Why I am for the Swiss basic income proposal, but for somewhat unorthodox reasons

 

Swiss people will be the first to vote on the introduction of a nation-wide basic income scheme. While the details of such a scheme would be to be designed at a later stage, it is quite clear that such a move would be quite revolutionary. I myself quite literally sit on the fence, but I would arguably vote for a modest and well-designed version of a basic income scheme. Yet, I do not necessarily share the beliefs in the pros and cons often mentioned.

First and foremost, one has to be honest: there is a huge uncertainty proposing such a scheme. No country has ever done it on this scale. If you are risk averse that’s not good news. It’s honest news though. And perhaps, we should also give a premium on policy experiments (see below). Now let’s move to some arguments usually held against the basic income scheme.

A main argument is about work incentives. I think this cannot be easily discarded, but it shouldn’t be exaggerated either. If there is any type of graduation in the benefit, say in the form of a negative income tax, people taking up work ‘graduate’ into paying full tax load. At the margin, taking up work still will make sense (much more than with a standard social assistance scheme). The work-incentives literature is very complex and somewhat contradictory, but if anything it shows the disincentives are less than often feared. This is good news. That’s said there could be a major one-time reshuffling of the labour market which is hard to anticipate. Some jobs may simply prove to be too unattractive to do, once people have more choice and less financial pressure. Some of these jobs may also be jobs that would fade away due to technological progress anyways. In other cases, e.g. care personnel in social services society would need to re-evaluate its worth.

The perhaps even bigger argument against basic income schemes are the fiscal costs. That’s the aspect where a fiscally conservative country like Switzerland would truly break a barrier. There is even agreement on this point between advocates and critiques (gated link only, thanks NYT) of these schemes. The total costs seem enormous, even if, in part, they are offset by savings on other programs. Yet, more to the point, it would send a strong signal: you can still do progressive welfare state policy in an age of austerity. I don’t think it likely that one can finance such a scheme through yet another innovation such as a financial transaction tax (which, anyways would only really work if countries coordinated on such a tax). The main alternative would be a rise in VAT, in part eating up the benefit, and perhaps further increasing inflation. But the regressivity of the VAT raise would at least be compensated by the fact that the basic income scheme benefits the poor more than the rich.

Now to the alleged advantages. Most observers argue that such a system is very simple, very efficient, since it saves a lot of costs of targeting, monitoring conditions of standard social minimum programs etc. But is it true that a simple tax & transfer system is necessarily a good one? I am a bit more skeptical about the long run implications of such a system. While it is true that different forms of social protection and assistance have grown too far and sometimes even contradict each other, welfare states have to be necessarily multi-dimensional, complex institutions with several different programs.

The argument about simplicity seems to what unites what, in other respects, is a fairly heterogenous support group. Some conservatives would see a basic income scheme as a chance to put a tap on all other forms of spending: Why having an unemployment insurance, pension insurance with some redistributive qualities if you have a basic income?

There is a real-world example which exemplifies this danger. The closest relative to basic income schemes, social assistance/ minimum assistance programs are usually not very generous, one might even call them stingy (usually a country spends some 1-2% of GDP on social assistance, but up to 6-7% for pension or health). Some scholars call this the paradox of redistribution: only when the middle class benefits they agree on social policies. Does the middle class benefit from basic income? Not much, given that typically their tax allowance would eat up most (or all) of the basic income transfer. That could make them very skeptical about the scheme in the first place.

One of the key normative benefits of basic income is also one of its key political weakness: unconditionality. You may argue why unconditionality is normatively speaking a good thing:  why should rich people also get it? But on the plus side, these schemes are easy to implement, and do away with much of paternalistic welfare state policy and monitoring. Basic income schemes also take away a lot of stigma applying for the social minimum etc. But this feature is also what seems to make some conservatives quite hostile against these schemes: They want to see conditions (employment, health etc., having children) attached. These conditions often make little sense economically, and are sometimes, quite frankly inhumane (for instance, by asking lone mothers to work for a minimum wage). But very often, unconditional cash transfers are hard to sell to this ideology.

A final argument in favour of minimum income schemes is of the type ‘desperate times need desperate means’. Even some prominent economists nowadays come around on the question whether technology generates or destroys jobs. Not long ago, this position was still called a (lump-of-labour) fallacy. Yet, you don’t need to support basic income because you think technology makes labour redundant. Even if you don’t believe in a strong version of lumps of labour, the enfolding dilemma of a materially tremendously prosperous society with a very unequal distribution of income and work is enough to merit tools for insurance and redistribution.

This is where the basic income scheme has received new tailwind. It’s a type of thinking outside the box. To some degree, European welfare states have been stagnant, self-devouring, or plainly in decline for the last 30 years. Going further back in time reveals that welfare states have always struggled with structural change in labour markets. The first big transition (from agriculture to industry) was the cradle of the welfare state; the the second (industry to service) already showed some of its limits;  the third (more automatization) will need a more inventive approach to policy. Given that labour markets will see sectoral change, perhaps at even increasing speed in the years to come, experimentation wouldn’t necessarily be a bad thing, it might be the only thing.

Given my own level of doubts, comments are greatly appreciated.

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