Sunday, December 06, 2015

A Basic Income in Finland?

Marginal Revolution links to this article - "Finland plans to give every citizen a basic income of 800 euros a month":
"The Finnish government is currently drawing up plans to introduce a national basic income. A final proposal won’t be presented until November 2016, but if all goes to schedule, Finland will scrap all existing benefits and instead hand out €800 ($870) per month - to everyone.

"It sounds far-fetched, but it’s looking likely that Finland will carry through with the idea. Whereas several Dutch cities will introduce basic income next year and Switzerland is holding a referendum on the subject, there is strongest political and public support for the idea in Finland. ..."
The Economist had an article about this a while back:
"... The left has usually viewed such policies as a way of beefing up the social safety net and fighting inequality. That is particularly appealing in a world where technology creates unimaginable riches for some, but threatens the jobs of others. As early as 1964 James Meade, an economist, argued that technological progress could reduce the demand for labour so much that wages would fall to intolerable lows. In a world where a computer can suddenly make a profession redundant, those who have worked hard cannot be certain of a decent standard of living. That may justify more generous state support.

"For their part, right-wing advocates of the citizen’s income view it as a streamlined replacement for complicated means-tested welfare payments. A system where everyone receives the same amount requires fewer bureaucrats to administer. Existing schemes withdraw benefits from low earners as they earn more, discouraging work and so trapping some in poverty. For this reason, Milton Friedman, an economist known for his laissez-faire beliefs, wanted to replace all welfare with a simpler system that combined a guaranteed minimum income with a flat tax."
The Economist then looks at the costs:
" In 1970 James Tobin, an economist, produced a simple formula for calculating their cost. Suppose the government needs to levy tax of 25% of national income to fund public services such as education, policing and infrastructure.

"Paying for a basic income worth 10% of the average income requires average taxes to rise by ten percentage points, to 35%. A basic income worth 20% of the average income requires average taxes to be 20 percentage points higher, at 45%, and so on. Eradicating relative poverty, defined as income beneath 60% of the median, would require tax rates approaching 85%.

"The Swiss proposal is absurdly expensive: a rough calculation suggests it would cost about SFr 197 billion ($210 billion), or 30% of GDP.

"A generous basic income funded by very high taxes would be self-defeating, as it would reintroduce the sort of distortions that many of its advocates hope to banish from the welfare system. Loafers could live comfortably without lifting a finger.


"A better system might also be financed by a return on assets, rather than by taxes. Alaska pays its residents an annual dividend - $1,900 in 2014 - from the returns on its oil fund. An asset-financed basic income would remove welfare distortions without introducing new ones through higher taxes.

"Unfortunately, few governments have wealth funds. On the contrary, they are mired in debt (though some think they could monetise public assets, including land, more effectively). In any case, many would worry that widespread government ownership of financial assets would lead to bureaucrats meddling in the private sector.

"Fans of the basic income make plenty of good arguments. A welfare system riddled with complicated means-testing distorts incentives and is a headache to run. Paine’s intellectual case for all citizens to be entitled to a return on the bounties of the earth is compelling. But a basic income is too costly and inefficient to act as a wholesale replacement for welfare. It is feasible only if it is small, and complemented by more targeted anti-poverty measures. Basic income: the clue is in the name."
Marx said "From each according to his ability, to each according to his needs." It's worth recalling that both abilities and needs have quite a broad statistical distribution: there are always going to be those whose lack of useful abilities make them essentially unemployable yet who happen to have very expensive needs (physical/mental disabilities and/or dependents, for example).

A one-size-fits-all basic income is an ill-fitting panacea despite its intellectual attractions, even if we ignore the enormous transfer payments implied.

The article about Finland concludes:
" ... But, as Bloomberg calculated, giving €800 of basic income to the population of 5.4 million every month would cost €52.2 billion a year. Finland only plans to give the basic income to adults, not every citizen, but with around 4.9 million adults in Finland, this would still cost €46.7 billion per year. The government expects to have €49.1 billion in revenue in 2016."
A laboratory for true libertarians, then.