Universal Basic Income: Andrew Yang’s controversial solution to income inequality

Andrew Yang, the "radical" 2020 Democratic presidential hopeful, proposes Universal Basic Income as a means to curb income inequality. Is the policy as radical as the man himself?
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Andrew Yang / yang2020.com

Businessman Andrew Yang is becoming a grassroots sensation. Yang, an entrepreneur and the founder of Venture for America, is a unique 2020 Democratic presidential candidate.

The field at the moment is full of experienced politicians, most of whom agree on the core issues: rejoining the Paris climate agreement, passing “common sense” gun safety legislation, and expanding health care coverage via some version of Medicare-for-all.

Meanwhile, Yang has focused on articulating a radical critique of American political economy: he believes automation, robotics, and artificial intelligence will soon make millions of jobs obsolete.

To counteract the worst effects of this automation, Yang has introduced his signature policy: universal basic income (UBI).

What is Universal Basic Income (UBI)

Universal Basic Income, or UBI, is essentially minimum income for life; Yang’s proposal is “a set of guaranteed payments of $1,000 per month, or $12,000 per year, to all U.S. citizens over the age of 18.”

These payments, he says, would be sent to everyone, irrespective of income or unemployment status. Everyone in America would be brought up to approximately the poverty line.

Some consider UBI a Silicon Valley-type idea—titans like Elon Musk, Mark Zuckerberg, and Richard Branson have all expressed support for UBI. Y Combinator, an influential startup incubator, is running a basic income experiment with 3,000 participants. Andrew Yang himself worked as a founder or executive for startups from 2000 to 2009. However, UBI is hardly a new idea.

In the 1790s, American revolutionary and Founding Father Thomas Paine called for a “citizen’s dividend.” Milton Friedman, American economist and champion of free markets, advocated a minimum guaranteed income as early as 1962. In 1967, Martin Luther King Jr. said, “The solution to poverty is to abolish it directly by a now widely discussed measure: the guaranteed income.” While President, Richard Nixon ran UBI experiments in several states, and tried unsuccessfully to pass a version of a “negative income tax” in 1969.

UBI discussions tend to resurface at times of economic transformation. Today, Yang believes we are at a crossroads: his campaign’s website argues that “we are experiencing the greatest technological shift the world has ever seen” and that “our current policies are not equipped to handle this crisis.” Indeed, a 2017 report by McKinsey & Company concluded that by 2030 as many as one-third of American jobs could disappear due to automation. UBI is necessary, Yang believes, to moderate the effects of the coming mass automation.

Thus far, UBI remains untried at any major scale. While it has enthusiasts on both the left and the right, it has critics on both sides as well.

Is UBI feasible?

On the left, some worry that UBI would be upwardly redistributive. The Center on Budget and Policy Priorities, a nonpartisan research and policy institute, argued in a 2017 report that any politically feasible UBI program would ultimately increase poverty, as financing would have to come from benefit cuts and cuts to targeted anti-poverty measures. The report asserts that the federal government would either have to spend trillions providing UBI to all Americans or cut existing assistance to those who need it most.

On the right, some return to longstanding conservative criticism of welfare: giving people money removes the incentive to work. The results of guaranteed income trials in the United States in the 1960s and 1970s are summarized in a 2016 Federal Reserve Bank of Boston report that finds that people who received payments worked fewer hours. This implies that UBI could cause labor shortages.

Yang has responses to both Democrats and Republicans.

While he believes some welfare cuts will have to be made, Yang argues for implementing a Value-Added Tax (VAT) of 10% to fund UBI. A VAT is a tax on the production of goods and services. It is collected every time value is added to a product, from production to point of sale. Advocates of VATs favor them because they do not punish success or wealth; a VAT applies equally to every purchase. Critics contend that VATs are essentially regressive. However, Yang argues that there is a precedent for effective VATs: the United States is the only OECD country that does not have a VAT. In addition, Yang has referred to his 10% VAT as a “tech check” that targets companies like Amazon and Google. Amazon, Yang says, is a perfect example—they currently pay $0 in federal taxes. Yang calls his UBI proposal the “freedom dividend” because it would essentially make every American a shareholder in the increasingly tech-based US economy.

Yang responds to right-wing criticism by arguing that $1000 a month is barely enough to live on in many places. Thus, people will not stop working and UBI will not create labor shortages. His website cites a Harvard and MIT study that finds “no effects of [cash] transfers on work behavior.”

Pros and cons

Beyond these fairly stereotypical left-and-right-wing criticisms, UBI has an extensive list of pros and cons. UBI allows workers to wait for a better job or higher wages, guarantees income for non-working parents and caregivers, and minimizes bureaucracy by simplifying traditional welfare programs. UBI also could cause rampant inflation, result in no long-run increase in standard of living, and deprive those in need of targeted support. There is no consensus on UBI and that is reflected in worldwide public opinion and voting patterns. While pilot UBI programs or UBI experiments have taken place or are ongoing in the United States, Brazil, Canada, Finland, and Kenya, in 2017 77% of Swiss voters rejected a proposal to introduce UBI.

The United States is home to the only genuine UBI in existence today: the Alaska Permanent Fund (APF). Created in 1976, the APF is funded by oil revenues and exists to fund future generations who will no longer have oil as a resource. In 1986, Alaska was ranked 30 out of 50 states on income inequality; in 2015 it was ranked second. Alaska has not experienced diminished labor force participation.

Despite indications that Alaska’s UBI program reduces poverty and boosts incomes without harming the economy, no federal UBI proposal has been voted on since Nixon’s. Andrew Yang aims to change that and in recent weeks his campaign has surged in support, coverage, and donors. Prediction markets give him better odds than political veterans Tulsi Gabbard, Kirsten Gillibrand, and Julián Castro. Last week, Yang announced a preliminary fundraising haul of $1.7 million. He has exceeded 65,000 donors, clearing a threshold the Democratic National Committee has set for eligibility in the first two debates.

Of Trump’s 2016 election, Yang said in a Fox News interview that “it certainly showed what was possible.” Andrew Yang, like Trump, never held elected office before his candidacy, which has been dubbed “longer-than-long shot.” But similar things were said about Trump’s candidacy—right up until November 8th. The “Yang Gang”—an affectionate nickname for Yang’s most loyal supporters—continues to grow.

Support for UBI grows alongside his campaign. While Yang is optimistic about his chances, he understands that his policy is more important than his candidacy. He says, “I’m running to try and advance meaningful solution and improve the lives of working Americans around the country, and, to me, if other Democrats start adopting my platform, that would be a tremendous win.” Regardless of the outcome of his campaign, Andrew Yang has revitalized political discussion about UBI.

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