How about getting free money from the government every month?
Imagine a scenario where your government says that it will give you 5000 rupees free every month, but not only to you but also to every citizen of the country. Amazing! Right? Because you don’t have to work for this money. Or for some, it doesn’t make much of a difference. But Imagine what all additional commodities you can buy from this extra 5000 rupees. Maybe some good food once a month worth a 5k, couple of Uber rides from office giving you a comfortable journey, a branded Designer T-shirt or shirt, Sneakers, Handbags, cosmetics, a Lipstick and Eyeliner etc. You must be thinking that I am joking. If not a thought comes to your mind which says it must be utter foolishness and mismanagement on the government’s part and it’s impossible to happen. But this economic policy is such that it is seriously considered in many countries today. In fact, many states have started to implement it as well. The name of this policy is Universal Basic Income (UBI). So, is that even possible administratively and financially? Let us check!
So what is the point of even having a universal basic income? And why the government is also considering it? So, one of the most important and the foremost reason’s for the same is automation for which job losses are already taking place and would happen even more in the future. Experts believe that rampant job losses will result in individuals not getting jobs. And as a result, most of the families won’t be able to run their own households. So, it is necessary to give out this free least amount of money to sustain their essential living expenses, food and lodging etc. without even going to jobs. Example of job losses due to automation are numerous such as many developed countries have self-checkout counters in supermarkets. Many Mcdonalds outlets have self-checkout screens, robot vacuum cleaners available in the market nowadays. Self-driving cars are being developed by Tesla, Dubai airport has self-immigration check-in counters, and India has implemented FasTag on highways. We can see more or less every sector, there has been a reduction in manpower capacity as technologies get upgraded, and employees required before for the same work would no longer be needed.
Such an effect is fast approaching soon and so to counter the same universal basic income is being talked about. But if we talk about the current situation of coronavirus, there have been so many job losses already with loads of businesses going down. Hence, the idea of universal basic income is being fast-tracked and considered. For example, Spain has already implemented such a scheme and giving €462 to every citizen every month. Sir Richard Branson also supports the idea of universal basic income. He says it will come one day out of necessity so that people don’t have to sleep on the streets. Even Elon Musk, Mark Zuckerberg thinks it is inevitable. Moreover, in the recently happened primary elections in the US, there was a presidential candidate Andrew Yang who designed his whole political campaign based on universal basic income and promised to give $1000 to every citizen every month if he becomes the next president of United States of America.
Masses in support of UBI argue that there will be a sense of increasing inequality in the society, poverty can be eradicated. The second advantage is said to be more freedom to choose jobs. A job seeker can wish to not do low-paying jobs and instead pursue their hobbies, something they are passionate about. So on a larger picture, we can hope to see that the happiness, productivity, innovation and creativity in the society increases. I use the word hope because this hasn’t been tested yet on a large scale anywhere. Another advantage could be that people could prefer to spend more time with their family and even work in part-time jobs. If anyone wants to pursue higher education for an enormous part of their life, he can choose to do so. Fourthly since it is a universal scheme, the administrative cost to do the same would be the least, and this scheme won’t be misused by anyone too because most welfare schemes are costly to regulate.
On the negatives of UBI, people argue that if free money is given, people will turn lazy and nobody would want to work. Secondly, another argument pops up that if every citizen is granted free money, then there might be inflation in the economy, i.e. value of our currency will go down significantly. How? Let me explain. If people have more money in their hand, then they would spend more on goods. This will result in an increase in demands. Increase in demand may lead to a scenario of need to increase production, but if the supply chain cannot fulfil the same, the prices of goods will increase. This is because the companies would tend to generate and reap more profits. So, the increase in price would lead to unaffordability resulting in inflation. Such the value of the basic income goes down. Obviously, this is an assumption on my part as inflation in itself is a complex topic. Thirdly, it is said that people’s free money might make people overdependent and no self-sustainability. Fourthly it is thought the poor will be at a disadvantage because the same amount of money can give a decent living to a poor, might be extra money which can be spent on luxuries for the middle class and useless amount for the wealthy class. And lastly, which is the most critical question lies, where will the money come from to pay its population. Even if the government can manage the same, there might be a situation of shortage or compromise on other uses of taxpayers money. For example, the government could use the funds for the development of improved roads and schools. Still, after the implementation of UBI, it would have to divert the money and disburse it for free.
Having heard both the sides, which argument do you think is the most aligned to your understanding?
Let us see the results of the real-life experiments conducted at various places. The first experiment done by any European country was conducted in Finland from January 2017 to December 2018. Finland government randomly chose 2000 unemployed citizens and gave them €560 per month was given to them without any conditions attached. The ultimate results of this study are still awaited. Still, preliminary results show that health conditions and happiness has improved considerably among the participants, but there hasn’t been any level of improvement in the employment level. The second example I have taken up was an experiment conducted in Ontario, Canada, where 4000 low-income participants were randomly selected between age 18-65. It started in 2017 and was to run for 3 consecutive years. Still, due to the formation of a new government in July 2018, this experiment was scraped. But for the brief period, it was conducted, experts made some key observations which depicted that general healthcare of people improved and the government had to spend less on healthcare. A similar experiment was planned to be conducted in India also, in the state of Sikkim where the Sikkim Democratic Front (SDF) party promised to make Sikkim as the first state in India to implement the Universal Basic Income scheme as a part of their election campaign 2019. But the party lost, and the experiment was postponed. If we consider the Nyay scheme by Rahul Gandhi was very similar to Universal basic income but with conditions attached. But coming back to actually conducted experiments, in 2010 in Madhya Pradesh the scheme was undertaken successfully among 20 villages randomly chosen where 8 communities were given a basic income, and 12 were left aside for comparison. Optimistic Results were obtained as living conditions, and health improved considerably—the performance of students in schools enhanced by about 68%. Children spent more time in schools and family savings tripled. New businesses opened were doubled along with improvement in sanitation and nutrition. This is contradictory to the opinion that people will become lazy. Even experiments in Uganda resulted in an increase in job opportunities, and new businesses were started.
Now answering the primary question that what would be the cost to the government and from where will the cash come from? Let us calculate simplistically by multiplying the population count and the amount spent per citizen. For example, in the case of the USA, the population is about 330 million and let us assume that out of it, 300 million are adults. Now suppose if the US government spends $10000 per citizen per year, the total amount the government has to bear is $3 trillion per year. This is a huge number because the overall size of the US economy is $21 trillion. As this is a very simplistic calculation, many experts say the actual cost estimated will be much lower as many other factors haven’t been taken into account. One such case will be that rich people will draw UBI but return it back in the form of taxes. So, the actual benefited from the scheme will be poor people. In a CNBC interview, an economist Karl Widerquist said if every American citizen is given $12000 per year, then the predicted cost would be $539 billion per year, which is 3% of GDP. But the question remains, where will this capital come from? Andrew Yang argues that wealth tax will be applied to a wealthy segment of the society or specific welfare schemes will be reduced. At present many experiments in small or big scale are already being conducted in countries like UK, Germany, France, Kenya, Netherlands, Finland, Sweden etc. to understand the positive and negative effects of UBI. I think we need to wait a little longer to thoroughly understand its pros and cons.
What do you think about it? Do let me know in the comments that whether you believe it is possible for the government and does that help in the uplifting lifestyle of humanity in general.
And if you think I have explained it logically do share the same with your friends and don’t forget to leave a comment.