September 24, 2016

Basic Income Is Not Libertarianism

In politics, some issues are more important than others. Some ideas are better than others. If you want to participate in the public policy arena, the proper way to allocate your time is to concentrate on the important and the good, as it will help you build positive messaging and a constructive dialogue. 

Sometimes, though, it is not possible to ignore the bad ideas. Ever since libertarian presidential candidate Gary Johnson announced, back in June, that he likes the idea of a "universal basic income" I have tried to ignore it. However, the idea of a basic income refuses to die away, and has in fact gained some troubling support among libertarians in general. 

After having received a couple of questions about Johnson's support for the basic income idea I therefore decided to look into the debate over the issue. What I found prompted me to write this article. 

What is "basic income"?

First, let us define what we are talking about. The basic income idea is most commonly known as "Basic Income Guarantee" (BIG) and has been a staple of the academic left since at least the 1990s. As a graduate student I attended many seminars at various conferences for economists where the idea was proposed as an ingenious way to reform the welfare system. Since this is the left we are talking about, BIG was also marketed under the "fairness" banner as a means to redistribute income.

In practice, BIG is typically sold as a check from the government to every citizen (often limited to adults only) and big enough so that someone could enjoy a minimum standard of living on it. Over time the most dreamy part of this - the standard of living - has given away to reality among leftists, but it seems to have caught on among libertarians. In 2013, Matt Zwolinski over at suggested:
Current federal social welfare programs in the United States are an expensive, complicated mess. According to [Cato Institute Senior Fellow] Michael Tanner, the federal government spent more than $668 billion on over one hundred and twenty-six anti-poverty programs in 2012. When you add in the $284 billion spent by state and local governments, that amounts to $20,610 for every poor person in America. Wouldn’t it be better just to write the poor a check?
One definitional question that remains to be solved is whether or not there should be any requirements attached to BIG. The few who still fervently advocate BIG on the left, such as Matt Forstater at the Center for Full Employment and Price Stability at University of Missouri, Kansas City, has been a long-time advocate of a BIG version tied to public jobs. The idea is that anyone who wants to can go to a local government agency and be given a job for a small but livable wage. 

Others would prefer to give BIG to everyone but condition its use. Charles Murray of the American Enterprise Institute wants to divide BIG into one part mandated for the purchase of health insurance, one part designated for retirement savings and one part that the recipient can spend as he or she pleases. 

For the most part, though, libertarian proponents of BIG seem to believe that the entitlement should be universal and with no restrictions on how it can be spent. 

What would BIG do?

Unlike their brethren on the left, libertarian proponents of BIG do not want to expand the welfare state with the basic income, but instead replace its myriad of entitlement programs with a single one. A good example is the Libertarian Republic from July 20, 2016. In approving of Gary Johnson's support for BIG they explained:
The only way that such a system would be workable, or even desirable, is if we scrap all existing welfare programs. The government would have to phase out programs such as Social Security, Medicare, and food stamps with everything else. In their place, we’d receive a streamlined process that would provide new, efficient economic incentives. It is also no small consideration that the federal bureaucracy would substantially recede. All of the complex agencies tasked with administering various programs would become one. It is certainly easier to imagine monitoring potential waste and abuse in one program than a dozen.At first glance, it may be hard to believe that handing out checks provides efficient incentives. The important economic question to keep in mind, however, is “compared to what?”
Charles Murray, in his Wall Street Journal article quoted earlier, notes that BIG would only be approvable for libertarians "if it replaces all other transfer payments and the bureaucracies that oversee them". 

