Basic Income: A Cure-All or Misstep?

Buddy, can you spare 120,000 dimes? 

Basic Income (BI) is a type of publicly-funded economic security system. Other terms for BI include universal basic income, universal demogrant and citizen’s income. BI is considered by some as a mechanism that can lead to a more equitable, just and utopian society. Ideally, BI provides all citizens with a regular, unconditional sum of money from the government, in addition to any income received from elsewhere.

As I mentioned in a previous blog, literary utopias began with Plato's Republic, where he described a communal society that eliminates poverty and enjoys an equitable distribution of income and resources for its citizens, with no lawyers. What’s not to love about this Republic? In 1516 Sir Thomas More’s Utopia first coined the term and was the “modern” primogenitor of all utopian considerations. Unfortunately, whenever any group – and there have been many – has attempted to actually create and live in such a setting, it’s ultimately been a fraught, generally futile process that appeals to few people (e.g., Twin Oaks in Virginia, Icaria in Illinois and New Harmony, Indiana).

Nevertheless, more contemporary believers in idyllic possibilities have considered BI as a way of getting to a larger-scale Eden. There have been several implementations of BI-like policies that have enjoyed some success including one in Alaska (of all places) and another in Brazil.

The Permanent Fund of Alaska [PFA], established in 1976, is seen more as a re-distribution program funded by North Slope petroleum tax revenues, rather than a basic income program. Nevertheless, several aspects of the PFA illustrate its close ties to BI. In 2015, the PFA provided Alaskan residents with $2,072, the highest yearly payment ever. These payments to Alaska’s more than 710,000 citizens represented 2.9% of its Gross State Product in 2015. Such large payments are not likely to be forthcoming this year or for as long as the price of oil remains relatively low. [The price of West Texas Intermediate– the US benchmark oil price – was $48.03/bbl on June 28; 1 year ago it was $61.70; 2 years ago it was $91.81.]

For the first time in decades, Alaska had a fiscal deficit last year due to dramatic drops in world oil prices. Because of the deficit, Alaska politicians are now considering using PFA funds to help balance their state budget rather than only directly paying residents – something that Alaska voters aren’t at all pleased about.

Brazil’s much-praised Bolsa Familia program, started in 2003, is not unconditional or universal but is fairly broadly offered. Payments are provided to over 13 million Brazilian poor families (about 26% of Brazil’s population), based on income criteria. To receive payments families must have their kids vaccinated and must send them to school. Average monthly payments are 70 reals ($21); average per capita GDP in Brazil is $993/mo. The Bolsa Familia program costs about $19 billion annually, roughly 0.6% of Brazil’s GDP.

The proponents of BI, who include left-leaning folks, argue that it’s the right solution to the ever-increasing problems of income inequality and poverty. Income inequality has become a prominent issue in American political discussions. [So pervasive has the “inequality” issue become in the media that last week The Atlantic posted a story under the headline, “Why lightning disproportionately kills the poor.” What’s one to do but contact Thor and Xolotl (respectively, the Norse god of thunder and lightning and the Aztec god of lightning) and beseech them to change their ways, reduce lightning inequality and abide by a lower Gini Index.]

But enough about unequal lightning and back to BI.

There are now debates in France, the Netherlands and Finland about how to begin Basic Income pilot programs. The Swiss held a BI referendum this month that was strongly defeated. The Swiss Basic Income Initiative received 76.9% “no” votes. The unstated but expected BI monthly payment was to be about 2,500 Swiss francs ($2,560) per adult, with a smaller subsidy for children, without regard to employment, education, disability, age or wealth. Small-scale BI projects have been instituted in Namibia, India and Iran.

Several Americans have proposed BI pilots in the US, including Sam Altman a wealthy, Bay Area tech entrepreneur. In May he proposed that his startup incubator, Y-Combinator, will run a “short-term” BI study in Oakland, CA with the purpose of learning “how to pay people, how to collect data, how to randomly choose a sample, etc.” that could lead to a long-term study. Predictably, his announcement received much publicity. But conspicuously absent from this proclamation were any actual details about the proposed study, such as when it would begin, its size, how long it would last and perhaps most critical, how much the payments would be. As such, it was an impressive but empty statement; it lacked any substantive details or actual commitment.

