed. New technology creates new niches for work of all kinds. For example, we are seeing a move toward “radical customization” in clothing, cars, houses, craft beer, food, you name it. And nearly all of the businesses supplying such customization have been enabled by new technology.
Through government policy, however, we can make the feared explosion in unemployment a self-fulfilling prophecy.
Wes Lawe
Jan 16 2017 at 4:11pm
Fulmer,
I think you’re right in the near term. I think you are right as long as humans have something that they are better at than machines. However, if we reach a time when there is nothing that humans are better at than machines, then the only thing left to humans will be novelty or jobs that by law require a person. There has never been a technology that had any chance of completely displacing human workers. Artificial Intelligence is such a technology.
TJP
Jan 16 2017 at 4:14pm
If its a consolidation of an alphabet soup of programs into one program called the BIG then i would be all on board. I don’t really see a good argument against it especially in the context of the perverse incentives of the other programs.
Russ roberts (Judeo-Christian social) conservative side was really on display in this episode especially in the later part of the episode when he was talking about work and meaning. I see his argument how work gives one meaning but I guess i am more of a kind of Keynesian (which ironically may be closer to the genuine judeo-christian position because they make an idol out of work) when it comes to work and think PAID-work is way over-rated. A lot of so called work and for that matter the education to get the jobs is not “productive” rather its signaling or worse rent seeking propped up by the government. One of the benefits of minimum basic income is the fact that it is HUMILIATING and unmeaningful in a sort of any rand john galt speech kind of way! It says that you produce nothing to society but because we are so wealthy we will give you a sort of parental allowance to not get into trouble. Having one group break windows and then another group fix windows is not really work and at least these people can work toward doing more productive things like entrepreneur gigs or hobbies or being stay at home parents. Yes, some people will idle their time away but this impulse will always be there. If work is meaningful, which I think it is, then it should be meaningful if it’s not paid as well.
Conrad Barski: No solutions just tradeoffs. This is a great criticism of this program and it could be that it does raise those costs but I think there could be savings elsewhere. This may also speed automation as well. Maybe things like haircuts and cleaning bathrooms would be more expensive because they could not be replaced but that would eventually be adjusted by a market process of more people training to cut hair. This is no miracle cure and inflation adjustment could go both ways. It could be that in the future being an elementary teacher or econ professor gets paid almost nothing and underwater welders and and strawberry pickers get paid a fortune because the job is dangerous or very tedious not because it is intellectually difficult. This future is coming in all likelihood regardless of minimum basic income getting enacted. People will simply break and fix windows in order to get by.. lets just put it out in the open we are paying you not to respect the system and not break windows.
I think the next round of innovation will hurt teachers, accountants, lawyers, doctors, and professionals who so far have done very well in the globalization and skill game. In many ways, these groups (ironically the people who hate trump the most) are the ones who get a guaranteed income regardless of creative destruction and market forces. Maybe they pay it back in positive externalities but so could the recipients of minimum basic income.
Jason Comely
Jan 16 2017 at 5:31pm
Private efforts to help the poor certainly exists. The LDS church (the Church of Jesus Christ of Latter-Day Saints) is an unsung hero in this regard. They help members and non-members with food, shelter, education, job search and training, addiction recovery, and the list goes on. And this is entirely separate from it’s world class humanitarian services.
I’m convinced the church not only has a sustaining influence in the community where it resides, but for a country’s economy as a whole. Other religious denominations tend to be equally generous to the poor.
Yet for the most part, these private efforts go unrecognized and unappreciated.
I suggest this would be a good topic to explore on a future podcast Russ.
Walter Clark
Jan 16 2017 at 5:57pm
One of the concerns that popped up in this interview was what the BIG would do to reduce care for those that drink their BIG or otherwise waste it away. The concern is that relatives or helpers would refuse to help because BIG is available.
Charles Murray handles this very well in this WSJ article: http://www.wsj.com/articles/a-guaranteed-income-for-every-american-1464969586
With BIG, those that do waste it away, cannot use as an argument their helplessness. And that is extremely obvious to the helper and the helpee. Unlike welfare today, recipients can in no way feel entitled.
Nonlin_org
Jan 16 2017 at 9:09pm
Terrible idea, Mike Munger.
Reminds me of an 80s movie where people of the future were so dumb and so dependent on the government that they forgot how to cultivate the fields and were about to plant Coca-Cola or something crazy like that.
Yes, 100% marginal tax is true for some people (Russ is blissfully ignorant on that) but that can be fixed without BIG.
Regardless, there’s a new and this time COMPETENT sheriff in town, so, if you are an ivory tower economist, just “Sit Back, Relax and Enjoy the Flight!”
Sam
Jan 16 2017 at 11:27pm
I am roughly 30 minutes in and the aversion to doing some basic math is puzzling. Here is some:
$15,000 per person in a country of 326 million people equals $4.9 trillion. Then add healthcare, defense and interest on the national debt and based on the latest budget expenditure figures you pass $7 trillion. In short Munger is advocating a 70% increase in government spending.
Why is this taken seriously?? I know the podcast is free but I listen with the expectation that the conversation won’t be based on absurd premises.
Is it because there were no guests available? Personally I would prefer no episode to something like this …
Ty
Jan 17 2017 at 1:00am
How about we combine the worry by the host over people that might not want/need their own portion of a basic income and his concern over the lost tradition of charity going to help the poor that has not existed for nearly a century.
Allow people the option to divert their basic income to a charity or charities of their choice to help whoever they wish. I do not think this will be enough to get the well to do to focus on helping the poor vs spruce up their own neighborhoods and schools, but it would at least build that ability into the distribution framework in an explicit way.
As an example, I sometimes go to a sandwich shop called Jersey Mikes. Almost never tipped before as that was cash based and I just use my debit card. But they recently added the ability to tack on a tip amount into the card reader where you can choose 10/20/30 % tip amounts. Just by adding that option into the mix, I tip every time because it’s there. It’s one of those areas where a bit of engineering to make the nicer choices easier and more visible to put it in peoples minds might actually cause more charity to take place.
Adam S
Jan 17 2017 at 3:52am
If you run a BIG, it has to be NON-means tested. If it’s means-tested, every dollar I make as a poor person will subtract from my guaranteed stipend. I think it’s reasonable to assume with a BIG more people would be willing to do part time labor on a piecemeal basis. Our current system (especially unemployment and disability) is an all-or-nothing approach, so I’m not going to work unless I can get something full-time that provides additional benefits and a very substantial salary. The tradeoffs don’t make sense.
As for a private charity system, do we have historical evidence of quality of life differential between the 1831 unemployed poor person and an 1831 middle class person? If we don’t have empirical evidence that private charities can do a comparable job to the government, I don’t understand how you can assume that private charities could even come close to providing the same services that government does, as awful as these services are. Maybe there are real world examples out there, but I haven’t seen any.
Further, a private charity system is extremely likely to recycle funds towards people “like them”. Since (surprise) white anglo-saxon Protestants control the lion’s share of wealth in the US, it’s reasonable to assume they would reap most of the benefits of a private charity system. I’m not at all implying that charities would be overtly racist, but it would probably happen naturally.
Obviously I’m a big fan of the BIG. I think it’s highly compatible with libertarian beliefs that people know better how to spend their money than government or some private organization does. If a poor person wants to spend half their BIG on drugs and the other half on their startup that employs 10 people, I consider that a huge net win.
Michael Byrnes
Jan 17 2017 at 6:06am
Ty wrote:
People already have the option of making charitable contributions.
Daniel D
Jan 17 2017 at 7:22am
In the episode, Roberts and Munger mention that also someone with a high salary would get a $15,000 tax-free, which to some people seems unfair. If my salary is $200,000/year why should I get any tax exemption?
Munger mentions that the tax-free band could be gradually reduced.
This is exactly what happens in the UK with the income tax personal allowance. For everyone with an income less than £100,000/year, the first £11,000 are tax-free. For incomes above £100,000/year the tax-free band goes down by £1 every additional £2 of income.
So someone who earns more than 122,000 has no tax-free band and pays some tax on the full amount earned.
https://www.gov.uk/income-tax-rates/income-over-100000
I think this is more philosophical than practical importance. People do not like the idea that someone with a high salary gets any form of tax exemption of reduction.