In other words, a reform that creates a BIG program would shut down the 126 welfare programs that today cater to the needs of the poor and some non-poor, low-income citizens. Murray's reform idea explicitly extends the shutdown of entitlements to Social Security. With reference to a BIG proposal in Switzerland in 2013, Matthew Feeney of the Reason Foundation concurred with Murray. He also added that a BIG program would treat current recipients of welfare with more dignity:
Instead of treating those who, often through no fault of their own, have fallen on hard times like children who are incapable of making the right choices about the food they eat or the drugs they may or may not choose to take, why not just give them cash? Doing so would not only cut down on the huge administrative costs of America’s welfare programs, it would also promote personal responsibility and abolish much of the humiliation and stripped dignity associated with the current welfare system.
In other words, the libertarian arguments for BIG tend to fall into two categories: vastly improved efficiency in administering tax-paid entitlements, and the removal of paternalistic regulations associated with those programs. 

In the last few years the BIG idea has become a bit of a fad among libertarians, with almost universal support and enthusiastic applauds. This is troubling; the idea of a basic income guaranteed to all adult citizens is very far from libertarian. 

Let us address the problems with BIG one by one.

Basic income solidifies the welfare state

Rather than disposing of a large, redistributive government, a BIG program entrenches it, making it practically impossible to remove it for the foreseeable future. The welfare state is built on the principle of income redistribution aiming to minimize or eliminate economic differences between citizens. Today's federally funded entitlement programs redistribute income or consumption, either by design (such as Medicaid, SNAP or EITC) or by function (Social Security). With the exception of Social Security, these programs are funded by a progressive federal personal income tax, which reinforces the redistributive effect of the entitlement programs.

A BIG program as proposed by, e.g., Charles Murray would continue to redistribute income in practically the same way as is the case now. In fact, his BIG proposal comes with a built-in marginal-tax effect similar to the one built in to the Earned Income Tax Credit (EITC), Referring to BIG as Universal Basic Income (UBI) he proposes a decline in the entitlement from $13,000:
People can make up to $30,000 in earned income without losing a penny of the [BIG] grant. After $30,000, a graduated surtax reimburses part of the grant, which would drop to $6,500 (but no lower) when an individual reaches $60,000 of earned income. Why should people making good incomes retain any part of the UBI? Because they will be losing Social Security and Medicare, and they need to be compensated.
One of Murray's arguments for a basic-income entitlement is that it would reduce the marginal effects on disposable income that come with today's entitlement programs. His point is well taken so far: a family of four with $30,000 in annual income will lose Medicaid and SNAP, and see a significant drop in EITC, if one of the parents is able to increase his or her income by $5,000. The loss of entitlements is in fact so big that the offered raise would have to be four times larger before it neutralizes lost welfare programs. 

At the same time, though, Murray is proposing his own version of the work-discouraging marginal effects in the current system. Failing to make a case for this redistributive construct, Murray is apparently unable to find another ideological footing for his proposal than to adopt and refurbish the principle of income redistribution.

In fairness to Murray, he is not alone in accepting income redistribution as the prevailing purpose for government's presence in the economy. The only exception is Michael Tanner, who noted in 2015:
Any guaranteed income proposal would, of course, involve both coercion and redistribution. ... In an ideal world, private charity would be the primary mechanism for assisting the poor. Certainly private charity has a much stronger track record of providing the type of assistance that offers a route out of poverty. And, because charity is voluntary, it comes without the moral questions inherent in any redistribution scheme. 
That said, Tanner stops short of using the redistribution base for BIG as an explicit argument against it. His objections are concentrated to practical issues. Those are far from unimportant - he makes a strong point about the enormous cost of BIG - but they reduce the issue to where it can be modified to fit the needs of its principled proponents. 

The fact of the matter is that BIG, in any version thus far suggested, is a means toward not only accepting but in fact perpetuating income redistribution as the lead motive for government spending. So long as that principle continues to define the architecture of government, there will be incentives in place for progressives to push for an expansion of the entitlement itself. 

Tanner makes this point, but only from a practical perspective; if history has shown anything about tax-paid entitlements, it is that those who endorse the principle of income redistribution have a default advantage over their opponents in whether or not to grow government. Once social conservatives accepted the entitlement principle as a foundation for government spending back in the 1800s, the left of that time - under the banner of socialism or social democracy - would only have to refer to a "common ground" of principles when they wanted to expand their entitlements. Social conservatives, having accepted the idea that government should redistribute income and consumption between citizens, had no other defense than practical arguments such as the cost to taxpayers. Such arguments are easily overcome by proponents of income redistribution, as evidenced by the growth of entitlement spending over the past 50 years. 

