Should a Universal Basic Income (UBI) be Implemented in the United States?

Introduction

Money influences almost everything in the world, with both governments and individuals making decisions based on it. Money can be looked at in two ways: at the microeconomic level and the macroeconomic level. Microeconomics looks at how small scale decisions are made while macroeconomics studies how general factors can affect the overall economy of a particular group. As such, money is vital to the wellbeing of people and entire nations. Even though the 1 world has seen great strides in economic growth and the increase in well being for many people, certain issues still exist, and new ones loom on the horizon. Many solutions have been proposed to solve these issues, one of which is a universal basic income.

What is a Universal Basic Income (UBI)?

A universal basic income, as defined by the International Monetary Fund, is “​an income support mechanism typically intended to reach all (or a very large portion of the population) with no (or minimal) conditions.” Generally, a UBI would mean that the government will give a 2 certain amount of money to its people who can then use the money for whatever they want. Why Should the U.S. Implement a UBI? ​The United States of America, at first glance, may not seem like a country that needs any economic help. It has the largest gross domestic product (GDP) in the world at about $20.5 trillion as of 2018, a GDP per capita of about $62,794, and an average GDP growth of about 2.28% since 2010. However, upon closer inspection, one can find various problems within this 3 vast economy. These include the ever-growing income inequality in the U.S. and the threat of automation looming on the horizon.

Income Inequality

Income inequality represents the disparity between how much the rich and the poor make. One way to measure this difference is by using the Gini index. The Gini index is a statistical measurement of a distribution where zero would mean everyone had the same amount of money, while a one would indicate that only one person had all of the capital. According to NPR, a 4 non-profit media organization established by the U.S. Congress, the U.S. Census Bureau found that the Gini index had increased from 0.464 in 2006 to 0.485 in 2018. Additionally, a graph 5 released by the U.S. Census Bureau, a federal agency under the Department of Commerce, in 2015 showed how the income distribution in the U.S. has a mean of about $30,000 but has a very long tail to the right. This information indicates that there is a significant disparity between what 6 the rich and poor make and that this disparity is only growing larger.

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Automation

Automation is the process by which “​automatically controlled operation of an apparatus, process, or system by mechanical or electronic devices that take the place of human labor.” ​The 7 jobs most at risk to automation are those that require repetitive physical or cognitive tasks. According to the Brookings Institution, an American research group that has ties to liberal-leaning groups in the U.S. government, these “high risk” jobs make up about 25% of all jobs. Not only could automation cause many people to lose their jobs, but it could also cause 8 wages to decline. A study done by Daron Acemoglu of MIT and Pascual Restrepo of Boston University found that for every single increase in industrial robots, seven jobs would be lost. Additionally, for every single increase in industrial robots per 1,000 people, wages could fall by 1.6%. This study only looked at the effects of industrial robots, so it would be reasonable to 9 assume that if all forms of automation were included, the adverse effects would be more significant. The more troubling issue with all of this is the rate at which automation can start bringing massive shifts in the economy. A report from the McKinsey Global Institute, the business and economic research part of McKinsey & Company, an American based international management consulting firm, found that by 2030, up to one-third of the working population in the U.S. may have to acquire new jobs due to automation. These all show the extreme 10 consequences that may occur in the U.S. due to automation.

Cost

An unconditional basic income for every citizen in the United States would be costly. The U.S. currently has an estimated population of about 327 million people. Since the UBI would only be given to people older than eighteen, the number of people eligible drops to about 254 million people. People in prison would not receive this UBI, so another 2.3 million people can 11 be subtracted. Since only 93% of the population living in the U.S. is a citizen of the country, 12 the total number of people that would be receiving a UBI comes all the way down to about 234 million people. Multiplying this number by the size of the UBI would give the total cost of 13 implementing this program. For example, if there were to be a UBI of $1,000 per month, then it would cost the U.S. about $2.81 trillion every year.

Effects of a UBI

​Undoubtedly, a UBI of substantial size would have consequences for the U.S. On the microeconomic scale, any additional income could help individuals who just had their jobs displaced by automation. This extra money could help them purchase their necessities as they 10 ​James Manyika et al., “Jobs Lost, Jobs Gained: What the Future of Work Will Mean for Jobs, Skills, and Wages,” Jobs lost, jobs gained: What the future of work will mean for jobs, skills, and wages (McKinsey & Company , November 2017), look for a new job. On the macroeconomic scale, a study done by the Roosevelt Institute, a liberal-leaning American think tank, indicated that a UBI of $1,000 in the U.S. could give an initial boost of 2.62% to the GDP.

Besides, this study found that 1.11 billion jobs could be created as a result, and wages could rise by 0.51%. This could possibly counteract the largely 14 detrimental effects that automation may have on the job market. However, a study done by the Penn Wharton Budget Model, a part of the business school of the University of Pennsylvania, claimed that a UBI of $6,000 that was fully deficit funded would decrease the American GDP by 6.1% by 2027. These conflicting results illustrate just how much uncertainty surrounds the 15 possible effects that a UBI may have on the U.S.

In addition to this, there are two conflicting ideas of UBI regarding its effect on income inequality. The first claim is that a UBI would increase income inequality. Matt Weidinger, a resident fellow in poverty studies and a writer for the American Enterprise Institute, a conservative-leaning think tank, notes that the reason for this is that the middle class and wealthy would be receiving money even though they do not need it. However, this is countered by Scott  Santens, a former writer for Medium and an advocate of UBI, who notes that this would not be the case because a UBI would be funded more by the rich than the poor even though everyone gets the same amount in the end. This explanation means that the rich would see a net loss in their wealth. Thus, there is no certainty to what effect a UBI will have on income inequality.

Conclusion

​A UBI offers itself as an attractive solution to many of the economic problems that exist in the U.S. It could decrease the increasing income inequality in the U.S. as well as economically prepare citizens against the threat of automation. However, many uncertainties make this solution less appealing. It is difficult to predict the actual microeconomic and macroeconomic impacts of UBI, and there are very high costs associated with the idea. This all means that a UBI would be a high risk-high reward situation that most countries would likely be unwilling to take. Because of this, a UBI may not be the best solution to the issues of income inequality and automation.

Bibliography

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