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Do people deserve to live and have their basic needs met whether or not they contribute to society? It may sound like a strange concept, but maybe it shouldn’t. Although Universal Basic Income (UBI) — a financial proposal where a government gives its residents a minimum income they don’t have to work for — has been discussed for decades, it has become exponentially more popular in recent years.
Even people who couldn’t care less about economics seem to have an opinion about UBI. It’s hard to think anyone would respond with something other than “hell yes” when asked if they like the idea of having a few thousand more dollars lining their pockets, but perspectives on UBI vary a lot.
People’s mounting fear that automation will steal their jobs combined with Andrew Yang using UBI as the focal point of his presidential campaign in the U.S. has made the idea a common household discussion.
The COVID-19 pandemic and the Canada Emergency Response Benefit (CERB) that followed made the conversation about UBI even more popular. CERB essentially became an unforeseen UBI trial spanning over a year. This has some Canadians wondering why don’t we just do this all the time.
For the first time ever, millions of Canadians received $500 weekly payments for months at a time as the pandemic drove a disturbing number of people to unemployment.
The phone lines to get the benefit were so busy people had to wait hours with opera music blaring from the receiver. I wouldn’t pay to go to an opera myself, but I would listen to an opera if it meant getting paid thousands of dollars. So I did. I sat through the opera for six hours straight while I went about my day. It became such mindless background noise I almost didn’t react when I heard someone shouting “hello?” on the other end of the line. Then I jumped out of my skin when I realized my time had come.
Think back to how good the CERB days were. I had never made that much money in my life, even when I was working over 40 hours a week. Financial stability was quite the consolation prize for a virus which, at the beginning of the pandemic in early 2020, seemed like an intangible European phenomenon.
Those days are gone. For me, the CERB was a nice bonus (some of which I had to pay back), but the hustle of working life made its inevitable return. But before accepting it as a thing of the past, we should ask why.
It seems like the government was able to afford CERB without total disarray. The number of Manitobans who claimed the benefit was a thumping 278,360 according to the Government of Canada website. Almost nine million claimed it across the whole country.
Yet somehow I never saw footage of Trudeau sweating, yanking at his collar nervously, and stammering about where he was going to get money now that he blew it on his citizens’ wellbeing. Seriously — why not keep giving people money?
It isn’t that simple. But it is a discussion worth having.
What basic income means for the people and the government
Liam Wilkinson, Public Relations Strategist for the UBI Works non-profit in Toronto, says UBI has a few different interpretations.
“It can either mean universally accessible, meaning everyone has the option to use it, or people could be referring to a ‘universal dividend,’ meaning everyone automatically gets the same amount,” Wilkinson says.
Let’s take universal as meaning everyone has the option to use the basic income. This means the government has to scrape together quite a few coins. Wilkinson says the realistic cost would be around 80 billion dollars for a national basic income despite certain claims it would be over 300 billion.
Whether it’s 300 billion or 80 billion, the number is deceptive.
“A lot of that money goes back to the tax system,” Wilkinson says.
UBI is often seen as something that replaces other expensive social benefits. The 80-billion-dollar sum looks much less daunting when you see how much money goes back to the tax system and how much is saved on social benefits.
UBI becomes a lot more complicated as it goes from theoretical idea to implemented reality. There are a lot of finer details to consider when judging whether it’s a system worth executing in a place like Manitoba.
Examples of basic income in the past and today
UBI has existed across the world in different shapes and sizes for decades. One memorable trial was the 1970s “Mincome experiment” in Dauphin, Manitoba where economists found giving residents a guaranteed annual income of $16,000 per household gave a considerable boost in people’s mental and physical health.
The Alaska Permanent Dividend Fund is a basic income where Alaska’s oil earnings are distributed equally among the state’s residents, amounting to $1,600-a-year per person.
Iran gives its citizens an annual basic income of $16,390 and has seen people in their 20s more likely to pursue higher education and eventually work better-paying jobs.
If you look through examples of basic incomes in world history, you’ll find there are many ways it can be done. Sometimes the figure is different. Sometimes only people from lower income brackets get money. Sometimes it’s paid monthly. Sometimes yearly.
How a basic income is delivered can change whether it’s seen as an affordable lifeline for poor people or a fiscal disaster causing jeopardy for the government’s finances.
The most logically sound model for basic income
There is one model of basic income that stands out for giving economic credibility to this optimistic concept of “free money for everyone.” The model is called Negative Income Tax (NIT) and is more carefully organized than the simple monthly cheques people received in other trials of UBI.
British politician Juliet Rhys-Williams introduced NIT in the 1940s. American economist Milton Friedman made it more well-known in the 1960s.
Friedman saw social benefits as “Band-Aid policies” — grants helping people already experiencing symptoms of a social ill. His thought was that waiting until someone is hungry before giving them food is worse than preventing hunger in the first place.
The simplest form of Negative Income Tax is Flat Tax NIT. This version has everyone entitled to a basic income where they all pay the same income tax rate.