In the UK, there are three more tax bands: 20% for income above £11,000, 40% for income above £43,000, and 45% for income above £150,000.
The government could also reduce gradually the other tax bands so that someone with a very high income (say £500,000/year) would pay tax at the maximum rate on the full income amount.
Jeff W
Jan 17 2017 at 10:22am
A discussion like this is why I listen to Econtalk! Thank you for the wonderful resources in the show notes!
Kevin Ryan
Jan 17 2017 at 10:47am
I always feel good when I see that the latest episode is a discussion with Mike Munger; and this is a very interesting topic to me, so thanks for that.
That said, I came away a bit dissatisfied as I felt we had only scratched the surface on some of the many important issues.
One thing I would mention in particular is that, like Sam, I was frustrated by the lack of consideration of the arithmetic involved. Although I assume that Sam’s figures were designed to be more provocative than an accurate estimate, (eg surely no one is suggesting paying $15,000 a year to every person in the country including children, let alone contentious adults such as illegal immigrants and the incarcerated), I would have expected to see some basic costing to demonstrate how such schemes would be funded.
This would illustrate what higher marginal tax rates would be needed to fund such a proposal – or what other source would be called upon.
Further, the funding plan needs to consider the impact in the future of fewer people working, (and therefore paying net taxes which provides the funding,) which is one of the main drivers of these ideas; and of the consequences of the future eroding the income of the current beneficiaries of globalisation (as per TJP’s comments) who are the funders.
Of course there are forces that can work to reduce the net cost, such as cutting existing benefits as suggested by Mike; but my experience (in financial regulation) is that even where we aim to achieve overall neutrality, any radical change will produce losers as well as winners, and the losers lobby to restore their position while the winners keep quiet and pocket their gain. So I don’t see revenue neutrality coming from that.
Anyway, if anyone can point me to some work where someone has made a decent attempt at working out the arithmetic of a BIG proposal, I would be grateful.
Another particularly interesting element was Mike’s “wages are going to fall, but prices are going to fall by more”. I can certainly concede that this may happen, but as a natural pessimist find it hard to see how such a state of affairs, with collapsing incomes, can be expected to fund a remotely generous BIG programme on an ongoing basis.
Finally, on a non-financial point, I was also intrigued by the “work is over-rated” discussion.
As someone who is recently retired from an interesting job, like a BIG recipient I have plenty of time and a decent amount of income; but I am finding it difficult to identify something meaningful to fill my time with. I feel I have lost my identity and purpose – to say I loved my job would be too much. In some ways it is like coming to the end of full time education when you have the rest of your life ahead of you but many people do not know what they want to do with it.
Floccina
Jan 17 2017 at 11:33am
[Comment removed. Please consult our comment policies and check your email for explanation.–Econlib Ed.]
Todd Kreider
Jan 17 2017 at 6:40pm
TJP wrote:
I wouldn’t bet on that. In 2013, a robotic strawberry picker that can pick a strawberry every 8 seconds went on sale in Japan for $50,000. That would pay for itself over time but the price will drop. Not sure how underwater robotic welding is coming along, but it can’t be too far behind.
Paul Krugman wrote about the future in 1996 where he predicted the garbage man would earn among the most, much more than most information oriented worers. He also wrote: “And it takes common sense to deal with the physical world — which is why, even at the end of the 21st century, there are still no robot plumbers.”
No robotic plumbers by 2096, eh? In 2022, $1500 worth of computer power will have by one measurement the capacity of a human brain. It won’t take another 74 years before there are robotic plumbers.
In 1998, I read a review for “The End of Work” and disagreed with Rifkin’s view and agreed with most economists who would argue that there will be as much work but different types in the future. This is also Ray Kurzweil’s view.
Yet around 2009, I started to think that there could be a rough five to ten year period – probably not more – where automation eliminates so many jobs so quickly that it leaves a high percentage unemployed and/ or working for lower real wages. I thought the most likely possible very rough period would occur in the 2020s.
Hugh
Jan 17 2017 at 10:46pm
The discussion assumed that the incentive effects of the BIG itself (as distinct from the taxation required to fund it), would be confined to the poor, but this is not so. Consider the position of the 50 year old whose kids have just finished college and who has an inheritance of a few hundred thousand wondering if he can afford to retire? A BIG of $15000 could easily change the answer. Or the 18 year old pondering skipping conventional college with its steep costs in favour of almost free online learning. A stipend of $15000 while studying could well be decisive. In an economy where income from labour holds a shrinking share of the cake and inherited wealth is growing in importance, you cannot assume that people of working age not actually working are either poor or involuntarily unemployed. Think of the middle aged white men disappearing from the workforce here.
Jonah 1:3
Jan 17 2017 at 11:35pm
I’m writing to address the idea that free riding has something–anything–to do with charitable donation. I ask readers to please forgive me for the tone of this post, which is sometimes confrontational. I’m a grateful and avid listener of EconTalk. I have learned much from these podcasts and Professor Munger is one of my favorite guests. I am indebted to him and Professor Roberts for the ideas they’ve taught me free of charge. Perhaps this is an occasion on which I can reciprocate.
Given that neither Professor Munger nor Professor Roberts defined “free rider” or “free riding,” I’ll quote Professor Munger’s explanation of the way he thinks these concepts occur in the context of charitable donation:
“But you also mentioned the free rider problem, and that is: Suppose that I think we should all contribute voluntarily to the provision of a public good. And charity is a public good. But I think you’re not going to, so I’m not going to. Whereas, if I could be assured that you were going to contribute, I would be willing also.”
I’ve never taken a class on economics; I’m only a lawyer, so I’m only familiar with the use of the terms “free rider” and “free riding” in the context of the jurisprudence of public goods. For example, John Rawls wrote in “A Theory of Justice” p. 266 (1971), “Where the public is large and includes many individuals, there is a temptation for each person to try to avoid doing his share. This is because whatever one man does his action will not significantly affect the amount produced. *** A citizen receives the same protection from foreign invasion regardless of whether he has paid his taxes.”
I will show that there is no analogous situation regarding charitable donations.
If one defines free-riding as a circumstance in which one person knowingly and intentionally accepts a benefit without contributing a portion of its cost in return, that circumstance does not occur when a person decides not to make a charitable contribution simply because another person will not make one. A person makes a charitable donation if he believes he will receive a benefit (e.g., emotionally or morally) from giving something to another while asking nothing in return. A prospective donor who refuses to give except on the condition that a third party also gives is not free-riding; he is simply refusing to make a charitable donation because he is unable to make it on terms that are acceptable to him, and unwilling to change his terms. Because he has not made the donation, he has not received the emotional or moral benefit he hopes to receive if eventually the third party does as he wishes by making a donation on his terms. He is not free-riding on those who already have donated to the same charitable cause, as he will only have received a benefit when he himself makes a donation.
I anticipate that Professor Munger (and others) would counter-argue that in my hypothetical situation, the prospective donor has in fact benefitted from the previous charitable donations of others. That was the implication of Professor Munger’s erroneous claim that “charity is a public good.” Charitable donations can, and often do, have positive externalities, as I will discuss in the next paragraph, but that does not make them public goods. By definition, public goods are neither excludable nor rivalrous. Charitable works can be (and usually are) excludable and rivalrous. For example, consider the creation and maintenance of a shelter for homeless men. Those who operate the shelter decide whom to accept…and exclude. The shelter can only hold so many men, and space occupied by one cannot be occupied by another, so the space is rivalrous. If the shelter provides meals, the food consumed by one cannot be consumed by another, so the food is rivalrous. The same would be true of clothing and medical care if the shelter provides those. The charitable works Professors Munger and Roberts address in this podcast (i.e., providing for the necessities of life for the indigent) are excludable (because donors can choose to whom to give) and rivalrous (because the resources consumed or possessed by one person cannot be consumed or possessed by another).