It’s beyond rare that a potential pilot BI program mentions the income payments that would be offered. This is probably by design since once a payment level is stated costs could be calculated and there would be protests about its inappropriateness – both too high and too low.

Nevertheless, here is my payment suggestion as a thought experiment for US BI income levels designed to reduce inequality and eliminate “official” poverty; $1,000/mo for 1 person ($12,000/yr), $1,700/mo ($20,400/yr) for a family of 3. BI-like programs, such as Bolsa Familia, do not have this substantial objective; instead they provide smaller, supplemental payments to ease poverty.

My suggestion is based on the official federal government-determined poverty-level incomes that are established each year, based on household size. The 2016 federal poverty “guidelines” are $11,880/yr for 1 person and $20,160 for a family of 3 people. The guidelines’ income levels for family sizes range from 1 person to over 8 people.

For some perspective, the current legal minimum wage in California is $10/hr or $20,800/yr with full-time work. In San Francisco the minimum wage will be $13/hr in July (about $27,000/yr).

I was interested to see how my suggested poverty-purging BI’s compared with proposed and much-discussed (but not implemented) living wage levels. [A living wage is an income level that approximates the costs of a person’s/family’s basic living expenses such as food, clothing, housing and medical care.] Using MIT’s handy living wage calculator for US states and localities, the 2015 living wage for Alameda County, CA is $13.35/hr for a single adult or $27,800/yr with full-time work. If the household has 1 adult and 2 children, the living wage is $32.09/hr or $66,700/yr. Thus, even my substantial BI’s represent only 30% of a living-wage based income for a family of 3.

Interestingly, the median household income in Alameda County is $67,169, which is almost the same income level that the MIT living-wage based income level is for a family of 3. As you recall, median income represents the income level that divides the distribution of income (here, for Alameda County) into two equivalent parts. This illustrates the practical fantasy of considering changing minimum wage levels to family-sized living wage levels. The living-wage minimum is almost equal to the median income level, meaning virtually 50% of the population’s income would need to be increased, which would be a political impossibility because it would be a very expensive effort.

Predictably, the strongest criticism of BI programs centers on their substantial costs.

Even if my suggested BI program is limited to providing $12,000 per year only to citizens 21 years and older, it could cost $2.78 trillion (T) per year or about 15% of our GDP and require the vast majority of federal tax revenues. This BI program would be much more expensive – greater than 3 times more – than merely offering tuition-free public university education.

The total FY2015 federal budget is $3.8T and total federal tax revenues last year were $2.96T. Because my BI program thus represents 94% of all tax revenues, the federal government couldn’t spend anything for much else except the BI program. With virtually any BI program, taxes would need to increase substantially, and not only for the rich and wealthy.

If my BI payments are cut to $2,000, which wouldn’t come close to clearing the poverty line (but would be as much as the Alaska Permanent Fund provided last year), the program would  cost $463 billion per year, representing 80% of what CY2015 defense expenditures are and over 15% of total federal tax revenues.

A BI program not only is wildly expensive, but many critics also state that such government-provided income can diminish folks’ incentives for seeking paid employment as well as lowering the motivation of workers displaced by robots (or far, far more likely, by other workers) from participating in skill-enhancement and -training programs. Potential alternatives to ameliorating poverty and labor displacement more cost-effectively include increasing the well-regarded, existing federal Earned Income Tax Credit, broadening government-funded job retraining programs or even creating a low-wage employment subsidization system.

As professor Laurence Summers stated, “A universal basic income is one of those ideas that the longer you look at it, the less enthusiastic you become.” Nationally implementing even a modest BI program would be an expensive misstep. Basic Income is a misplaced idea whose time hasn’t come. It’s time for Biexit.

BERNIE WHO?

A revolution is not an apple that falls when it is ripe. You have to make it fall. ~ Che Guevara 

The Republican and Democratic presidential primaries have finally ended. Whew. So now we’re witnessing the Republicans’ presumptive nominee Donald Trump and the Democrats’ presumptive nominee Hillary Clinton starting to circle each other (near the rope-lines) in the first round of the up-coming election prize fight – only a mere 140 days away. But wait, Bernie (coulda-been-a-contender) Sanders hasn’t yet thrown in his towel and insists he’ll be running for president forever. Really? Meanwhile his most fervent “Bernie or bust” followers had a gathering in Chicago this past weekend to drum up an alternative something, such as finding like-minded candidates to run for office somewhere and sometime. That's all well and good. I’m all for having people with political beliefs organize and seek an enhanced society.

