Why it’s worth stomping on Universal Basic Income

Universal Basic Pest

Actual picture of the Universal Basic Income idea

In my latest column for The CEO Magazine I take aim at the idea of universal basic income (UBI). The column uses the insights of the always terrific Peter Whiteford, of the ANU’s Crawford School, and Troppo’s own Don Arthur, who has written a terrific backgrounder on the issue for the Parliamentary Library.

Bottom line: the UBI idea has terrible bang for buck. It is, in H.L. Mencken’s words, “neat, plausible and wrong”.

Now, it’s generally way too easy to stomp on a dodgy idea. I try to spend many of my columns on what I reckon are good ideas, like independent fiscal councils, or new research, like this work on pay equity, or even just pointing out that good things are happening in the world.

But there’s a particular type of dubious idea that gets seized on by impassioned partisans as the One Right Way To Do Things. This can be a problem for anyone who believes in incremental improvements to the system. An example of this was the carbon price debate of 2008-2010, where the Greens’ misguided purity ensured that we have had neither emission trading scheme nor carbon tax for most of the past decade.

It’s quite possible to imagine a future where the Greens decide that a future government’s legislation for welfare improvements isn’t going to be passed because a UBI is the One Right Way To Do Welfare.

So there are times when a bad idea, like a cane toad, should be stomped on before it does any more damage.

Stomping seems particularly advisable if the existing alternative is actually good. 

And that’s the case here: Australia has a mostly well-targeted tax and transfer system that we have been building since the Hawke years, and it is in many ways the exact opposite of a UBI. The success of this system continues to be underplayed, despite the efforts of Peter Whiteford and others. But we’d be far better off refining this existing system, which people broadly accept. And we could raise Newstart payments, for instance, at a tiny fraction of the price of a UBI.

As well as being bad policy and ill-matched to the Australian context, a UBI is also politically dumb. The median voter requires a lot of convincing about tax rises of less than one per cent. Any useful UBI would require pushing up voters’ marginal tax rates by 10 per cent or more. Good luck with that.

(In an article for Fairfax, Per Capita’s Emma Dawson raises another important objection; it would rob too many people of agency. This also seems a pretty good objection, though Emma has been copping an impressive amount of condescending Twitter criticism for it.)

The UBI notion is, however, smart politics for the Greens, who simply need to rally those on the far left who would otherwise vote for the ALP. As the Greens tilt at seats like Northcote, “Labor won’t promise enough” becomes a vitally important element in their marketing.

The UBI has one special benefit: in a welfare system which is genuinely complicated, it promises to make everything simple. If you haven’t been following the tax and transfer debate – and particularly if you don’t understand the merits of our existing system – this is likely to be a powerful message. For the casual left-winger, it has the same appeal that a flat tax has for the casual right-winger. Like Mencken said: simple, plausible, and wrong.

Footnote: I spoke with Peter Whiteford for more than half an hour in the course of writing the column, and he was insightful, clear, and generous with his time. I have the uncomfortable feeling that the end result doesn’t do him justice.  If I ever seek his comments again, this is a reminder to myself to record the conversation and put it online. 

About David Walker

David Walker runs publishing consultancy Shorewalker DMS (shorewalker.net) and is commissioning editor of Acuity magazine. David has previously edited the award-winning INTHEBLACK business magazine, been chief operating officer of online publisher WorkDay Media, held policy and communications roles at the Committee for Economic Development of Australia and the Business Council of Australia, and run the website for online finance start-up eChoice. He has written professionally on economics, business and public policy since 1987 and spent three years in the Canberra Press Gallery for News Limited and The Age.
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19 Responses to Why it’s worth stomping on Universal Basic Income

  1. Thanks David

    Nice piece with which I broadly agree. (Troppo collective has also deemed all readers to agree with it until further notice.)

    I’ve also suggested that one motive for UBI promotion is strategisation.

  2. Nicholas Gruen says:

    Oh, nearly forgot, on a side issue, I think the line about the Greens being responsible for failing to pass carbon abatement legislation is a little – well incomplete. A lot of politics is about making judgements about what you can get away with and putting pressure on other politicians to get something more like you want. You’re generally offering to help them with their agenda if they help you with yours. And negotiating well almost invariably takes things to the brink of collapse. When things do collapse you can blame either of the two parties who couldn’t deal with each other.

    I recall the Rudd Government early in its tenure – with very strong popular support agreeing to give more and more revenue away to business interests that had dragged the chain on emissions trading for the previous decade. It wasn’t a pretty sight and in some ways was a rehearsal for what happened with the resource rent tax.