Professor Munger would have been correct if he had stated that charitable donations have positive externalities that accrue to the benefit of many who do not donate; possibly to everyone in society. The same, however, could be said for any number of non-charitable, private transactions. For example, sales of cellular phones have made commerce more efficient and the streets safer, even for those who do not own, use or pay for them, but we wouldn’t call such people “free riders.” We simply regard them as people who don’t pay for cell phones because they don’t own or use them. If we were to regard them as free riders, then we could regard everyone as free riders in some sense, as everyone in modern society benefits from any number of positive externalities. If we apply the terms “free riding” and “free riders” in the context of any positive externality, then we should be able to agree that there is nothing wrong with free riding, whether we do so on the positive externalities of private cell phone sales or on the positive externalities of private charitable donations to homeless shelters.
I anticipate that some readers would respond that positive externalities derived from charitable donations are different from those derived from private non-charitable transactions because there is a moral value to the former that is lacking in the latter. I have already explained, though, that the prospective donor who refuses to donate except on the condition that a third party also donate will not receive the anticipated benefit of donating unless and until that condition is fulfilled. Therefore, I anticipate that some will disagree, on the assumption that the prospective donor has nonetheless taken comfort in the previous donations of others. Here is where the reason for using terms like “free-riders” and “public goods” becomes clear.
What such people are *really* arguing is that the conscience of our prospective donor is not troubled by the current level of allocation of resources to charity…or at least not troubled *enough*. How can we tell his conscience is not troubled enough? “Because if it were,” they would answer, “he would donate.” In other words, the claim that our prospective donor is “free riding” by enjoying the “public goods” of charitable donations is nothing more than a disguised assumption (or assertion) that the speaker’s idea of the optimal level of donation to a specific charity (or of charitable donation in general, or in total) is correct, and our prospective donor’s idea is incorrect. This should bring to mind Hayek’s lesson about “who, whom.” There are no objective criteria for determining which charitable causes should be funded, and at what levels, and no objective criteria for determining who gets to make these decisions for whom. The reason for using terms like “free riders” and “public goods” is to use (perhaps without even realizing it, or perhaps to convince themselves) the vocabulary of the discipline of economics create a veneer of objectivity for people who wish to use the power of the state to make everyone else create a world that is closer to their subjective vision of utopia.
John Alcorn
Jan 18 2017 at 1:32am
Thank you, EconTalk, for the latest conversation, full of insights & deep questions, between Russ Roberts & Mike Munger. These conversations usually convert me to Prof. Munger’s views. This time, I came away a fence-sitter. Here are links to two items that make the case for skepticism about a universal basic income.:
1) Michael Byrnes mentions (in the comments) John Cochrane’s blogpost, “Taxes & Cliffs,” about the marginal-tax-rate issue.
Prof. Cochrane has written also a systematic critique of BIG in a separate blogpost (June 7, 2016), “Universal Basic Income.”
2) A survey of prominent economists in academe (the IGM Forum, June 28, 2016), about universal basic income.
Allen Arnett
Jan 18 2017 at 9:37am
While not a full supporter of the BIG, I acknowledge that I have been receptive to the idea at various points in my life.
One thing I didn’t hear discussed (perhaps because it doesn’t fit into Dr. Munger’s conception of the BIG) is that usually the BIG (say $15k) of offset with a less progressive (even a flat tax rate) on the first dollar income. Right now, if you make less than $50k, you effectively pay no federal income tax (I know it’s not that quite that simple, but I’m not that far off). If someone gets $15k from the BIG pays a flat 30% on their first dollar earned, someone who makes $45,000 would be exactly neutral.
When Dr. Roberts mentions that taxes will have to go way up on rich people, I think he is ignoring this point. If we implement a flat tax that eliminates the progressivity concurrently with the BIG, the BIG effectively replaces the progressivity in the tax code and the marginal rate on high income earners would not need to be significantly higher.
In fact, with a BIG, our tax rate system would be flatter and fairer.
I do think if we implement a BIG, it will need to include / replace SS, and that will be incredibly difficult politically.
SaveyourSelf
Jan 18 2017 at 10:05am
@01:00 Mike Munger said, “…in an uncertain, maybe increasingly uncertain, society where markets benefit most of us but harm some people, often through no fault of their own, because we’re not very good at forecasting the future, we’re better off if we can provide a certain minimum level of income for everyone.” A few moments later he said, “a globalized system of capitalism does benefit many people, but it harms others because they lose their jobs.”
~56:00 Russ Roberts said, “I’m not saying, ‘oh everybody needs to struggle and my bother lost his job, he needs to go through the soul searing experience of trying to remake himself. I’m not staying that. I’m saying that, it would be very tragic. Anyone losing a job is a tragedy. The question is, what’s the right way to cope with that.”
@03:50 Mike Munger said, “one of the things that I want to advocate is that we eliminate all of the other welfare programs. And this could range from anything from aid to families with dependent children to minimum wages.”
@04:00 Mike Munger said, “We would eliminate all of the other forms of welfare that go to income insurance. Not healthcare. Healthcare is a separate thing.”
05:35 Mike Munger said, “for many of us, we’d have to change the tax rate so as to make it revenue-neutral.”
@10:18 Russ Roberts said, “But it [BIG] also, of course, discourages you from working because it pays you $15,000. So there’s an income effect there.”
@29:00 Russ Roberts said, “this issue of: it’s possible that in the future a lot of people are going to struggle to find work.” And @48:00 he doubled down saying, “I’m worried about, say, 20 years from now when it is possible that there may be very large numbers of the American work force who can’t find work at all because of the role of artificial intelligence.”
@13:40 Russ Roberts said, “most people don’t get much money if they don’t work in America right now. There’s not this raft of welfare programs for non-workers. If you are woman with a child, you have some opportunities. But a single man doesn’t have a great life in America right now unless that person has a job. You are eligible for Food Stamps. You can get Medicaid. But you don’t have a stipend.”
~18:52 Mike Munger said, “if we take money from some and give it to others, we’re creating a kind of rent-seeking contest.”
~20:00 Russ Roberts said, “If you say to people, ‘We need a new government program that gives everybody $20,000,’ most people would say, ‘Well, why would rich people need to get $20,000?’ And I think they have a point.”
59:00 Mike Munger said, “I think people are going to construct meaning, if we reduce the constraints on them.”
Russ, I never give you enough credit for what you do. You said, “…a $15,000 check might not work as well as a private solution…” Thank you for keeping freedom in the list of potential solutions. It’s easy to forget for some reason, probably because it’s so much more complicated. Thanks for Econtalk.
Derek Anderson
Jan 18 2017 at 12:41pm
I built a spreadsheet to calculate the real cost of UBI from census salary data broken down into $2.5k brackets, and show how it effects each bracket individually. It has adjustable fields for the total UBI benefit plus the rate at which that benefit is recaptured through income tax as your earning grows. See:
The Real Cost of Universal Basic Income
Notice that it can be done without a tax increase for anyone, only funded through existing (non-SS, non-medicare/medicaid) spending, at an annual UBI benefit of ~$4,600-$6,100, depending on how fast you want to drop off the net effective benefit as income grows. (9%-20%)
Note that this example caps the tax recapturing at the total UBI benefit, so no one winds up paying more taxes. (Arguably this is a political requirement for any serious UBI proposal.)
Floccina
Jan 18 2017 at 1:27pm
BTW To calculate your SS benefit SS takes your 35 highest years of earnings and gives you: 90 percent of the first $885 of his/her average indexed monthly earnings, plus 32 percent of his/her average indexed monthly earnings over $885 and through $5,336, plus 15 percent of his/her average indexed monthly earnings over $5,336. Up to the limit for contributions.
So it is pretty much a welfare program. Social Security is a welfare program that was disguised as a Ponzi scheme to make it palatable to the voters. (It was also sold as opening up jobs for young people.)
https://www.ssa.gov/oact/cola/piaformula.html
Tim Drohan
Jan 18 2017 at 1:57pm
An interesting conversation but seemed to miss some big issues.
1. If you replace all other social payments with the one BIG then there should be a huge saving in terms of government departments and the employees which administer all these disparate and often complex schemes
2. If citizens are given cash to spend rather than services then many state run institutions can ostensibly become private eg schools.