But by not now pledging his support nor endorsing Hillary, Bernie seems myopically oblivious to the dangerous wild elephant now prancing in the political ring – Donald Trump.

Perhaps Bernie wants to continue the high he’s been riding for a while, but the reality of the lows of his actual political performance (based on the number of actual votes his followers managed to provide in California and DC, among other primaries) won’t allow it to continue.

Bernie’s youthful followers have been impressive in their attendance at his rallies, but many of them forgot to actually vote for their leader. Oops. Almost 16 million people voted for Hillary Clinton, 12 million voted for Bernie Sanders. Of the Democratic primary/caucuses held in the United States, he won 22, she won 29. He lost, fair and square.

So what really happened with the much-discussed and pontificated younger voters that Bernie appealed to as a central cohort of his campaign? As I’ll show, the 2016 democratic primary voting patterns for youth participation are not much different from primaries in the past. Younger people simply didn’t vote in sufficient numbers to lift their candidate (this time, Bernie) to victory. It’s a familiar story. So much for the media-hyped “revolution” of Bernie Sanders.

Hillary’s victory was due to many factors, but demography was a key one, just like it was Bernie’s demise. This is illustrated in the table below.

Bernie Sander’s Phantom Revolution (Percent of total voters by age group)

	Voters under 30 years old		40-64 years	45-59 years	65+ years	60+ years
State	2016	2008	2016	2008	2016	2008
Florida	15%	9%	46%	33%	25%	39%
	[64%]
Illinois	17%	15%	46%	32%	22%	23%
	[86%]
North Carolina	18%	14%	49%	34%	20%	26%
	[72%]
New York	18%	15%	45%	33%	19%	30%
	[65%]

Numbers in brackets represent percent of voters under 30 years old who voted for Sanders.Source: USNews.com

This table shows that young voters, here characterized as people under-30 years old based on exit polls, accounted for at most only 18% of all 2016 voters in these 4 states. I did not find age-based primary state voter information except for these states. Nevertheless, they do represent a range of geographic and political characteristics. As you can see, middle-aged and older voters account for far larger proportions of actual voters. Middle-age voters represent between 2.5 and 3 times as many actual voters as young voters. Also illustrated in the table is that despite much media attention to Bernie’s youth “revolution” the percentage of youth voters in 3 of the 4 states didn’t significantly increase in 2016 from 2008. Surprisingly, young voters in Florida, which is usually associated with much older people, almost doubled in 2016.

Sen. Sanders captured very large majorities of youth voters in these states, as shown in the table – from 64% in Florida to an astounding 86% in Illinois. But percent of voters who were young (under 30) who voted for Bernie was very low; ranging from 9.6% in Florida to 14.6% in Illinois because of their low voter participation rates mentioned above. Despite receiving 86% of young voters’ preference in Illinois, he lost the state to Hillary.

It’s always puzzled me why the media, marketers and politicians continuously emphasize the importance of “youth” and seem to neglect older people who have both more resources (aka, money) to spend on stuff and vote far more regularly and reliably. Sure, the vast majority of young people eventually become income-earning adults who exhibit behaviors (like voting) that youth don’t, but as the table shows “middle-age” people substantially out-vote young people.

This important age-based distinction holds even when you normalize by how much of our 2010 population was in each of the 3 age groups shown for 2016 in the table. The ratio of the average share of voters for each of the 3 age-groups in the 4 states’ primaries shown in the table divided by that age group’s share of the US population shows the oldest age group (65+ years old) voted 70% above their population share; the middle-age group (40-64 years old) voted 40% above their share. The under-30 year old group voted only 10% above its population share, which is fine, but hardly noteworthy.

From a media perspective, it comes down to middle-age voters aren’t “revolutionary”; they’re simply once again exercising their constitutional prerogative. Yet when less than one in five young people actually votes, it’s headline worthy.

For Bernie, young people have been very willing to attend rallies with thousands of their cohorts probably as a social event, but not at all interested in actually voting as a political act. In this strange way, perhaps the multitudes of Bernie backers are socialists – with a small “s” – participating solely in an exciting communal social activity believing there was no other obligatory action required (like casting one’s vote on election-day). Go figure.