    As I recall the Greens wanted a lot less money handed over to business as compensation and most economists would agree that this was a more sensible position.

    In the end they overplayed their hand as did Rudd who then ended up seeking to negotiate with the Turnbull Opposition which then extracted for its quid pro quo even more compensation for business.

    Now it’s also true that the Greens got themselves a reputation, particularly in Tasmania for being impossible to deal with. I don’t know if that’s right – again it’s difficult not to see it objectively and I certainly don’t have the background or memory to be confident one way or another. But it wouldn’t be the first time that those from the margins were fitted up with the fall. Rudd was always looking for opportunities to wedge others.

    Here’s a thought experiment. Imagine the Liberals were negotiating with the National Party with Labour as their other potential partner. In such circumstances, the Nationals seem to be quite effective at making strong and unreasonable claims and getting them, or something quite like them, over the line. This is a point I think John Quiggin has made in a somewhat different way. It’s a strange thing to see the ALP and the Greens such confirmed enemies.

    Reminds me of that great line that in politics, your opponents are on the other side and your enemies are on your own side ;)

    • Lt. Fred says:

      Worth also remembering the legislative reality of the time: the Greens and Labor alone could not pass anything. Two Liberal Senators eventually crossed the floor – for a bill they knew would fail. Would they have voted against their party to help the government pass a popular bill? I doubt it. And Labor had little interest in that possibility either. Labor also chose not to go to a DD over the issue, which they could have done and would have smashingly won, for fear of many, many new Greens senators.

      In any case the Greens and Labor did pass a more substantial bill a few years later, parts of which endure. Politics is hard, and I’m not sure the failure of climate policy over 10 years can be entirely blamed on one decision by a minor party with little power once.

  3. Petr Williams says:

    I love the hand waving required to just declare the current system is working well, even though government revenue is way down, corporations are paying little if no tax in a lot of cases, debt is staggering and wages have stagnated for ages.

    Almost as if the rest of the article can be disregarded in the same way for being lazy and reductive.

    • David Walker says:

      Petr, in writing about the tax and transfer system system, I’m focusing mainly on the system of personal taxes and transfers that redistributes incomes. I’d conceptually distinguish that from the overall level of revenue-gathering, from the corporate tax system (which is nevertheless better than many people think), from fiscal policy and from issues around wage levels and the labour share of national income. Apologies if I didn’t make that distinction as clear as I should have; it’s certainly valid to think about the tax and transfer system as encompassing at least corporate taxes.

      I try to keep blog posts like this one manageably short when they are pointing to a column I’ve written. In this case, the post itself is making a related political point; the policy meat is in the linked column. And since we’re talking about completely upending our entire system of income redistribution, then yes, some 99.9 per cent of the details are necessarily left out.

      I’ve tried to make up for that by linking from the column to several documents which go into much more depth on the points I’m making about UBIs. If you think I’m glossing over details or otherwise hand-waving about income redistribution, let me know where you think I’m doing it.

  4. Bruce Bradbury says:

    It is true that moving to a UBI or similar scheme would mean abandoning many of the good features of our targeted welfare system (particularly its low tax requirements). However, I think there is a case that we have gone too far in targeting benefits and regulating the behaviour of the poor. This is one of the motivations for increased interest in UBI.
    To talk of a UBI as robbing people of agency is precisely to wrong way round. A UBI presents people with a tax/benefit schedule and lets them decide how much to work. One might argue that people need more direction via job-search requirements or similar (or that tax-payers require a demonstration of effort in order to provide support), but we can go too far in this regard.
    Income management and drug testing of welfare recipients, for example, can be seen as, at best, reducing individual autonomy while forcing people to do things in their own long-term best interest, (or, possibly more accurately, making income support less attractive without reducing payment rates).

  5. KC says:

    Hi, I don’t understand the point about agency. I read the Dawson article.

    “Agency”, as I understand it, is the freedom to live lives, make choices and commitments, that we have reason to value. Suppose I am guaranteed a basic source of income, I am still free to live (and work) in acccordamce with my agency
    Goals. I can choose not to work!

    Dawson’s point seems to be that there is value in work, which is undoubtedly correct (in my view). But there is value in both remunerated and voluntary work. Is there a good reason to privilege remunerated work over voluntary work?

    I would appreciate further discussion around this point. My own judgement is that if a society can afford it, universal basic income would expand agency, not reduce it. But I look forward to reading arguments against this judgement.

    • Dan says:

      People conflate jobs and work. Work is for provisioning – physical, social, psychological, spiritual – as any underground musician, stay-at-home-parent, or community volunteer will tell you. A job is about making a buck.