With people having a right to choose and pay for the services they want institutions which deliver what people want will thrive and charge more and the others will perish
3. If the BIGs were only available to citizens who had been in the country for a specific period – logic says 18 years – then immigrants will de facto be priced out of the market
Lots of things to consider
sam
Jan 18 2017 at 4:05pm
Let’s set aside the debates about the existence of the welfare state in general, and look just at the BIG vs. the status quo.
1: The purpose of the welfare state is to keep people out of a state of want.
2: You can, and indeed I often do, maintain a solidly middle-class lifestyle at $36k/yr for two people. Two cars of the median age on the road (10yrs) and a small house or two bedroom apartment in a median cost of living area.
3: It is commonly said that the average single mother of two receives benefits worth $50k/yr. Yet an urban housing project is not as pleasant as an outlying neighborhood with ostensibly identical income.
Some conclusions based on the above:
Some people (let’s call them group 1) are poor because their skills produce insufficient income. These people are the focus of the BIG
Some people (let’s call them group 2) are poor because of their inability to manage spending. These people are the focus of the current welfare state’s micromanagement of their lives.
As society and technology becomes more complex, both methods of earning and spending become more complex. The median low-income consumer now has to attempt to understand a cell phone contract, HMO vs PPO, an auto loan, etc.
I think that group 2 is going to grow. The BIG does not address this at all.
Seth
Jan 18 2017 at 4:48pm
I agree with Don Boudreaux.
Also, how does this just not end up distorting prices and leave everyone about as well off as they are now?
Woodrow McClure
Jan 18 2017 at 5:37pm
Hi Mike (if you read these comments),
You wrote a great piece on Learn Liberty on Monday 16th of January on the unintended consequences of making “safety equipment” in regards to hockey in particular. I thought the analysis was spot on, but what I don’t understand is why you didn’t use this reasoning to the “safety equipment” that you are proposing. It seems that you are arguing for engineering the safety mechanism, but not considering that the changes in behavior will respond to the new rules around the incentives. You conceded that there would be two a negative incentive to work, both with the higher taxes, but also with the cheapening of leisure time and unproductivity. You dismissed this effect as small, but in your other work those effects are much larger, and in the case of hockey have lead to less safety.
I just found it odd that there is a difference because one is a physical safety net and the other is a service safety net; can’t what we observe in one be likely to what we would observe in the other?
Thank you for reading,
Woodrow McClure
Michael Munger
Jan 18 2017 at 7:16pm
For a lagniappe, the Onion weighs in with pros and cons. http://www.theonion.com/infographic/pros-and-cons-universal-basic-income-55011
pyroseed13
Jan 18 2017 at 9:20pm
While it’s true that a BIG could improve work incentives relative to the current welfare system, that would only occur because most BIG proposals in the U.S. offer payments substantially smaller than what someone could receive from Social Security and Medicare alone. So instead of championing this proposal that is likely to go nowhere, why not just propose reforms to Social Security and Medicare?
Julien Couvreur
Jan 18 2017 at 11:38pm
Munger points out that the universality of BIG would reduce rent-seeking. That seems plausible (a sort of Schelling point).
But in my mind, this likely would shift the rent-seeking to the taxation side. I fail to see how this would reduce rent-seeking on net.
D Chisholm
Jan 19 2017 at 2:43am
My understanding of monetary policy is very rudimentary so please excuse this question if it is niave in the extreme.
Is there a possibility of funding some of BIG via normal monetary expansion?
By normal I mean your still only expanding the money supply due growth in productivity.
SaveyourSelf
Jan 19 2017 at 7:36am
D Chisholm wrote, “Is there a possibility of funding some of BIG via normal monetary expansion?”
Christopher McClain
Jan 19 2017 at 7:39am
It is inevitable in these discussions that people want to determine exactly who should get certain benefits and who should not. Sorting that out and policing it result in so much expensive bureaucracy that everyone complains about. You have to choose: do you want such fine sorting or do you want small government; you can’t have both.
For that reason, it is my opinion that a guaranteed basic include must be packaged with an overhaul to the tax system. Do the following:
(1) Replace the income tax with a sales tax.
(2) Provide the guranteed basic income via government-issued debit card which allows tax-free spending.
(3) Keep the capital gains tax and let tax battles be about the relative magnitudes of the sales tax and capital gains tax.
Doing it this way means that poor people who restrict their spending to the card do not have to pay taxes or fill out tax forms. If they spend their own money, they pay tax like everyone else. Also, the government is no longer doing the messy task of keeping track of incomes. Also, rich people will be taxed on spending like everyone else, even if they have no salary or wages. Finally, people can choose to not spend the money if their conscience tells them not to. In fact, it might be best if the debit card is reset on a monthly basis to 1/12 of the BIG and anything unspent is “lost” (No rollover).
Cole
Jan 19 2017 at 12:01pm
Instead of using the arbitrary level of $15,000 per adult, you could tie the check amount to the poverty level. A household of four would get a check for what the poverty level is for a four person household. If you remove current spending for entitlement programs and replace it with this level of basic income, we would already be very close to a revenue neutral program.
Jason Clemens
Jan 19 2017 at 12:09pm
https://www.fraserinstitute.org/studies/idea-guaranteed-annual-income-appealing-implausible-canada
Jason Clemens
Jan 19 2017 at 12:30pm
A little frustrating that there was no discussion of the various experiments with minimum income guarantees.
http://www.srdc.org/what-we-do/demonstration-projects-impact-evaluation-studies/self-sufficiency-project.aspx
D Chisholm
Jan 19 2017 at 12:37pm
SaveyourSelf: To be clear, what I meant by “normal monetary expansion” was expansion the fed would be doing anyway to accommodate real growth.
My limited understanding is that when we expand the money supply the money has to get into the economy somehow. For example via government borrowing and then spending. So what if instead we put those funds into personal bank accounts instead of government bank accounts?
If we had BIG pegged at $15,000, we could first say, well we need to add this many billions to the money supply so that will take care of $8k/person so we only need to fund $7k/person from tax revenue. Next year could be different based on growth.
How could this be any more price distorting then getting the money out via government spending?
D
Jan 19 2017 at 1:35pm
Perhaps Mr Munger, who describes himself as underworked and overpaid, can start by opening his check book and helping those in need….to the point that he feels underpaid.
The famous producer/painter/musician Brian Eno said he avoided getting a proper job after art school so that he could apply himself to what he loved to do. For him it paid off. There are some people, if given time, will use it wisely and others who will not. I do see how allowing one to proceed as one wishes can promote a stronger creative society.
Would be good to have Eno on your show to discuss how his career started off by avoiding work.
I wonder if Munger is a poor tipper?
Don L Rudolph
Jan 19 2017 at 2:24pm
If charity will work for helping the poor, why not use it to fund the military and the other things taxes support? The answer is we really don’t trust charity as a reliable funding source for things we think are important.
Madeleine
Jan 19 2017 at 6:17pm
I usually love Mike Munger, but I feel like he’s a bit off the mark on BIG. It was still a very interesting discussion, but I think some things were unaddressed:
1. Price distortion. Others have pointed this out — wouldn’t prices just rise accordingly?
2. BIG is essentially a men’s rights movement. I know I’ll take a lot of heat for this, but basically BIG will result in redistributing welfare money from pregnant women, women with children, the elderly (mostly older women, since we live longer) to men.
In light of the previous podcast’s information that young men are just laying about watching porn and playing video games, I’m frankly not interested in subsidizing them any further.
Michael Byrnes
Jan 19 2017 at 7:22pm
Madeleine wrote:
No, provided the BIG wasn’t excessive. (A BIG of, to pull a number out of a hat, $100,000 per person per year would cause all sorts of crazy shifts in pricing, employment, production and could be the road to Zimbabwe (i.e., hyperinflation)).
But if you are talking about a refundable tax credit of something in the ballpark of $1,000 per month, offset by reductions in welfare spending and changes in tax rates, then, no, it won’t cause prices to rise across the board.
It would cause some things to change. Right now, the government is the buyer of a lot of welfare type services – if that money gets sent to recipients who then use it to buy what they want, that is a significant shift – they won’t buy the same stuff that the government was doing. Mike Munger would call this a positive change, and it is hard to disagree with him.
