The Cost of Universal Basic Income is the Net Transfer Amount, Not the Gross Price Tag

[redqueen]

Why every estimate of UBI that simply multiplies the number of recipients by the amount received is simply wrong

Imagine a group of 5 people. They have an income distribution of $10, $20, $30, $50, and $100. Someone gets the BIG idea of everyone putting 40% of their money into a hat, and dividing the result equitably between everyone.

That means $4, $8, $12, $20, and $40 goes into the hat. That’s $84 which when divided by 5 is $16.80.

Another way of looking at this result is that the amounts paid were -$12.80, -$8.80, -$4.80, $3.20, and $23.20. The poorest three people paid negative amounts (negative taxation), meaning they received money, and the richest two people paid positive amounts (positive taxation), meaning they lost money.

If we add up the negative amounts and the positive amounts, we see that the poorest three received a total of $26.40, and the richest two lost that same amount. That is the amount of money that physically changed hands, even though everyone put money into the hat, and everyone got money from the hat.

Okay, so here’s the question: How much did it cost to make sure everyone received $16.80? Was it $16.80 multiplied by 5, so $84? Or was it $26.40?

The answer is $26.40, which is 31.4% of $84. The true cost is less than one-third the false cost!

This math problem is what’s needed to understand the cost of basic income. Every time someone multiplies the number of people receiving basic income by the amount of basic income, they are saying the correct answer to the above math problem is $84, and that is entirely incorrect. They’re calculating the false cost. Such a mistake can also lead to assumptions of everything costing more, which are just as mistaken. Inflation is a bogeyman.

Here’s another math problem. What is the cost to provide you $12,000 in basic income if you are asked to pay $12,000 to receive it?

The answer is $0. It carries no cost. If 1,000 people fit the exact same example, the cost is 1,000 x 0, and that’s still zero. Multiplying 1 million by 0 is still 0. That’s how zero works.

The true cost of basic income is thus the amount of money provided to net receivers, not net payers (who all cost nothing), minus the amount net receivers put into the hat.

(More at link)

https://medium.com/basic-income/the-cost-of-universal-basic-income-is-the-net-transfer-amount-not-the-gross-price-tag-acb8aa5eab73

[Hoyt]

1. Clearly we will need to do something, but there is not one country -- Democratic Socialist or not --

that have done this.

Finland tried a small experiment, but I believe they decided not to continue after 2years.

[redqueen]

3. Please read below for context on the Finland trial. Not exactly as reported.

What is There to Learn From Finland’s Basic Income Experiment? Did It Succeed or Fail?

Evaluating the Preliminary Results of a Partial UBI and Slightly Less Bureaucracy

After two years of experimentation within a two-year experimental design, Finland released on February 8, 2019, preliminary results of their basic income experiment. For anyone who reads the full report, it can be considered nothing short of both promising and fascinating, but what it can’t be called is complete, because the results are still preliminary and based on only the first half of the experiment.

With that said, as is also true of the experiments in the U.S. and Canada in the 1970s, there are certainly some conclusions that can and can’t be drawn within the proper context of the experiment’s design. But to reach these conclusions, we’ll first need to go over some of the nitty-gritty details of how the experiment was designed, and what it didn’t even try to measure.

The Context

Finland’s experiment rocked the headlines of the world when it was announced back in 2015. What went under the headlines was that this experiment was to be part of a new Finland where the scientific method would be applied to public policy. It would be a landmark in the history of policy making where instead of endlessly speculating and arguing, potential new policies would be considered, tested, and compared to existing policies and other alternative policies, before implementing what was found to be the best one. Finland’s goal was to become the first truly experimental nation in the world, where policies are based on science, not ideologies or myths.

It is within this context that experimenting with basic income began its way through a process where what was once hoped to be a grand first in finally putting the idea of unconditional basic income to the test at a national level became a not-so-grand test of slightly less conditional unemployment benefits. The question transformed from “What would a random person do if provided an unconditional basic income instead of most existing conditional benefits, and what would the effect then be on both the individual and society?” to “What would an unemployed person do if provided a partial basic income in addition to many existing conditional benefits, and what would the effect be on only the individual?”

That may seem like a fairly small difference, but it’s actually quite large. You see, unconditional basic income is meant to be about entire communities, not just the individuals within those communities. It’s about universalism. That’s where the bulk of its effects emerge, from universal application. It’s also mostly about the employed, because most members of society are employed. To only test the unemployed is to therefore miss out on how most of the population would be impacted by UBI.

To be fair to the researchers, they knew this. They are scientists trained in science. Politicians however are not, and politicians are the ones who ultimately made the decisions. As a result, the experiment as implemented was extremely limited in design, and given the opportunity to expand the experiment from only looking at the unemployed to looking at the employed as well, Finland’s politicians, the same ones who claim to want an evidence-based Finland, chose to keep the experiment limited in scope.

It was that decision which was misreported around the world as Finland’s decision to cancel their basic income experiment.

Finland of course never canceled their experiment, despite all the headlines written to the contrary. It was a two-year experiment that took place over 2017 and 2018. Because of the way data is available for research in Finland, there is a year gap, so the employment data from 2017 is available in 2019, and the data from 2018 will not be available until 2020. Thus the evaluation phase of the experiment will not be fully completed until next year.

...

https://medium.com/basic-income/what-is-there-to-learn-from-finlands-basic-income-experiment-did-it-succeed-or-fail-54b8e5051f60

[Hoyt]

5. That's good, I'll revisit when they expand it beyond the 2,000. Still, no country has used it.

Doesn't mean it's not viable, but it's a long ways off.

This is an interesting discussion and definitely worth having.

[redqueen]

6. I think we should implement it before millions more are put out of work

by automation

[Midnightwalk]

2. This part is wrong

The true cost of basic income is thus the amount of money provided to net receivers, not net payers (who all cost nothing), minus the amount net receivers put into the hat.

Because it doesn’t account for anyone choosing to work less. Say you had 3 people. Two had 10 the third had 100 for total of 120. The way they did the arithmetic each would get 40 for a cost of 60.

But say the two with 10 said screw it im happy with almost 40 so I won’t work. The total is now 100. Each gets 33 but now 66 dollars changed hands. And the total dropped. And I’ll keep the 1 because I did the math.

There’s probably ways of dealing with that like sliding scales and work requirements. Working can be fulling too

I’m on the fence. People should be able to survive and live ok working a single job. Those who can’t work should be accommodated.

I don’t know whether UBI is the best way of dealing with the problem. Like I said still on the fence.

I just don’t like when an article points out one error but then falls into an error on the other side. Particularly when doing the other limit where no money changed hands.

[redqueen]

4. True, but every study shows most people don't work less.

Two groups which are an exception to that rule are students and new parents, which is a good thing, and also not a permanent situation.