      It’s nice if they overlap.

      A UBI doesn’t preclude either.

  6. conrad says:

    I think people conflate annoying stuff to do with the current welfare system and a Utopian version of a UBI. For example, Bruce above brings up some of these things, like welfare management and so on. However, these seem like arbitrary aspects of a welfare system that exist largely for political purposes, and not because they need to be there. I don’t see why a UBI wouldn’t also be subject to these politically motivated extensions, and thus I don’t see why money wouldn’t be wasted enforcing them. Hence this to me is an advantage which would quickly deteriorate to something like we have now once some politician decided people getting the UBI should be obliged to work if possible, not spend their money on socially dislikeable things etc. .

  7. Jay says:

    Hi David,

    We have a massive shortfall in jobs that pay a legal wage and the demand for same. Other than that brief window of post WW11 full employment, this has been the norm and technology may well be part of the reason, in my view.

    Apart from unemployment, underemployment and discouraged job seekers, if you look at the work of the Fair Work Ombudsman and the ATO, you can see that a huge proportion of award covered workers do not get paid superannuation and get paid below award wages. I know plenty of lower skilled folk in this situation, including adults who work for as little as $12 an hour cash in hand because that is the best they can get.

    To give an example that demonstrates how bad the problem is, I note in Springvale, Melbourne, I can get a hair cut today for $8. That price hasn’t budged in 40 years but property prices (and therefore business rents) have shot through the roof. I am told by my migrant friends that the folk doing those jobs are usually taking home no more $7 or $8 an hour and often work 60 or more hours a week.

    They, along with gig economy “contractors” working just as long and for just as little, are Australia’s rickshaw men and women.

    We have a huge and systemic problem. Unless we have a Jobs Guarantee that ensures every willing and able person can have a paid job (itself an expensive proposition), I am not prepared to rule out a UBI. This might not be the right time for it but that time may well come and it is precisely the type of policy the Greens should champion.

    Similarly, I note that an economy run on renewable energy was laughed at by most until very recently. If we had listened to the dreamers and early researchers who spoke of this 50 years ago, we could have fast tracked the R & D and already have a post carbon economy and probably much cheaper power prices.

    Cheers

  8. Wirram says:

    The idea that a UBI is predominantly a Green/Left policy is not accurate, if that’s the impression the author meant to convey.
    It has support across the ideological spectrum notwithstanding a deeply-ingrained conservative concern for ‘moral hazard’.
    With rapid progress in AI and robotics and associated productivity growth, a new creative solution might have to be found to tackle joblessness accelerated firstly, but not exclusively, by the rapid disappearance of low-skill jobs.
    Like aspects of the current welfare system, it might be about timing and what is politically feasible, as Jay has pointed out.

  9. paul frijters says:

    May I say I find the response pattern in the comment thread hilarious. The post itself hardly talks about characteristics of UBI or its pros/cons. Even the linked-to post on CEO magazine does little of that (though i agree with the basic conclusion that UBI is a bad idea. Fortunately, most experiments and proposals labelled as UBI are not really UBI so in practise its meaning is highly flexible). And I agree with Nick that the swipe at the Greens over carbon is not helpful.

    But the comment thread makes clear that there indeed is a following of UBI that is being righteous and has quasi-intellectual chatter about the need for UBI and how all those who oppose it are mistaken.

    Dan, Jay and Wirram, usually not spotted in these parts make their entrance! They come without surnames so that they can comment anonymously, using first names that are probably not what their mothers named them either. And indeed, they spout all the usual nonsense told around UBI. Robots, AI, the end of the world as we know it, and the redemption that will come from UBI. What makes all this extra hilarious is that labour force participation is at unprecedented high levels in many Western countries.

    I myself think of UBI as a dumb idea, but a fairly harmless one that we dont need to stamp on because it wont gather support because very few people on reflection support its implications (which is that all the supplements and additions for special (need-related) circumstances get taken away, such as living with parents, having a health problem, having young children, and being single). And in any serious political debate you can bet that the groups of losers would pipe up, currently blissfully unaware that their livelihood is being threatened by Jay, Dan, Wirram, and consorts. And that would blow them back to the shadows.

    It reminds me of the comments and the name of the commenters you see if you say something critical about bitcoin. Or emission trading schemes. Or obesity.

  10. Jay says:

    A concerned Paul from October 2017:

    “Former University of Queensland economist Paul Frijters said the sheer weight of the numbers that would enter the market for odd jobs would push down wages. ”

    So six months ago Paul acknowledges that there is plenty of unemployed labour.