Interesting point I hadn’t considered. There could be ways to address that, such as paying an amount to heads of household based in part on family size.
Todd Kreider
Jan 19 2017 at 8:16pm
One more comment:
I agree with some of the criticisms of this podcast but this is a huge topic and the first time that an hour was devoted to it. The discussion laid the groundwork for future discussions with other economists.
I’m quite sure that this is going to be a very big topic in coming years as automation makes inroads into the medical and legal professions among others.
Rob Rice
Jan 19 2017 at 10:38pm
This discussion got me contemplating the broader impact on what are currently low wage jobs and how it would affect immigration and the registration of illegal immigrants.
1. If Munger’s and others approach to BIG did away with minimum wages, it would seem that there would be upward pressure on low wage jobs as well as pressure to automate the hardest low skilled work. Why would you do back breaking work in a field or anywhere else if you would receive roughly the same income with BIG.
2. If funds are distributed as a tax rebate, you would have have to file taxes. If you didn’t then no BIG income. To file taxes you need to have a SSN and be legal.
This idea would have far reaching affects beyond just those discussed in the podcast.
Rob
Ty
Jan 20 2017 at 9:29pm
Yes, people already have that option, but it’s not as streamlined as something like say entering a number associated with a monthly UBI income that could be tapped for charitable donations.
There was that book by Cass Sunstein called nudge that went into the kinds of paternalistic ways to structure choices such that the defaults tended to be the better options for most people. They would maintain the freedom to choose what they wanted, but by setting the defaults to what we’ve learned over the decades and centuries produces better results for more people, we engineer better outcomes.
So having an easy way to tap funds for charitable giving might increase the money sent to charity. Even easier than a check or keep track of things.
Ty Holland
Jan 20 2017 at 10:09pm
More proof some women have zero interest in “equality”
Women live longer, and as a consequence get more social security dollars into their later years.
Women earn less money and pay less into the system, further transferring more money from the men who earned more to women who earned less in life, compounded by the fact that since they die sooner get less of a payoff.
But that is all A-O-K, but this kind of move where more of a redistribution scheme goes to propping up the incomes of low earning men is rejected because you disapprove of how some spend their free time?
Jesus, talk about a combination of petty and vindictive. Men do not complain about the unfair burdens of distribution listed above that favors women, but the women? No wonder the mgtows have gained steam with this attitude out there.
Here are some counters that you ought to favor. A basic income, by boosting up the incomes of more men, makes more men become elevated into the category of “marriageable” due to the increased selection pressures women place upon men that uses their income as a clear test of their worthiness of your precious affection. Not what kind of man they are, not how hard they work, what income do they bring in. This will likely increase marriage rates, and boost up the outcomes of both the men and women who couple together and pool resources (and now two UBIs on top of their labor income).
Two, for the deadbeat men, who don’t hold down jobs but father children and leave the women hanging, guess what those men will now have even IF they have no work income? That’s right, a UBI, an income stream that can be tapped by the courts for child support. I bet you love that idea. Imagine the downstream social effects there? Some guys see a friend who gets his monthly income reduced because of his wayward procreation, might make others be more responsible.
Libertarian Heretic
Jan 21 2017 at 1:59am
Wow!
More than Reason, The Libertarian Republic or The Tom Woods Show, Econtalk is my favorite Libertarian hangout. The two great figures of the show debate a enduring passion of mine. I am so thankful for this and thankful to my fellow bleeding-heart Mike Munger for making the case.
As a preliminary I need to say my two frustrations with the broader libertarian movement:
1) a drive to go from point A to point Z in policy questions without so much as a thought about how to get to B first. A libertarian sure can wax poetic about how a proposed program that seemingly on its face is a tiny incremental increase in the breadth or scope of the current system is in actuality a slippery slope leading to precedents, constituencies and momentum for the erosion of liberty. Yet when a small change in the opposite direction is proposed it gets slammed as milquetoast, unprincipaled and likely just statism-lite. We are really handicapping ourselves by limiting our policy tools to the bluntest of instruments. When all you have is a jackhammer everything looks like a sidewalk and really most of governing is doing dental filings.
2) The left wing stereotype of libertarians that ya’lls just a bunch of Republicans without religion. Sadly I agree with this much of the time. Libertarians in good standing often voice suspicion or even outright hostility to free immigration, gay rights, black lives matter and Edward Snowden. But the second you express comfort with public provision of income support or education of any kind you become a marked man.
And for pushing back against my two reservations with the movement I applaud Mr. Munger’s heroism in coming out on an issue like this. I really love a Basic Income for the poor as a replacement for all income supports. I wouldn’t have it universal. Mine would look something like this:
I) Revenue neutral is a law not a conjecture for the first year it is issued. The basic formula is B=G, where B is total basic income expenditure and G is the combined current government expenditure for all income supports, leaving aside healthcare (because it is too thorny to mix in). In fact I would be ok with a small cut so something more like B=G(0.9). Average individual benefit would work in a similar fashion where I=B/N where I is average individual benefit and N is the total number of recipients.
II) Each individual would receive a customized payout based on qualifying criteria. So for instance having a debilitating illness increases the payout as does being pregnant, permanently disabled or the like. The relative magnitudes are something beyond my ability to design as I dont have a strong grasp of the demographic composition of current recipients or their commensurate needs. But it’s imaginable that a young working age man in good health recieves something like I(0.3) and a pregnant parapalegic woman receives I(4). Again super rough estimates.
That’s it. The scoring system for how far a specific individual benefit will change due to recipient characteristics and the total size of B will be subject to tinkering and Congress over time. In a way public choice being central to its construction is sort of the genius. You can get wide political buy-in for this change. If Bernie Sanders is elected with a Democrat super majority congress expect B to triple. If you get President Justin Amash and a Libertarian super-majority expect B to shrink alot and all the other permutations in between are possible. Public choice becomes much more transparent and responsive to the temperment of the country.
In my parting note, Russ, I note your philosophical concern with government assistance dampening individual and small institution initiative. I share this concern but Mike brought up my more pressing fear when talking about phenomenon like this. The process is recursive. Ending the government presence doesn’t end the social norms and behaviors that grew up around something nearly so quickly as the stroke of a pen needed to end a program. Caution should be heeded when dismantling any major social institition. A basic income is the gentle way of doing that. And I agree that it could very well go down not up over time because any world where this damned thing gets passed is a world where people committed to shrinking government already exert enormous influence.
Michael Byrnes
Jan 21 2017 at 7:48am
Ty Holland wrote:
Quoted for irony. Here you are complaining about unfair burdens of distribution in the very post where you argue that men don’t complain about this, while managing to also attack another commenter as being petty and vindictive – as you claim that women are gold-diggers. Bravo!
david zetland
Jan 21 2017 at 11:08am
I enjoyed your conversation over basic income (an idea I’ve been following for awhile) and wanted to send you a few thoughts.
1) You could have talked more about the useful choices that BIG gives people, e.g., moving to a cheaper place to live and/or choosing a job that pays less but delivers more satisfaction (not to mention — as is often the case — greater SOCIAL benefits, e.g., carer)
2) BIG can be funded by property taxes, which are ALSO “lump sum” and thus less likely to distort behavior. (They are also massively progressive when you consider the wealth inequality is usually worse than income inequality and much wealth is in land.)
3) Private charity is (to use Russ’s favorite expression) a “beautiful thing” but I doubt whether private charity will ever add up to as much as taxes (even tithing tops out at 10 percent of income).
US charitable giving (2014): $360 billion
http://www.givinginstitute.org/?page=GUSA2015Release
US tax revenues (2014): $6 trillion (16x charitable giving)
http://www.usgovernmentrevenue.com/fed_revenue_2014US
[Not exactly related, but property taxes plus BIG as replacements for current crazy/corrupt tax regime plus crazy spending scheme could have massive, useful efficiency impacts.]
Ty
Jan 21 2017 at 10:54pm
The irony was her highlighting the fact that men get less return out of social security than women, and then turning around and complaining about the merits of having more of the income redistribution go to help out men, after all, many are not “worthy” because of their behavior.
