It is a common talking point of those on the right to accuse those on the left of advocating for giving away free stuff or services in exchange for votes. This can be seen with much of the Democratic Party calling for free healthcare or free college. One Democratic presidential candidate, Andrew Yang, who remains low in the polls, takes this idea of free stuff a step further and offers a Universal Basic Income (UBI), which he has ever-so-patriotically named the “Freedom Dividend.” There are a number of problems I see with UBI that I would like to express here.
Firstly, I see the need to clarify what a Universal Basic Income actually is. UBI is a system, usually replacing existing welfare but not always, that gives a periodic payment to all citizens without exception for wealth status. This means that whether you are unemployed, making $100,000 a year, or a billionaire, you will always receive a set amount of money usually on a monthly basis. Andrew Yang’s UBI takes the form of the Freedom Dividend, which aims to give $1,000 a month, totaling $12,000 a year, to every American citizen over the age of 18.
One of the biggest problems for a national UBI in the United States is on the grounds of implementation: the United States is very large and diverse and the cost of living varies wildly, with $1,000 in my home state of Alabama having a much different purchasing power than the same amount of money in New York, but under Yang’s program, an individual in either place would receive the same amount of monthly income from the UBI. The only way around this in the U.S. would be to implement UBI policies on the state level, but that would require an initiative by each state to implement, which is highly unlikely and impractical.
Another problem is that the UBI might not even be enough to serve its desired purpose as a safety net. If one of the goals of the UBI is to create a job market where people have the freedom to leave or lose their jobs without the fear of becoming homeless, $1,000 in some places might not be enough. If someone has no savings and no means of getting more money and no longer has a job, $1,000 in the big cities where many people live is most likely less than what they were living on before, thereby creating a situation where someone may not be able to afford the housing they are in, which still pressures them to keep maintain their current job.
This all comes with the looming problem of the inevitable inflation that would come from Yang’s method of payment for this program. Yang would tax businesses to pay for his UBI, which will inevitably raise prices and cause inflation. On his campaign website, though, he claims that consumers are “price sensitive” and that those producers will simply find more efficient ways to produce goods. Yang’s UBI will not have any effect on the rate of efficiency that companies operate at, and if companies are faced with an increased cost of production and are presented with a set of consumers who now have more disposable income, they will most certainly raise their prices. The cost of taxes put on businesses are always passed down to the consumer.
The biggest problem that comes with Andrew Yang’s Freedom Dividend is not the UBI itself, but rather his method of payment for such a costly program. According to what appears to be Yang’s conservative estimate, giving each American over the age of 18 $1,000 a month would cost about $2.8 trillion. To pay for this, he proposes a European-style value-added tax, coupled with an assumption that because of each person receiving an additional $1,000 a month, certain metrics that cost the American government will go down.
Yang claims on his campaign website that, miraculously, people will “Be better able to take care of themselves and avoid the emergency room, jail, and the street and would generally be more functional,” all by simply giving them $1,000 a month. This may be true on some level, but just like how giving food aid to Somalia rather than giving Somalians the means to make their own food puts a bandaid on the issue of starvation, the UBI simply provides Americans with a fixed income rather than giving them the means to provide for themselves.
The two final ways Yang claims to pay for his program are by the miraculous creation of new revenue from his UBI and the implementation of additional taxes. Though his UBI would create more revenue, this is only because of the major inflation that his program would cause, which would make this same money worth less. Additionally, he proposes even more taxes such as a carbon tax along with stricter taxing of capital gains, both of which would be hindrances on business and raise prices.
In order to cut spending, Yang makes his UBI and other forms of welfare such as food stamps mutually exclusive, meaning that if you choose to take part in the famously effective program of food stamps, you won’t get your $1,000. There is a reason why the U.S. government chooses to give people stamps tradable for food, and that is because it is effective in helping those who have trouble with money management and impulse control on purchases. If everyone was a savvy consumer, we would not need food stamps as we could just give money directly to the individuals. Disability payments are also on this mutually exclusive list. We shouldn’t have to pose an ultimatum to the American people between receiving a check from the government every month for $1,000, or maintaining their disability payments.
UBI’s main drawing point is that it is a simplification of the welfare system, which might sound appealing at face value to conservatives, but Yang does not jump on this idea and instead adds more complications to an already overly complicated American tax and welfare system. His solution is to put more taxes along the production chain, which inevitably get passed on to the consumer, who he then gives $1,000 back to, thus creating an overcomplicated system that doesn’t do anything better or more efficiently than our current system.
What Yang fails to understand is that although people will have more money to spend, their money will have less purchasing power as the cost of goods will increase with the cost of production. The biggest problem is not the UBI, but the tax that comes along with it. The fact of the matter is that there is no good way to currently pay for such a program that would not ultimately fall back on the consumer and create a cycle of inflation. The threat of automation taking jobs from low-skilled workers - of which Yang is afraid - does have merit, but in a free market economy such as the United States, the economics for a UBI simply do not work out.