In other words, by acquiescing the principle of income redistribution, libertarians de facto declare surrender ahead of future battles over the size of the basic income. Their idea for a compromise with the left on the welfare state may be different from the compromise that social conservatives struck a century and a half ago - but it is not better. 

Basic income leaves the poor behind

One of the major problems with the entire BIG idea as a replacement for the existing welfare state is the transition from an entitlement system dominated by in-kind spending to an all-cash model. Medicaid is by far the largest of the programs for poor and low-income citizens. The money that now goes to Medicaid, which BIG proponents want to use for their program, will now be paid out directly to people. 

In his article for, Matt Zwolinski completely ignores this problem. This is a serious flaw in his argument for BIG, as he uses the Medicaid funds to make his basic income program worth more than $20,000 per year per entitled citizen. Based on this he argues that BIG is good for the poor:
Hayek was not opposed to the welfare state as such (not even in the Road to Serfdom). At the very least, he regarded certain aspects of the welfare state as permissible options that states might pursue. But the passage above suggests that he may have had an even stronger idea in mind - that a basic income is not merely a permissible option but a mandatory requirement of democratic legitimacy - a policy that must be instituted in order to justify the coercive power that even a Hayekian state would exercise over its citizens.
But how is it democratically legitimate to throw poor individuals out on the open health insurance market where individual insurance plans start at $4,000 per year and then require thousands of dollars annually in deductibles and co-pays? 

Charles Murray tries to solve this problem by dividing his $13,000-per-year BIG into three parts, one reserving $3,000 for health insurance spending. Since Murray proposed this model in June 2016 he should be aware of the market distortions that the Affordable Care Act is responsible for. In other words, he should know that nobody can buy, let alone afford the deductibles of, a health plan with a budget of $3,000 per year without hefty tax subsidies (which by definition constitute another redistributive welfare-state entitlement program).

In other words, Murray creates the same problem for the poor as Zwolinski does. Then both of them then proceed to create another problem: retirement funding. While Zwolinski does not even mention the funding of retirement in a United States without Social Security, Murray at least gives it some thought. His solution is to de facto - though not formally - allocate $6,500 of the $13,000 BIG for the purpose of retirement savings. 

In plain English, this means that the poor person, for whom Charles Murray wants to make life better with his basic income idea, is put before an impossible lose-lose decision: either use all of the $10,000 left after the $3,000 health plan set-aside for living expenses, and make no investments for retirement; or put $6,500 into a retirement savings account and try live on less than $300 per month. 

Keep in mind that Murray's model eliminates food stamps, housing subsidies, LIHEAP which helps with utility bills, etc. 

Even Michael Tanner overlooks this problem, a curious fact given his otherwise detailed attention to the practical problems with a basic income program:
In many ways, the current welfare system infantilizes the poor. The vast majority of benefits are provided not in cash but rather as “in-kind” benefits. Indeed, direct cash assistance programs, including refundable tax credits, now make up just 24 percent of direct federal assistance. In-kind programs, such as food stamps, housing assistance, and Medicaid provide the poor with assistance, but only for specific purposes. In most cases, the payments are made directly to providers. The person being helped never even sees the money. Poor people are not expected to budget or choose among competing priorities the way people who are not on welfare are expected to.
His missing the point about the cost of health insurance is even more conspicuous given that he is a rare voice in the public-policy arena pointing to the numbers of a hypothetical BIG reform. 

In Tanner's defense, he does not endorse the BIG idea, suggesting instead caution and small steps in its direction. However, libertarians who go as far as to propose a basic income in replacement for existing welfare programs universally throw the poor and needy out in the cold while giving them the illusion that their lives are somehow going to be better off.