Nothing was mentioned about any wasted behavior of women, only the men. Only the men were to be held to an increased standard for some condition of aid. If that’s the standard you wish to prop up, so be it, but you need to drop the pretense of caring about any modicum of equality.
Men as a group put in more work hours? Earn higher wages, mostly as a consequence of longer hours and the types of industries men gravitate towards (changing with the education spread and gaps), die sooner… so let’s recap.
Men:
put more in
die sooner
take less out
Her: Sounds fine to me, nothing to see here.
UBI implemented:
men put more in
still die sooner
get to take a bit more of what they put in out
Her: Terrible because some men are flakes, and why are we diverting some of the redistribution concentration away from women?
This needs to be highlighted, the biggest hurdle to the buy in of a UBI is not the technical feasibility. Whether it works or not remains to be seen. The biggest hurdle is this attitude that some people are underserving of the kinds of assistance this will bring. After all, some people are flakes and just want to play video games.
It’s a very.. conservative obsession, an obsession with the cheats, the parasites of society, the drains of public resources. That in and of itself is not a bad thing, but some people focus on this segment and ignore the rest. It’s like that old law adage flipped.
Better 10 guilty men go free than one innocent man punished. To some others I sometimes wonder if they are more sympathetic to the reverse. Better 10 innocent men stay chained rather than allow one guilty man to go free.
This type of outlook seeks to punish the wicked over and above a desire to help the decent.
If a UBI is closer to allowing 10 innocent men to be free at the cost of one guilty man being free, as in the case of a sloth of a man who just wants to do nothing but play video games rather than contribute anything meaningful to society, is that not a better trade?
To some I fear the answer will always be no, for the reasons I described. Some people are just constitutional built to be hyper averse to having the tiniest sliver of public funding go towards anyone they deem unworthy. And in some cases it seems, especially if they are a man.
Madeleine
Jan 22 2017 at 11:07am
Ty:
You accused me of a lot of things, namely
I am no gold digger. I worked my way through engineering school, first by scrubbing toilets, then by doing tech support, and finally by taking high paid internships when I was qualified. I now make a lot of money as a mid-level engineer at a big 5 tech company. Correspondingly, I pay a lot of taxes. My husband, I will have you know, is a stay-at-home dad. His “worthiness of [my] precious affection” as you put it is certainly not determined by how much money he makes — I care about his amazing good looks and stellar sense of humor.
I seem to have committed the grievous sin of caring about where my tax money goes. A LOT of it goes to men, you know –men are most of the military, men are most of the people in jail (and jail is quite expensive), and men are the employees of most government contractors. I already have my copious amounts of tax money paid out to people and causes that I disagree with — this is why I am a Libertarian. I want to support women with children and the elderly. I feel like I have the right to have an opinion about who I financially support.
A big question to you: why should I care more about supporting Americans than other people in the world? I do not. UBI in America has no interest for me because I feel no more like supporting someone in Chicago than someone in China. So, that said, ANYONE who supports this program is ALREADY making a value judgment about who they would and would not support. Mine is that I would rather not support able-bodied men. Yours is that you would rather support an American than an African or a European. Unless you’re a proponent of global socialism, I see no reason why my value judgment is “vindictive” and yours is virtuous.
Ty
Jan 23 2017 at 12:47am
[Comment removed. Please consult our comment policies and check your email for explanation.–Econlib Ed.]
jw
Jan 23 2017 at 8:09am
An exercise in navel gazing. Notes:
– Michael Byrnes, I use the linked slide often in discussing the welfare state’s disincentives. It is shocking to many.
– Once upon a time (1990) CT had no income tax. Weicker ran on the promise to eliminate the sales tax and replace it with a “revenue neutral” income tax. Immediately after taking office, he got the new income tax but kept the sales tax.
The SSA was promised to average “a dime a week” and “NEVER go above 1%”.
European countries imposed the VAT to replace or reduce the income tax and be “fairer”. It typically started at 10% and now averages over 20%.
Politicians have one power to stay in office, granting financial favors to voters or contributors. How will BIG NOT go to $30K+?
– BTW, revenue neutral doesn’t solve anything. We need to substantially REDUCE welfare.
– At $15K, you are paying the minimum wage not to work. Three eligible people to a household and you are near the median household income. Two for Mississippi.
– Like Agent Kay said, “There’s always an Arquillian Battle Cruiser, or a Corillian Death Ray, or an intergalactic plague that is about to wipe out all life on this miserable little planet”, there is always a disruptive technology that will eliminate some jobs. Paying people not to work has never been the answer and will disincentivize the creativity required to find or invent new ones.
I thought that we were supposed to believe in invisible hands here.
Mark Crankshaw
Jan 23 2017 at 10:38am
@ jw
Precisely, well said. In my view, the efficacy of BIG as a replacement for the raft of targeted favors currently granted by politicians (of all stripes) is of absolutely no importance. This replacement is never, never going to happen. The political class is actually quite enthusiastic in favor of the current welfare setup precisely because it enables them to provide targeted public benefits to specific constituencies while spreading the cost as widely and unobtrusively as politically possible. The trade is, and always has been, that recipients (and other constituencies in favor of the spending) trade votes for benefits.
One can easily see these “welfare” benefits as indirect subsidies to a wide variety of affluent special interest. Medicaid and Medicare are transparent subsidies to the Health Care Industry. Food Stamps is an indirect subsidy to the Farm lobby and retail food producers. Housing subsidies for the poor are captured by owners of low-income housing in the form of rent or, when this housing is “publicly owned” acts as a mechanism that increases housing prices for affluent urban communities. When “low income” or subsidized housing is provided to an urban community, the schools in that area decline, crime increases, and that low income part of community becomes far, far less desirable. Many people are willing to pay a significant housing premium to avoid these communities, thus increasing significantly the property values of those parts of the community that the subsidized poor are priced out of. These numerous indirect beneficiaries of “welfare”, usually directed to the very affluent and very politically powerful, are never going to be cut. These benefits have never been primarily directly to the “poor” (they are merely “useful idiots”), on the contrary, these benefits help the affluent and the affluent are able to capture the entire subsidy in the end (the poor are only temporary “money-holders” in this re-distributive transaction).
Were a BIG implemented it would inevitably be on top of the current welfare pork sausage already in place, and the cost of BIG would inevitably escalate over time. Politicians will never voluntarily terminate the public benefits as long as they can trade them for votes. Only a politician that feels that they can net more votes by terminating benefits will ever do so, and only the benefits that specifically benefit the constituency they get no votes from and usually in token terms since it’s not good politics to purposefully offend any class of voters for most politicians. They’re all for sale–both the constituencies and politicians.
BIG is only going to make a bad situation worse…
Bogart
Jan 23 2017 at 1:31pm
My technical issue with BIG and any other government program has little to do with the government program itself and everything to do with the debt financing of said government program.
What you have with this BIG Concept is hundreds of millions of voters being able to up their income in a direct fashion and push that increase in income on top of the massive amount of existing debt and worse pay for it with diluted currency. This creates terrible incentives to increase the BIG to keep up declining currency values. Social Security is bad enough, but most people don’t receive Social Security and it is indexed to inflation from the Government itself. The BIG on the other hand will have massive majorities receiving benefits from it.
This is exactly what we see with the immoral Minimum Wage and it will be worse.
Kevin
Jan 24 2017 at 10:46am
@Madeleine
You said,
2. BIG is essentially a men’s rights movement. I know I’ll take a lot of heat for this, but basically BIG will result in redistributing welfare money from pregnant women, women with children, the elderly (mostly older women, since we live longer) to men.
So, why are you surprised and defensive when you are taking heat for a controversial and woman favoring position?
Why are women having children out of wedlock (an enormous financial/societal burden) deserving of support when their decisions hurt all of us? That woman gets rewarded for harming all of us, I think we ought to punish her and the father with extra taxes to pay for the social damage of their actions. But a man who harms no one but is poor should get no welfare?
The potential advantage of a BIG is that it reorients our efforts not for people who make poor decisions like out of wedlock births, but simply based on income. In that regard the BIG is superior policy stripped of perversity of incentivizing women to have children they cannot support, but instead based on one metric – poverty.