So why are young people seemingly so reluctant to vote? No one really can explain it, but Russell Dalton (a professor at UC/Irvine) has examined political engagement among various age groups over the past few decades. His assessment concludes that young adults just aren't as engaged as they used to be. Dalton says if politicians want young people to vote, they need to incentivize them. Wow. Conversely, older folks are much more engaged. Dalton portrays this divergence as constructively as possible by referring to millennials’ lack of voting caused by “the long slope of differences by life stage is getting steeper, with less involvement in youth and more involvement in later life.” The long slope of differences by life stage? That makes no sense at all; mostly because the act of voting is neither difficult nor arduous.

So Bernie, you’ve retreated to Burlington and taken a well-deserved rest, perhaps even hiked in the beautiful Green Mountains. Now you need to formally quit your campaign and say good bye to your Secret Service guardians. Finally and most importantly, you need to start actively and unqualifiedly assisting Hillary to defeat The Donald. If you wisely give her campaign the resources she deserves, you’ll get at least one more spotlight’s worth of attention and thanks. If you don’t, it will be “Bernie who?” Oh, he’s the old man who decided not to help when the Democrats needed it.

If you don’t, you will have failed to make Che Guevara’s apple really fall and the 85% of American citizens who are older than 30 will wonder and blame you for why you haven’t taken any action to defeat Donald J. Trump, the insidious threat to our precious democracy. Do the right thing Bernie, and stay relevant. 

July 12, 2016 Addendum, Bernie's endorsement.

Why did this take soooo long? Today, Bernie finally endorsed Hillary.

I’d say it’s taken this long because, to no one's surprise, Bernie’s played-hard-to-get with Hillary. And her weakness as a candidate probably augmented the importance of his endorsement. Her difficulties remain the continued challenge of “explaining” her disastrous email server issue that won’t go away even on Nov 9 when she’s hopefully been elected president.

Her negotiations with Bernie during the past month or so to get his endorsement only really matters to inside-the-beltway Democratic potentates and princesses (P&Ps); and only for the next 16 days, until the Dems’ convention ends.

No other folks except these P&Ps give a damn about what’s in the Dems’ (or the Repubs’) platform. Furthermore, as this blog showed, his core supporters include young “idealistic” people who haven’t ever pulled their voting weight in any national election. It’s not likely that these people, on the margin, are worth that much effort to harvest for Hillary. If I were Hillary, I'd put Bernie solely in charge of this task. 

No one knows how many Bernie backers will vote for Hillary. You get wildly different answers, depending on which poll you cite. On the one hand, “Recent polls show that only a small fraction of them would support her...” But another poll says that “The vast, vast majority of those who supported Bernie Sanders in the Democratic primary will support Hillary Clinton in the general election.” Go figure.

In fact, her leftward turn to induce the Bernie or Busters’ reconciliation and votes makes me concerned about her judgement. His most fervent backers seem so “principled” that they feel “betrayed” by Bernie’s endorsement as well as Sen. Elizabeth Warren’s public endorsement of Hillary. These Bernie backers are barely tangentially-related with the real world of politics and political progress. Their disdain for actually casting votes speaks for itself.

As for the fantasy idea that Hillary should offer Bernie a place on the Democrats ticket as vice president, OMG. According to poll fielded in May, “You're going to hear a lot in the days ahead about possible vice presidential candidates, but when it gets right down to it, voters don't place a lot of importance on the person in the number two slot. Most say a presidential candidate's running mate is somewhat important, but just a third of voters rate the vice presidential nominee as Very Important to how they will vote in the upcoming presidential election. The sentiment is generally the same among both Democrats and Republicans.”

Bernie is a failed candidate. His campaign was interesting, provocative and worthy. Now, like all losers in the presidential primary process, he’s mostly forgotten but not yet gone. He’s a loner with a germane but narrow message that appealed to a small part of the electorate that (as my blog demonstrated) doesn’t vote much.

Despite the media’s proclamations, Bernie won’t be much remembered in 4 months, let alone a year from now. His “revolution” wasn’t. Perhaps his endorsement will provide some lift to Democratic pols, but party “unity” seems a much over-sold virtue as far as actual American voters are concerned. Get on with it Hillary, keep campaigning hard and pick a VP who’s not a Senator from a state with a Republican governor (like Elizabeth Warren), who would be replaced by a Republican.