A flawed principled argument for BIG

As the last item on the BIG problems list we need to recognize an argument that seems to have many followers on the libertarian side. 

Anyone who wants to define himself as a libertarian is well advised to read Robert Nozick's Anarchy, State and Utopia. No other book is more important in defining libertarianism as a political theory. Therefore, libertarians who want to find principled support for BIG search Nozick's book with a microscope to pick up any formulations that could be interpreted as an endorsement of their redistributive idea. 

Zwolinski zeroes in on the so called "rectification principle", which Nozick develops as a tool for institutional transition. Recognizing the differences between the modern welfare state and the ideal minimal-state society of libertarianism, Nozick knew that many people have been unjustly deprived of property - even having it stolen or confiscated - in the process of government growth. In order to rectify such injustices, Nozick speculated on how one could correct them in the morally most acceptable way. 

Zwolinski, and apparently also Tanner, refer to the rectification principle as evidence that Nozick somehow approved of economic redistribution - which again is the foundation of any basic income program. Zwolinski suggests:
In a world in which all property was acquired by peaceful processes of labor-mixing and voluntary trade, a tax-funded Basic Income Guarantee might plausibly be held to violate libertarian rights. But our world is not that world. And since we do not have the information that would be necessary to engage in a precise rectification of past injustices, and since simply ignoring those injustices seems unfair, perhaps something like a Basic Income Guarantee can be justified as an approximate rectification?
There are two problems with this argument. First, it is taken out of its historic context. When Nozick wrote his book the Soviet Empire was very much a reality. Among those who hoped it would fall one day - Nozick was likely one of them due to his Polish heritage - a lot of attention was given to the idea of getting back what the communists took from their families. If read with this as the context, the rectification principle makes perfect sense.

If, on the other hand, it is read in the context of today's United States, it makes no sense at all, especially as an argument for a basic income program. Which brings us to the second problem with the rectification argument. The premise of the argument is that the poor and other low-income citizens have had their property rights violated more than those with high incomes and big wealth, resulting in their current status as poor. But this argument in turn requires some kind of mechanism by means of which someone takes property away from the poor. 

The left uses Karl Marx's theory of labor value to explain how capitalists steal from workers by means of exploitation. Unless BIG-proposing libertarians have started subscribing to Marxist economic mythology, there is no way they can justify that, in today's United States, the poor are poor because someone outright stole or confiscated their property.

The only form of confiscation that meets the requirements under the rectification principle is that which government engages in. They can, literally, take your property by force in the form of taxation. However, the problem for libertarian BIG enthusiasts is that government predominantly takes property from people with high incomes; some 70 percent of all personal federal income taxes are paid by the 10 percent who make the highest incomes. 

Unless someone is willing to propose a BIG that is slanted in favor of the best-paid ten percent of all taxpayers, the rectification principle makes no sense in this discussion.

Better ideas

The idea behind libertarian BIG proposals is praiseworthy: to try to show a practical side when it comes to reining in, and reducing, the size and cost of government. However, any such idea that accepts - and perpetuates the life of - the redistribution principle as the reason for government to exist, will only perpetuate the welfare state and all its moral and economic problems. 

There is only one way forward, and that is to build practical solutions that rest on an entirely different principle, namely that of the inviolability of private property. It is entirely possible to develop practical reforms based on that principle. I refer the curious mind to my book of 2012, Ending the Welfare State: A Path to Limited Government That Won't Leave the Poor Behind. I have developed other solutions, which I will present in later articles. And I am definitely not alone in working with solutions based on this principle. 

I will concede that finding and advocating for solutions based on Nozick's minimal-state theory is far more complicated than to accept the left's redistribution theory and work within its limited parameters. However, the left has had more than half a century to prove that their redistribution theory is preferable to any other alternative. They have failed, and they have failed miserably. Even if it means a lot of hard work, the only responsible thing to do for a libertarian is to throw out the redistribution principle and join the fight for a minimal state under which a maximum of liberty is guaranteed for everyone.

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