As for your final riddle about caring for poor Americans more than poor Chinese, I guess I would ask if you care more about your kids than my kids? If you don’t let’s get in touch because my kids could use the extra support since I mostly just “lay about playing video games and watching porn”. If you do care more about your kids, you only have a few more steps to figuring out why some people care more about their nations poor than other nations poor. Incidentally, if we discovered aliens on another planet I would care more about the Chinese poor than I do the poor aliens.
Michael Byrnes
Jan 24 2017 at 6:56pm
Kevin wrote:
I think this will be a valid question to ask as soon as women start reproducing by parthenogenesis.
Kevin Ryan
Jan 25 2017 at 11:53am
Madeleine wrote
“BIG is essentially a men’s rights movement. I know I’ll take a lot of heat for this, but basically BIG will result in redistributing welfare money from pregnant women, women with children, the elderly (mostly older women, since we live longer) to men.”
Well, I assume this is not the intention of (most of) the promoters of BIG, but I think it is inevitable that a scheme that aims to redistribute the pie of existing benefits will have this result if:-
a) the existing benefits are based on well-developed views of needs and deserts;
b) the new scheme dilutes or eliminates these considerations; and
c) we look at the impact on sub-sections of the population
So, yes, I agree with Madeleine that, most obviously if done on a revenue neutral basis, the losers will include groups which are largely (or exclusively) women; while most of the winning groups will have male majorities.
(Of course this will not be the case across the board. For example, amongst the winners would seem to be partners who do not receive benefits and have no real intention of seeking work – I assume women are still in the majority in this group)
On the whole I am very surprised at the lack of waving of red flags over proposals that envisage changing the patterns of payments of benefits so radically – maybe people on the liberal side assume there will be no cuts to existing benefits and the extra money will come from new “painless” taxes/sources of income
PS For avoidance of doubt, I am not the same person as the other Kevin who has commented above
Robert Swan
Jan 25 2017 at 7:39pm
Interesting but, for me, less thought-provoking than most Mike Munger EconTalks. Probably only for me though as there are certainly more comments than usual, and they’ve been good. Unsurprisingly, I’m in general agreement with jw, especially his last point. Noteworthy was commenter sam’s insight that BIG would give relief to those who earn too little, but won’t help those who spend too much.
If nothing else, BIG is aptly named. It’s a big change, and it seems inevitable that any real implementation would introduce perverse incentives. It would have been good to have explored the “How do we get there from here” question. Quite an ambitious exercise in central planning to implement BIG overnight, but how would you phase in such a system? Will Mike’s “Christmas tree of dispensations” emerge, or (as I suspect) would they be there from day one? Farewell simplicity.
One blessing BIG might deliver: while we would go on hearing about the “rich getting richer”, at least the “poor getting poorer” would become a thing of the past. Or maybe not.
Russ was surprisingly vehement in his dislike of “contribute”. I’d defend the word in general use, but when used as a euphemism: what did you contribute? = what have we taken from you?, it does rankle.
Alex Viladot
Jan 26 2017 at 8:59am
In this conversation, Ross suggests that a “Negative Income Tax” would be a better program than the “Basic Income Guarantee”.
However, both programs are one and the same thing. They might appear different because they start from different premises but the actual redistributional effects can be identical.
This was noted by Friedman himself in a 2002 interview:
“A basic or citizen’s income is not an alternative to a negative income tax. It is simply another way to introduce a negative income tax if it is accompanied with a positive income tax with no exemption. A basic income of a thousand units with a 20 percent rate on earned income is equivalent to a negative income tax with an exemption of five thousand units and a 20 percent rate below and above five thousand units.”
You can find the whole interview here: http://www.usbig.net/newsletters/june.html
Daniel Barkalow
Jan 27 2017 at 1:00pm
One thing I worry about is that there are lots of schemes for parting the poor from what cash they have, and these tend not to be effective on non-cash income. There’s far too little keeping unscrupulous city governments from coming up with fines and fees to put their residents in debt, and it would be too easy for them to get the BIG money; it’s not like they can foreclose section 8 housing and sell it for a profit, or seize people’s food stamps and include them in city managers’ salaries. Poor people also often don’t presently have good ways of handling a year’s income delivered as a lump sum; if you’re living month-to-month, it’s probably not a great value proposition to figure out banking.
Also, I’m worried about the implications of making it worth $15000 to steal the identity of someone with no job. Presently, identity thieves would get a bunch of stuff that’s hard to launder effectively, and it’s not worth the trouble, so the efficient level of protection against this threat is low.
On the marginal rate question, you also have to consider that business expenses aren’t generally deductible from income for purposes of eligibility. If getting a job means you need a functioning car and gas for it, and to pay for child care, the fact that your gross income increases a lot faster than your net income makes the benefit calculation more distorting. And, of course, even if you can deduct your expenses on your taxes, that doesn’t help if they’re not creditable and you won’t pay anything anyway.
John Alcorn
Jan 27 2017 at 2:17pm
Many critics of universal basic income argue that the grant would greatly exceed the sum of expenditures on all extant welfare programs. However, Scott Alexander (Slate Star Codex) makes an argument that seems to change the calculus.
He makes the argument in an imaginary graduation speech. After critiquing (and lampooning) the wasteful institution that is education as we know it, he argues that a universal basic income grant could be funded adequately by eliminating government subsidies to education and reallocating the funds to the grant:
From a practical standpoint, however, elimination of public expenditures on education in order to fund a universal basic income grant might be as imaginary as Scott Alexander’s graduation speech!
Kevin Ryan
Jan 28 2017 at 8:45am
While it would be nice to think that it was feasible to have a programme that produced $15,000 pa throughout an adult life (or working life(?)) by forgoing $11,000 pa for approx. 13 years, I am afraid it looks like financial alchemy to me
If this were valid, it would not be essential/necessary to eliminate public expenditures on education to fund a BIG, because the underlying financial transaction would be so great
I looked for the original post. In a shameless exercise of confirmation bias, after working through 200 comments found the following observations critical of the math and which I quote
(http://slatestarcodex.com/2014/05/23/ssc-gives-a-graduation-speech/ is the address, but I could not get the link to work properly to embed this in my comment)
Anon 256 says
“You don’t show your maths but it sounds like you are assuming the US government can get around 4% annual real risk-adjusted returns on multi-trillion-dollar investments. The US government can currently borrow money at around 0% inflation-adjusted interest (this number rarely goes over 2% and is often negative). Thus if your assumption were true the government could easily afford any imaginable policy, by borrowing money, turning around and investing it, and running off the interest. (Maybe the government’s creditors would want higher rates if the government borrowed so much more, but this doesn’t seem to happen in practise, and also why should they hesitate to loan the government money when the government has a magical 4%-real-returns machine?)
Back in the real world, government promising people a fixed income in the future based projected returns from money “invested” now sounds like the story of most public-employee pension funds, which have left poorer states and municipalities bankrupt and are a huge drain on richer ones. Indeed such overly-optimistic expectations about returns on financial capital have perhaps caused even more problems than the overly-optimistic expectations about returns on “human capital” you are denouncing.”
Robert Easton says
“Scott’s post is explicitly addressed to graduates of 2014 and so the claim that someone could have made 4% real over the last 20-30 years is reasonable enough. It maybe implicitly says the same will be true for the next 30 years as well and if so I think that might be where it turns into a pet peeve of mine. The idea that the stock market will earn well above inflation forever is apparently so “obvious” that it’s not even worth saying. But to me it seems about as plausible as this “house prices will go up forever” thing (actually I’m still scared that one’s true). From anon256’s comment, it’s anti-efficient market hypothesis to believe in this reliable 4% real returns mechanism, and while I don’t necessarily expect everyone to believe EMH, I would say extraordinary claims require extraordinary evidence and “I can beat the market” sounds like an extraordinary claim to me.
Separately of course this solution doesn’t scale; the US government certainly can’t invest hundreds of thousands of dollar per capita in the stock market without reducing the rate of return it will then get. So even if it can currently borrow at 0% and invest at 4% real at the margin, that’s very different to it doing so for everyone.”
[link to Scott Alexander post enabled–Econlib Ed.]