It’s quick and easy to calculate your earnings. First, multiply your annual earnings by the tax rate (10 per cent tax rate would be 0.1). Then subtract that number from the money you get from the basic income. Voila.
Let’s say the income tax rate is 20 per cent and the basic income is $15,000. Someone who earns $50,000 a year would pay 20 per cent of their annual income back to the government to support the basic income – in this case $10,000. They also get to pocket the $15,000 basic income, meaning in total they earned $5,000 from the benefit.
Someone who earns no money wouldn’t pay taxes but still gets the basic income like everyone else. This means they get $15,000 they’d never have. For these people the $15,000 money injection is huge – it can be the difference between life and death.
The 20 per cent income tax rate for someone earning $500,000 a year is $100,000, meaning they lose $85,000 annually after banking the basic income. It’s a big chunk of change for rich people, but they already pay large taxes on the “Band-Aid policies” the basic income sets to replace.
One important detail about Flat Tax NIT is that it couldn’t exist under the current Tax Act. This isn’t a bad thing. It’s an opportunity to rewrite a flawed act that has cost the Canadian economy billions from exploited loopholes in the Tax Act’s laws.
Flat Tax NIT has many advantages. Lots of the money is given back to the government, making it a more affordable basic income than most. The people who need the most get the most and no money is wasted on the rich.
A more subtle advantage is its outright simplicity. Anyone with a calculator can know how much they will get from UBI in about ten seconds.
Flat Tax NIT, while being a great theory, has never been attempted. Most trials and real-world applications of UBI have used other methods — most being the simple monthly cheque in the mail for everyone who fills out the paperwork.
Manitoba’s own basic income experiment
People often look at results from previous basic income trials to see if it’s worth a shot. Manitobans should look no further than one of the most famous Canadian UBI experiments ever held. The “Mincome experiment” of the 1970s guaranteed Dauphin residents an annual income of $16,000. The heavyweight counterargument against UBI at the time was that it would reduce incentive to work.
Economist Derek Hum and civil servants Ron Hikel and Michael Loeb conducted the experiment. They kept an eye on what results would say about the common accusation that people will stop working the moment they’re paid more than a thousand dollars a month just for being alive.
The accusation proved to be false. Employment rates stayed the same, but as the experiment went on more interesting information revealed itself.
The mental health of residents improved.
There were fewer hospitalizations, fewer alcohol-related incidents, and fewer visits to family physicians.
Sure, financial figures and employment statistics are important, but the Mincome Experiment spotlighted something important lurking beneath the economic jargon — people’s wellbeing.
After all, the whole point in philosophizing about better economic systems is ultimately to improve people’s quality of life, right?
Evelyn Forget, a health economist who published the results of the Mincome Experiment, made an observation similar to Friedman’s view of “Band-Aid policies.”
“We wait until people live horrible lives for many years, get sick as a consequence, and then we go in all guns blazing to make things better,” she says.
It was a successful experiment in Dauphin. But a temporary trial in a small-town decades ago isn’t a perfect enough example to immediately start printing cheques for all 1.36 million Manitoban residents.
The issue becomes whether UBI can stand the test of time and what lasting effects it has on the economy. People’s well-being would surely go down if UBI damaged the economy with unexpected side effects.
Is there any reason to believe this will happen? According to The University of Winnipeg Rhetoric and Communications Professor Matthew Flisfeder, the answer is yes.
The potential downside to a basic income
Matthew Flisfeder wrote an essay titled “Universal Basic Income is not the answer” in 2020. He argued that, with the way the economy is currently organized, a basic income will only heighten existing economic problems.
Flisfeder points out that the government has already been cutting funding to social services, forcing people to use their own money for necessities like food and shelter. Some people would get those things for free if the social services were properly funded.
Flisfeder believes getting a basic income as a replacement for social services won’t help people the way it’s often suggested it will.
“I don’t think basic income actually subsidizes people’s costs. It just forces people to seek out their needs elsewhere in the market,” Flisfeder says.
Flisfeder talks in his essay about how the current Canadian government believes in a concept called market fundamentalism. This is an exaggerated belief that when markets are left alone economic and social problems are eliminated.
The government provides fewer social services the deeper it plunges itself into the philosophy of market fundamentalism.
“For me, investment into social services and public institutions actually makes people’s needs not only more accessible but also cheaper,” Flisfeder says.
Flisfeder doesn’t just claim UBI to be a weaker alternative to funding social services. He worries about how it could hurt the economy over time.
“When there is an influx of money into the market, there is the potential it leads to inflation,” Flisfeder says.
Take housing for example. The Social Housing Rental Program provides low-income Manitobans with subsidized housing. Flisfeder’s point is if this benefit is replaced by a basic income, people are now wasting their basic income cheque on rent they didn’t used to pay for.
