Is Now the Time for a UBI?
The concept of a UBI (universal basic income) is not at all a modern one, but is rather a relatively old idea, supported through history by the likes of Thomas Paine and Martin Luther King Jr. While the notion of a government programme designed to unconditionally and periodically present all the citizens of a given population with a set sum of money has been gaining momentum over the course of the past few decades, several economists have expressed uncertainty as to whether the implementation of this policy would accelerate or diminish the growth of an economy: there are an immeasurable number of arguments to uncover concerning this controversial topic, but the question of whether we have now arrived at a time where some risks must be taken, and a unanimous decision must be made, is currently demanding a response, as issues such as the cost of living crisis, in countries like the UK, continue to arise.
A recent survey conducted by the ONS in the UK has brought an emphasis on the habitual struggles encountered by adults in Great Britain; an astounding 93% of all adults reported that the cost of living crisis is one of the most pivotal issues facing the UK today, with 81% of all adults also declaring that the economy as a whole could be classified as a concern.
A UBI could assuredly assist the UK general public, who now face rising energy bills and food prices. Providing the population with finances can also be considered an investment for the government: this is especially the case with those on the lower end of the income spectrum, seeing as they will have a notably high MPC (marginal propensity to consume). This is primarily due to these workers not already having satisfied their needs, hence why there is a strong likelihood that they will spend most of what they receive. This will then induce a multiplier effect within the economy, as greater consumption of goods permits firms and businesses to expand, and subsequently employ a more substantial workforce, who will again increase the levels of consumption. In summary, if the UBI is seen as an injection into the economy, the long-term output will be more prominent, therefore leading to economic growth.
Not only will the UBI have a largely positive impact on existing businesses, but it can also be considered a catalyst for entrepreneurship, one of the four factors of production. This is because those on the receiving end of the UBI will obtain a higher level of confidence to set up new businesses, as they have more economic security. This will have a chain effect in the economy similar to the one explained in the paragraph above, with the overall consequence of long-term economic growth.
A rather compelling case against utilising the UBI as a form of investment is that the short-term impacts would be too dire, seeing as UK national debt has now exceeded 100% of GDP. The higher the debt accumulated over time, the more unattainable bonds will be for the government to purchase; this has led to some incertitude among economists as to whether it is too risky to borrow a large sum to fund a UBI programme, due to the possibility of the UK economy not proliferating at a sufficient rate, while the interest on the purchased bonds amasses to an unsustainable level. This would ultimately leave the UK in an even more fatal position.
In spite of the merit of this line of reasoning, there are reasons why this small risk must be taken, as pre-existing and new businesses are still experiencing the profound effects of the COVID-19 pandemic; a universal basic income would provide these businesses with the monetary guidance they require. Research carried out by ‘Simply Business’, one of the UK’s biggest business insurance providers, in June 2021, reported that 81% of small businesses declared that they had not received enough support, with 41% claiming they received no support at all. Due to the restrictions of the national lockdown that the government implemented, businesses that were centred around outdoor recreational activities faced the most severe financial impacts, as they would have had to temporarily close down in line with government guidelines. The total revenue (and in turn, profits) of this category of businesses then faced an extremely significant downturn: for example, the pandemic had cost pub and restaurant owners an average of £40,313 by June 2021. Workers appointed by these businesses then encountered unemployment.
Data by the ONS shows that following the rise of the pandemic, the UK experienced a surge in unemployment rates, which rose from just below 4% in 2019 to 4.8% in 2020-21. A UBI would provide economic security for those facing unemployment and would assist those already unemployed, by covering their cost of living expenses.
On the contrary, it could be disputed that a basic income could admittedly increase the levels of unemployment. A reason why this may be the case is the possible consequence of a UBI encouraging indolence within the economy: there will be those who attempt to live solely off what they receive from the UBI, which would then reduce the magnitude of the workforce, as citizens begin to evade work altogether. Moreover, the number of part-time workers would also notably diminish, as a UBI would rule out the need to indulge in part-time work. The effects of all this can be analysed using a PPF (production possibility frontier) curve, which illustrates the maximum possible level of production of an economy, given that all resources are allocated to their maximum efficiency, and given the current state of technology.
A rise in unemployment can be indicated by the movement on a PPF diagram from point A to B. Points below the PPF curve are representative of resources that are not being used to their maximum efficiency. In this case, the resource in question is labour. The enactment of a UBI may, in the long term, lead to the shift that has occurred in this PPF diagram. Economic growth will then inevitably be halted, with the lack of available labour reducing the overall productivity of the economy, resulting in a fall in GDP.
