Thoughts on an Unconditional Minimum Income

The concept of an unconditional minimum income is one that has fascinated me for quite some time. Particularly, I have been finding myself stumbling across different shades of the idea on a fairly regular basis lately. Hayek, back in 1944, had already argued in favor of a weak form of such an arrangement. Milton Friedman’s Earned Income Tax Credit, though in its current form tied to actual employment and thus hardly unconditional (appart from phasing out as income rises), points in a somewhat similar direction. When even reading about what seem to be related concepts on Mankiw’s (post of Nov. 18th) and Sumner’s blogs I knew it was time to write down some of my thoughts on it.

But first I decided to get through a creatively named book by an author named Karl Reitter I picked up at this year’s Elevate Festival. And while it proved to be considerably less informative than I had hoped (I’d like to assume this speaks to my vast knowledge of the issue and unmatched level of intelligence, but am rather inclined to think this would be megaloamanic and nothing else), the author pleasently surprised me by only occasionally going off on the typical rants against the “neoliberal economic system” I have come to expect from similar publications. In its purest form, an unconditional minimum income is exactly what it says it is: a concept that ensures a certain level of income to any and all persons living in a country, without any strings attached. Anyone under 18 could receive a reduced level of the transfer, but that’s pretty much it. Ideally, one would scrap all forms of often distorting social programs and replace them with such a system in a way that turns out to be neutral in terms of direct budgetary impact. Let’s get down to the details.

One of the first issues that arise is clearly the motivation behind supporting an unconditional minimum income for all. And it is one to which probably dozens if not hundreds of different answers can be found, depending on who is asked. Reitter, for instance, brings up the fact that “work” is generally only remunerated in the official sector, which tends to have a somewhat sexist connotation. Work done at home, for instance, does not count as “real work” in today’s society, so his argument, because it goes unpaid. A minimum income would solve this problem, while avoiding the issue of having to measure and judge the exact level of contribution each individual makes. I disagree with this line of reasoning. First of all, the whole argument is constructed around Marx’s labor theory of value. As an overly simplistic example, it essentially states that five hours of cooking at home produces the same value as five hours of working on an oil rig in the North Sea (Marx differentiated between actual time invested and a form of “abstract” value of work that makes different kinds of work comparable, but let’s ignore that for the sake of simplicity). If one were to subscribe to this theory, then there is definitely something wrong with one type of activity being highly paid with the other one not being paid at all. Yet clearly just taking the amount of labor embodied in something is a fairly misguided way of thinking about value. It further represents a failed attempt at reducing a complex set of human behavior down to purely economic variables. Incentives are a complex web of social, moral and economic phenomena. All of these have to be taken into consideration when thinking about what a “fair wage” is supposed to be. There might be issues of individual freedom involved, which is my personal and essentially only motivation for supporting the issue, but to argue that unpaid work is ipso facto “valued less” is not only a strictly normative statement, but also one that I do not subsribe to.

A common objection to an unconditional minimum income is that a huge amount of people will simply stop working because they no longer need to. The argument is an important one. First of all, to a certain extent it is true. There can be no denying that there are a lot of people out there who only work to survive, often in degrading jobs with very low income. From a liberal perspective, this is something clearly undesirable. In today’s developed world there is no reason to differentiate between coercion coming from the government and coercion coming from the need for materialistic self-preservation. A truly free society with the means at our disposal should have to face neither. And in terms of applying for a job, an unconditional minimum income would effectively increase the bargaining power of employees and thus serve as a way to improove their bargaining position compared to employers, who have a numbers advantage to begin with.

Further, as is argued in the book, there could actually be tendencies that increase the amount of labor offered in some fields. The idea is that currently there is a considerable amount of work that people would like to do but are not able to because they have to make a living doing other things. While there is no denying that there is a possibility of positive effects of this kind in some area, the argument does not convince me fully. If whatever activities these might be were of enough “value” to be demanded by someone else, they would pay accordingly, rendering a minimum income to make them “viable” unnecessary. If there are considerable positive externalities associated with them we are clearly talking about a market failure, which could arguably be dealt with through other means (even though a minimum income could indirectly help in this case). If none of these cases hold true, we are talking about activities that should not be pursued beyond the level of personal gratification, which should not be subsidized by the public. But a more important argument to counter the idea that half of the population of any given country would just stop working and become moochers is that it is psychologically proven that work has an intrinsic value in and of itself. From an economist perspective, one might be forgiven for believing that any professional activity is done solely for the promise of payment. This is not the case.

Then there is the issue of immigration which is often mentioned when talking about the viability of a minimum income that is truly unconditional. Reitter makes one of those fascinating and in retrospect incredibly obvious observations that make you want to bang your head against the wall and ask yourself how you could have missed that: it is of vital importance to differentiate between two categories of reasons for immigration. One is essentially a push argument, which would include reasons such as political persecution, natural catastrophes, acute and hopeless poverty – many of which are quite correctly seen as very legitimate reasons to emigrate in most western countries. The introduction of a minimum income would do nothing (directly) to change this rationale. On the other hand, however, is the pull argument. The argument that the sheer amount of wealth and opportunity that a foreign country offers attracts people that would otherwise not chose to leave their countries. This issue is tricky, as it involves such complicated (and in my opinion by no means one-sided) issues such as brain drain and affects a number of different social variables within a country. It, however, is of little doubt that a unilaterally adopted system of minimum income would tend to increase the pull side of immigration thus potentially require some compromises to make it politically viable. At this point it only remains to note that such an additional income would only be one of many factors influencing the decision to emigrate.

In a sense, despite all its difficulties, an unconditional minimum income seems to hit about dozen of birds with one stone. It increases personal freedom, decreases the possibility for arbitrary political action and with it the scope for corruption. It brings much-needed transparecy into the jungle of social programs and replaces a system of considerable uncertainty with one of clear and simple rules, while significantly lowering the bureaucratic burden of the state. Essentially a lump-sum payment, it would remove massive sources of distortion in our current economic system while at the same time alleviating the problem of people getting stuck in the poverty trap. And while politicians might be reluctant to introduce such a system for some of the very same reasons that so strongly speak in favor of it, there appear to be few legitimate objections to its implementation on an objective basis. Am I missing something?

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