To make things worse, if the influx of basic income cheques into the market causes inflation of housing prices, people will be spending even more money. The real effect of a fresh basic income cheque would be nothing more than a comforting number to hear as you piss away unprecedented amounts of money on things that used to be free or more affordable.
Flisfeder’s practical advice is to fight to reverse the government’s entire doctrine. Fight for free university. Fight for free public transportation. Fight for free universal childcare. Fight for free high-speed internet.
That’s a lot of fighting. Flisfeder doesn’t see the task as insurmountable, though.
“What we’re missing is political will. We require political will to assure that the wealth collectively produced by society is distributed equitably through investment into social services and public institutions,” he says.
Flisfeder says one issue people could focus on to simplify the fight for social service funding is to start a movement against the government’s austerity.
Austerity refers to the policies a government imposes to manage public debt. The policies we have right now have the government cutting funding to social services so there’s more money to pay off debt.
Flisfeder believes the government would be more likely to fund social services if these policies didn’t exist. If social services are funded properly, is there any reason to have UBI? Let’s look into it.
How a basic income could change the economy for the better
Liam Wilkinson argues that not only is UBI viable but also something that causes greater economic health. He says people who are chronically poor do not help the economy at all.
“If you have someone who is unable to work, unable to spend money, but at the same time is drawing on a lot of social services, what you’re seeing is a non-participant in the economy,” Wilkinson says.
He points out that when you take money from things that aren’t doing much for the economy and give it to people who spend it, we see a positive economic return.
A basic income would be a huge injection of spendable money into the economy. Wilkinson says that if a national basic income costs the government 80 billion dollars, that’s 80 billion dollars of private capital investment.
“Some modelling done by the Canadian Centre for Economic Analysis shows that for every dollar you would spend for basic income, you would see a two dollar return to the economy,” Wilkinson says.
Wilkinson doesn’t just argue that the money injection into the economy would help it prosper, he also says the poverty reduction that comes with basic income would boost the economy.
“It’s really, really hard to get out of poverty and it costs our society, our economy, and our government a hell of a lot of money,” Wilkinson says.
He uses an example regarding criminal activity, claiming that people who are impoverished are more likely to commit crimes of desperation and end up in the criminal justice system.
“That costs our taxpayers and government a lot of money,” Wilkinson says.
Poverty also puts a lot of strain on health care. People who are chronically poor are known to have worse health.
Every time someone goes to the hospital it costs the government and taxpayers money.
“The same way making sure people brush their teeth to prevent the more expensive root canal, making sure people don’t fall into poverty traps has a positive return saving money for the taxpayer in the long run,” Wilkinson says.
Wilkinson explains that poverty is a growing problem in a time where sudden financial setbacks have become more common. Job turnovers happen more than they used to and with more people going through periods of unemployment there are more people short on money.
“Basic income helps people in times of transition. We are at a period in our country where times of transition are happening a lot more than they used to,” Wilkinson says.
Automation threatens to cause more poverty than ever in the coming years. Hundreds of thousands of people work in transportation, an industry that could be doomed if self-driving cars make us no longer need taxi and Uber drivers. That’s one example.
This means hundreds of thousands of people could spend time in financial limbo while they get their new career plans in order. We can only cross our fingers and hope these people are enterprising enough to get work because if they are sucked into the cycle of poverty, we could see record numbers of poor people.
The implication from this is more strain on the health care system, more crimes of desperation, and whatever other ways poverty indirectly costs money to the government and taxpayers.
Wilkinson and Flisfeder’s opinions also differ when talking about whether people with financial freedom make the best choices for themselves.
Flisfeder believes better social services would be more helpful to people’s well-being than a general sum of money they can spend however they want. He argues people in poverty aren’t known for making the best decisions to boost their well-being.
Wilkinson’s opinion is the opposite.
“Basic income takes the approach that the individual understands their own needs better than the government. They are able to get themselves back on their feet when they’re given a little bit of runway, a little bit of time, and a little bit of security,” Wilkinson says.
So, is UBI good or bad?
It’s hard to say — there are interesting arguments for both sides. Sure, there are past experiments that succeeded greatly, but they are not completely analogous to how it would work in Manitoba in 2022.
The nuance of the topic is huge. It only becomes bigger as people bring up more economic implications we haven’t considered.
It’s all theory until it’s been attempted for a long period of time. We won’t know if the basic income will cause inflation until we try it. We won’t know if a money injection will help the economy prosper until we try it.
That isn’t to say we should pull the trigger right away to find an answer. It wouldn’t be good if we started giving out a basic income and were hit with unexpected collateral damage leaving people worse off than before.
The fact that UBI has shifted from a conceptual “free money” movement to a serious topic economists and politicians argue about means we have at least advanced the conversation about how to help people living in poverty without ruining the economy.
UBI could be one answer to some of our economic troubles. It could also just be a talking point pushing people to find a better alternative.
All I can say is if we are able to recreate the mental bliss certain lower-income Canadians felt during the days of CERB without ruining the economy, we have a winning solution.