John Alcorn
Jan 28 2017 at 3:09pm
@ Kevin Ryan (see comment above):
Thank you for pointing out that (others in the comments at Slate Star Codex have established that) Scott Alexander’s calculus depends on unrealistic assumptions about real interest rates, especially for investments on so gargantuan a scale. You have persuaded me!
Might a much more modest, but still worthwhile consideration be salvaged from Scott Alexander’s argument?: Re-allocation of government expenditures, from education to the funds for a basic universal income grant, would substantially increase the amount of the feasible grant.
(For arguments and evidence that government expenditures on education are mostly wasteful subsidies — the ‘signaling model of education’ — see Bryan Caplan’s Case against Education and his EconTalk podcast with Russ Roberts about education.)
As a follow up, I would like to point readers to Arnold Kling’s blogposts about this Michael Munger podcast:
Arnold Kling on Mike Munger & Russ Roberts on the Basic Income Grant
Arnold Kling on Means Testing & Behavior Testing
And Bryan Caplan has tackled these issues in cogent blogposts next door at EconTalk.
Kevin Ryan
Jan 29 2017 at 7:32am
@ John Alcorn (re comment above)
Well I can certainly agree:-
a) It seems likely that at least some government expenditure on education is wasted; and
b) Any waste that is saved could be used to fund a BIG
Also Scott makes an interesting link between the two issues by suggesting/implying that an individual(or, more likely, the parents) could have a choice between receiving the education and receiving the amount spent to provide an income instead
I don’t really know whether this is a good thing, as it is outside of anything in which I would claim expertise. And here I should volunteer that my daughter is a teacher (in the UK), as was my wife. An experiment would be interesting but might take a long time to reach useful conclusions.
Beyond that, I would have a range of conventional scepticisms – what is politically feasible? how much money could realistically be saved by cutting back public education? if there is significant reducible waste, why it is not already being addressed without any link to a BIG? So I would also admit to lacking in imagination.
Thanks for the links
Andrew Certain
Jan 30 2017 at 1:46pm
I’m not done with the episode yet, but Russ says something early on that is stated as fact, and has been stated in many previous episodes, but that isn’t so clear to me.
He states that if you raise the marginal tax rate on wages, people already working will be less likely to seek more work or work harder. I understand that basic economic theory says that if you tax something you will get less of it, but I’m skeptical.
Increasing the marginal tax rate on wages looks the same to the worker as decreasing wages, and every study I’ve seen about what happens when people’s wages go down (e.g. if they get laid off at a factory and have to find lower-paying work) is that working hours go up. I think the fallacy is that work is a purely voluntary activity. It’s not like you tax apples so people decide that they would rather spend their money on pears. Most people have to generate income in order to live (at a minimum) and accumulate other things that they want. There’s no substitute for most people. Yes, there’s leisure, but you can’t trade leisure for all the other things you might want.
Speaking for myself, I earn to a) maintain a standard of living and b) to accumulate enough to retire. Were my marginal tax rate to go up, I think it’s super unlikely for me to say, “Well, the marginal value of my working that extra bit is less now, so I’m going to work less.” More likely is some combination of working harder to offset the loss to maintain a standard of living, reducing standard of living, and deferring retirement. Two of those three mean increased working (one in the present, the other in the life duration of work).
Can you really say that if your employer cut your salary by 20% you would respond by working less (which of course would compound the reduction in take-home pay)?
Now of course increasing taxes on wages also looks like an increase in cost to the employer. For the employer, there are more substitutes. Employers can look at automation; they can push their employees to do more; they can simply decide not to expand as quickly. So I definitely agree that an increase in wage taxes could reduce overall employment because of reduced demand. But the argument that most people will work less if their marginal wage rate goes down seems unlikely. Is there any empirical work that shows that workers reduce hours/effort/etc when taxes go up?
Andrew
Keith Wiggans
Feb 2 2017 at 3:13pm
Thanks for this podcast, it was certainly thought provoking, but perhaps one thing was missed.
The main objection I and other libertarians would have is that since taxation is a form of theft, a program of this kind would make everyone in society an accomplice. Perhaps this moral corruption was alluded to by Russ, but I think it’s the central objection one should have.
J Gomez
Feb 3 2017 at 9:27am
After 20 minutes I had to turn this pod cast off, Karl Marx is surely clapping from his grave, we are just going to give people say 15K (low income earners) talk about eliminating any incentives for people to get an education and work. As it is we give way too much in social welfare programs. I work to hard for my money quite tired of having to subsidized a growing number of people who have not made the sacrifices I made to attend college and work two jobs for several years. We seem to forget that social programs were meant for people who were going through a tough time and not meant for years and years and in some cases like Section 8 housing in the state of Rhode Island a benefit for life.
Patricia Sheykholeslami
Feb 3 2017 at 4:40pm
[Comment removed pending confirmation of email address. Email the webmaster@econlib.org to request restoring this comment. A valid email address is required to post comments on EconLog and EconTalk.–Econlib Ed.]
Michael Munger
Feb 5 2017 at 8:30am
An brief response to Keith Wiggans and to J Gomez: This discussion on the podcast took a completely different direction from what I had expected. The outline I gave at the beginning was never touched again, and we argued about trivial issues of implementation that are almost completely unimportant, and in fact irrelevant to the actual question.
What I wanted to do was to make a distinction between between an ideal set of policies (what I call the “destinationist” view of libertarianism) and practical policy platforms in the near term (which I call the “directional” view). I would like to recommend, if are interested, the actual core thing I have written on this, in BASIC INCOME STUIDES
You may disagree, of course, but that is the argument you say was “left out.”
In particular, Keith Wiggans: You do realize that there are taxes NOW, right? If you think that we can abolish all taxes, then that’s a different thing. But you are making a category mistake, offering a destinationist objection to a directional argument, which says that since we already collect these taxes the least we can do is spend them in a way that increases liberty and delivery of the benefits to the poor people we say we care about. In fact, that is the core of the argument. True, we didn’t talk about that, and instead bickered over ridiculous trivia, but there is an answer to your objection.
And J. Gomez: Really? You yourself note we ALREADY HAVE Section 8 housing! The question is how to make those policies WHICH WE ALREADY HAVE work better. We already have the policies you don’t want. That ship has sailed. It’s over.
Further, Marx wanted NOT redistribution, but state ownership of the means of production. The reason to argue for basic income is precisely to prevent political arguments for seizure of the means of production, and preserve private property. Marx, and Lenin, would have HATED B.I.G., because it staves off the revolution.
Now, you can disagree (you are clearly a destinationist, and that’s fair enough), but in political terms no one agrees with you. You seem proud of your irrelevance. And, in your defense, you have a lot of irrelevance to be proud of!
Ricardo Durazzo
Feb 5 2017 at 2:58pm
As always, Mike Munger has offered EconTalk another juicy, entertaining interview – I thoroughly enjoyed it.
That said, there’s a number of problems with his B.I.G. proposal. First of all, I think there is a lot less consensus than imagined about the need for that much welfare in the country. People who already think the current situation is excessive (but do nothing about it) might revolt with this level of nanny state.
Second, the notion that all other programs would be abolished to fund this is cute, but naive. After intense political negotiations, the most likely outcome is that a couple of token programs are cut, while everything else remains untouched.
Finally – assuming we can get past the previous problems – it does not seem that this program is viable. $20,000 for 300 million people amounts to $6 TRIllion/year. And that is before the first teacher, soldier, policeman, fireman or sanitation worker (to mention but a few of the activities that cannot be cut) is paid. Even for the mighty American economy this load is unbearable.
What did you say? Just adults and only 10 grand? Still way too expensive (and a bit heartless given that the young also have basic needs). Some of the more imaginative supporters suggest that this would not be funded by the budget but for the returns of a portfolio of stocks and bonds, forgeting that:
1) the government does not have that portfolio. Instead is a gigantic net debtor, which should use any money it comes its way to liquidate some debt before interest rates rise again.
2)the experience of municipalities, states and many American corporations indicate that this is a dream.
3) Most serious, even if possible, the distortions introduced by an active government intervention in these markets would probably kill any returns.
Cute idea, but looks like it needs a lot of work to become tenable.
Comments are closed.