Furthermore, this policy that would supposedly avail millions could remarkably be seen as rather counterintuitive. In one scenario, if the cost of the scheme surpasses that of the current benefits system, the government would have to increase taxes to fund the UBI, meaning people may in fact be worse off than before. It is of immeasurable importance that people consider every aspect of a programme that could soon be put into action, as is common practice in the social science that is economics, rather than glancing at the surface of it and concluding that there will only be benefits.
A widely common argument against a basic income is that it would raise the levels of inflation. However, we must realise that there has to be inflation within an economy when there is economic growth; rather than no inflation, what the government pursues, as one of its macroeconomic objectives, is a low and stable level of inflation. Since people will have a greater sum of disposable income due to the UBI, prices have to rise in line with the increasing consumption of goods and services so that the economy can continue growing instead of coming to a standstill. In addition, it is pivotal to recognise that inflation is generally caused by the introduction of new money into a market (or, in some cases, supply-side issues). However, to carry out a UBI, the government does not print new money but instead redistributes existing money to the general public, which in turn rules out a UBI as a direct cause of inflation.
It is certainly the case that every argument I have explored and discussed thus far could be seen as entirely theoretical, hence why I decided to assess practical applications of a basic income, utilising the non-profit organisation known as ‘GiveDirectly’. This particular organisation, founded in New York City in 2008, primarily works in East Africa, where they make unconditional money transfers to the impoverished. This is a brief overview of the method with which they operate.
Despite the utopian appearance of GiveDirectly’s operations, there is a prevalent conviction that unconditionally donating to the poor would ultimately result in them purchasing illicit products such as drugs and alcohol, rather than spending effectively and improving their lifestyles. However, in economics, there exists a modelling assumption known as the ‘theory of rational behaviour’. This theory alludes to a presupposition that economists make, which states that an individual will choose the action that will benefit themself the most (the main objective of individuals/consumers is maximising utility). Utilising this theory as an example, it is certainly more of an economist’s approach to assume that the recipients of the UBI will have the capability to make their own value judgements and spend based on their basic needs. It could also be disputed that, due to their experience with low living standards, those on a low income possess a higher level of awareness of the necessities they require in life, as opposed to rashly indulging in drugs and alcohol. A study carried out by Dr Suryadipta Roy (a skilled data scientist) in the US in 2005, presented evidence (collated from the National Survey on Drug Use and Health), that illicit drugs tended to match the description of ‘inferior goods’; these are goods that face a decrease in demand as income rises.
Dr Suryadipta Roy illustrates a negative correlation between income and drug use. This goes to show how a UBI leading to increased drug use in poorer regions has a reasonably low likelihood. An example of where GiveDirectly’s money transfers have accelerated growth and development in East Africa, is the small Kenyan village known as Siaya. In 2013, GiveDirectly donated comparatively large sums of money (around $500 per inhabitant, with the poorest eligible for a $1000 donation - a remarkably substantial amount compared to their average $2 a day) to the villagers, which demonstrably assisted the expansion of the area. Research by the Massachusetts Institute of Technology provided evidence claiming that GiveDirectly spurred lasting rises in income (approximately 38%), reduced the proportion of malnourished children and boosted the number of homeowners by around 58% in East African villages.
All these positive chain effects initiated by this donation of money to the poor have the possibility of being achieved by a basic income. Not only would it boost the levels of employment, which have been affected drastically by the pandemic, it would also significantly improve education and healthcare due to long-term economic growth, meaning the opportunity cost (benefits of the next best alternative foregone) of a basic income is arguably minimal.
In conclusion, I strongly believe that the time has come for a UBI, specifically in the UK. We are currently in a recessionary period, with food and energy prices continuing to rise, and accordingly, UK citizens are in dire need of economic support. A UBI would also mitigate the issue of an increasing number of workers going on strikes; while this initially commenced with rail staff workers, even teachers and nurses are becoming involved (Thursday 24th November 2022- tens of thousands of teachers went on strike in Scotland, causing school closures all over the country). Healthcare and education are two of many sectors in which staff strikes will have disastrous consequences, hence why they must be dealt with immediately. The long-term economic growth that can be achieved through a basic income will then help with the UK’s accumulation of national debt, hence why the prospective positives outweigh the potential risks.