    A more sanguine Paul now says:

    “What makes all this extra hilarious is that labour force participation is at unprecedented high levels in many Western countries.”

    What is more hilarious is that one in three workers now work part-time compared to one in ten 25 years ago. You only have to work one hour a week to be “participating in the labour market” yet one million workers want more hours.

    ***theconversation.com/we-need-to-find-new-ways-to-measure-the-australian-labour-force-68802

    I also never said I favour a UBI. At the moment I don’t but who knows what will make sense 50 years hence? It makes sense to me that a Green Left party that gets just 10% of the vote would float such an idea. What other purpose would such a party serve? My reading is that small Left parties usually lose support and die if they get too pragmatic and close to the major parties.

    BTW, Paul Fritjers, I loved your racism on the bus research and I closely followed and was angered by the disgraceful treatment you faced at the hands of your then employer. We may disagree on this but I think you are an excellent economist. I highly value your thoughts. Have a great weekend!

    • paul frijters says:

      thanks Jay. We’ll have to agree to disagree about UBI.

      You’re quoting me on the influence of the internet platforms (uber, airbnb), aka the digital economy and other disruptor technologies. We weren’t talking about robots, UBI or anything like that at all in that quote.

      The reason I thought you were on a bandwagon (apart from not knowing your surname!), is that you said ” Unless we have a Jobs Guarantee that ensures every willing and able person can have a paid job (itself an expensive proposition), I am not prepared to rule out a UBI. ”

      This simply confuses social welfare and a safety net with UBI. If UBI replaces the current safety net (which already IS available to all adults if they are in certain circumstances), then this would imply a large reduction in welfare from the current levels for major groups, whilst handing out large sums to those who dont need it. Hence, precisely in the event that lots of people cannot have jobs, you do NOT want a UBI, but to maintain the current safety net.

      Hence, you’ve been had on the marketing surrounding UBI. So too, it would seem, is John Quiggin.

      Now, of course, one can define one’s way out of this and say that UBI would not be the only welfare program and that we’d have supplements and deductions based on various circumstances (children, age, ability, partnering, living conditions, health, etc.). But then the debate becomes meaningless because then you might as well say we already have a universal UBI with additions and deductions. So the UBI argument becomes meaningless unless one intends it to replace the current safety net.

  11. derrida derider says:

    Late to the topic, but as a lifetime proponent of a UBI (or perhaps an NIT – the two are similar) Peter will not be surprised to learn I disagree with him.

    Its a long argument, but my contention is that the tight targeting of our welfare system is a bug, not a feature. Basically it is designed to – and does – punish outgroups and ensure they stay outgroups; the rhetoric here is miles away from the reality. Means tests punish, and are deeply corrosive of, effort and honesty.

    Actually existing proponents of a UBI are frequently naïve and inexpert – no argument there – but the “commonsense” objections to a UBI are not common sense at all on close inspection. But as I said, its a long argument – I’ll write a book on it in my retirement :-) .

    • paul frijters says:

      Hi Ken,

      great, I look forward to reading that book. But please dont start that book with some apocalyptic vision of robots taking all our jobs, because in that kind of scenario UBI will be the least of our concerns!

  12. Jay says:

    From Australia’s most intelligent and innovative economist, John Quiggin:

    “However, the technological and social changes that have taken place over the past 60 years mean that the traditional notion of full employment, focused on full-time jobs for male breadwinners, is no longer adequate. We need a more flexible approach, accommodating the more diverse patterns of life and work of the 21st century.

    In this context, the idea of a universal basic income set at a level comparable to the age pension has considerable appeal. The ultimate goal would be to provide an unconditional payment lower than the return from working but sufficient to sustain decent living standards. An interim step, proposed by the late Tony Atkinson in his final book, Inequality: What Can Be Done?, would be a participation income available to people who undertook voluntary work to benefit the community.

    The combination of a job guarantee and a universal basic income would free workers from dependence on employers. But this would only be feasible if society could ensure adequate production of crucial goods and services, without dependence on the wishes of big business.” www. theguardian. com /business/2017/oct/09/socialism-with-a-spine-the-only-21st-century-alternative

    Quiggin is expressing the same ideas as myself but he says it better.

  13. Russell Affleck says:

    Such a premature idea. You have to go through a process. First you have to push the tax free threshold well above minimum wage. And another threshold for each registered dependent. You have to have the department closures to finance this. Thats just a start. There is still a lot more to go.

    If you just announce and finance a universal basic income you will wind up locking in deficits as far as the eye can see and all types of poverty traps.

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