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Friday, July 28, 2017

Dylan Matthews’ critique of my UBI view is mistaken, but here’s a better one [feedly]

Dylan Matthews' critique of my UBI view is mistaken, but here's a better one
http://jaredbernsteinblog.com/dylans-matthews-critique-of-my-ubi-view-is-mistaken-but-heres-a-better-one/

In pushing back on an argument against Universal Basic Income (UBI) plans, Dylan Matthews engages in a curious non-sequitur. Let me point out where he's wrong but offer him a more salient contradiction in my position.

Matthews, in defending the idea that "every American gets a basic stipend from the government," quotes me as follows: "If we instead choose to use our resources on people who don't need them, we won't be able to build on the progress we've made."

He then argues, based on a paper by Wiederspan et al, that UBI's aren't as expensive as I suggest. The problem, however, is the paper he cites isn't about UBI. It's about a means-tested, non-universal program that phases out at (in Matthews' favored version) twice the poverty threshold, which excludes the majority of American families (68 percent; i.e., 32 percent are below twice poverty).

By shifting from UBI to this targeted approach, Matthews is implicitly agreeing with me. One of my major objections to UBI ideas that don't cost a lot more than the current system of taxes and transfers, like the one proposed by Charles Murray, is that by consolidating all our social welfare spending and then essentially giving those resources to everyone as a per-capita UBI, poverty will go up. The anti-poverty impact of the current system will be diluted by spreading the same money over millions more people.

In fact, Wiederstan et al clearly recognize this cost constraint, suggesting that if the phase-out threshold is set too high, "the program will be exorbitantly expensive."

These authors, and Matthews, are thus arguing for something other than a UBI. By dropping the U, they raise a different, albeit still interesting, question. They're no longer asking if we should have what Matthews describes as a "basic stipend from the government" for every American. They're instead suggesting that the poor and near poor might be better served if instead of the existing collection of anti-poverty programs, we consolidated them all and just gave them the cash.

This obviates the concern raised in my quote above: turning anti-poverty programs into a cash grant to poor and near-poor people doesn't squander resources on those who don't need them. In fact, as Matthews points out, the cost of the Wiederstan et al version he prefers (~$220 billion) amounts to about what we spend on non-health, anti-poverty programs.

This idea, however, raises other concerns. While I like the consumer sovereignty (I very much like that part), simplicity, and scope of the idea, I worry that a sole, stand-alone, anti-poverty fund would be a lot more open to attack than the many existing programs that meet specific needs. My strong sense is that it's easier for conservatives to reduce cash support than in-kind support. EG, I'll bet one thing that tanked the Republican health care replacement plans was taking away poor and moderate-income people's health coverage to pay for tax cuts for the rich.

This, however, is really a political call, and I could be wrong. The idea Matthews touts here, though not a UBI, is an NIT—a negative income tax—which oldsters like myself remember being introduced by conservative icon Milton Friedman and embraced by President Nixon, of all people.

Getting back to actual UBIs, however, I do think there's a coherent critique of my beef about the U in UBI. If I were debating me on this point, I'd hit me with this: "So, I guess you're also against Social Security, which is very much a universal cash income program."

Of course, I'm not (against Soc Sec), but I can maybe wiggle out by pointing out that while Social Security has UBI characteristics, it's targeted at elderly retirees (I'm just talking about the retirement program, not the disability one, which is quite different in this context). In this sense, it addresses a market failure of sorts, which is the risk of poverty in retirement. In fact, Social Security reduces elderly poverty from about 40 to about 10 percent!

But while its benefit structure (pay-ins relative to pay-outs) is progressive, why does it have to be universal? The answer has always been: to stave off political attack. And there's something to that. But I also like the intergenerational contract inherent in the program. Today's retirees bequeathed today's economy to today's workforce. In return, we're going to shave some of the productivity gains off the top for those past their working years. It's kind of a "circle of life" thing; cue the music, Disney!

But UBI'ers might say I'm being too narrow in where I see market failures. They often argue, against the evidence, I'd say, that the UBI is necessary as technological unemployment is or will be rampant. So, if my criterion for universality is a pervasive market failure, like aging out of your working years, then the lack of jobs certainly qualifies. (FTR, I have argued for a guaranteed jobs program.)

But it may be the case that this whole sort of thinking—we intervene where the market fails—is not shared by UBIers and may demarcate older from younger people in this space. My approach is pretty "neo-classical" (though to be clear, I see market failures around many more corners than the median economist of my generation) and I think many younger people, to their credit, are looking at economics' track record in recent years and concluding that we need a whole new paradigm.

In other words, there are many interesting currents swirling around right now. But as we try to make sense of them, we should, for clarity's sake, be disciplined in our analysis and not conflate UBIs with NITs.


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