The Case for Universal Basic Income (UBI): Economic Growth or Fiscal Burden

Universal Basic Income (UBI) is a model of social security in which all citizens receive a regular, unconditional sum of money regardless of their income, employment status, or wealth. UBI has become an increasingly popular idea in recent years amidst increasing levels of automation, income inequality, and global discussions of social welfare reform. Supporters say UBI could spur economic growth, curtail poverty and offer financial security, while opponents worry about it being a fiscal burden, the potential for inflation and disincentivizing work.

This article discusses some arguments both in favor and against and includes a case study of the UBI test in Finland.

What is Universal Basic Income?

Universal Basic Income (UBI) is a form of social policy in which a government agency pays all its citizens a set amount to all citizens to spend as they see fit to meet basic living expenses. UBI is neither means-tested nor conditional on employment status, unlike other forms of welfare. The principles of UBI are:

1. Unconditional: Everyone gets the same amount of money, without conditions.

2. Universal: It is given to all citizens, no matter how wealthy or poor they are.

3. Regular: Regular payments are periodical payments done monthly or yearly.

4. Sufficient: The amount should be enough to pay basic living expenses so persons can achieve a minimum standard of living.

UBI is primarily aimed at alleviating poverty and reducing inequality, while also giving individuals greater financial freedom and security.

The Economic Arguments for UBI

1. Reduction of Poverty and Income Inequality

        Overwhelming Arguments You Wouldn't Want To Ignore UBI is often framed as an idea to reduce poverty and income inequality. This would benefit those who cannot work or cannot earn sufficient income through employment. This directly counters the growing levels of income inequality found in many nations.

2.  Stimulating Economic Growth

        Supporters claim that UBI could catalyze economic growth through increased consumer consumption. Guaranteed income would leave the people with disposable money to spend in goods and services, resulting in higher demand and in turn leading to economic growth. Moreover, UBI may foster entrepreneurship as it gives people the money security to experiment with taking risks and even starting their own business without the anxiety that losing their jobs may mean they would not have any money to eat.

3. Adaptation to Automation and Technological Changes

       As the nature of work changes through automation and the introduction of artificial intelligence, many have grown fearful that vast swathes of workers will soon be replaced by robots. That UBI is touted as an answer to this problem, offering a safety net for those whose jobs have been eliminated by automation. With basic income to rely on, the government would empower people who need a job, pursue education, or pursue something creative, without the fear of not being able to afford a roof over their heads.

4. Improvement of Mental Health and Well-being

       Financial instability is among the leading causes of stress, anxiety and poor mental health. UBI may alleviate these pressure points by giving people more freedom to live their lives without the worry of being displaced from their employment or source of income. When people have financial security, they invest more in their health, education, and well-being, as studies have shown.

The Economic Arguments Against UBI

1. Fiscal burden and budgetary concerns

       The most common argument against UBI, however, is the strain it could cause on government coffers. The implementation of a universal basic income would cost a large amount of money from the government, requiring these funds to come from somewhere, leading to increased taxation or reduced funding for other essential social services. Expanded lease-purchase agreements, which upgrade dwelling rates, have led to complaints that the agreements are reformulated to justify more wealth redistribution, and critics argue that this is not in the long-term interests of the population.

2. Inflation and Cost of Living

       A second worry is that giving everyone guaranteed income will create inflation. If there is more money in circulation, then demand for goods and services might rise, driving up their prices. As Cato senior fellow Michael Tanner has noted, rising prices could essentially eliminate the advantage of UBI, rendering the payments worthless over time. In an inflationary environment, the inflationary pressure on UBI could reduce its effectiveness in alleviating poverty over time.

3. Work Disincentives

       Those critics have also said that by giving available cash to those who don’t necessarily need it, it could deter people from seeking jobs altogether. With guaranteed income, some people may not even work, which means that this would significantly reduce participation in the labor force. Such demographic trends may bode ill for productivity and economic growth, particularly for industries requiring tightly maintained labor force numbers.

4. Resource Allocation and Opportunity Cost

       In a comprehensive sense, only a few billion more won't indeed support the poverty and provide for a well-off life by just looking at UBI. Others believe that instead of offering strings-free money to all taxpayers, the Canadian government should fund existing government programs that directly benefit duplicative and at-risk populations, like the elderly, disabled or unemployed.

Case Study: Finland’s UBI Experiment

One of the more famous UBI trials occurred in Finland between 2017 and 2018, when 2,000 unemployed people were chosen to receive €560 a month with no strings attached for a two-year period. This experiment aimed to investigate the impact of UBI on work, mental health, and well-being.

Results of the Experiment:

• Mental Health and Well-being: Participants expressed reduced stress and an increased sense of financial security. They reported feeling less stressed and more positive about the future.

• Employment: Though the experiment did not yield a dramatic boost in employment rates, only that a majority of participants spent their newfound freedom on either entrepreneurship or education, showing that UBI gave them a buffer for personal development.

• Public Opinion: The experiment received overwhelming popularity from participants, with many preferring a universal, unconditional safety net instead of traditional welfare programs.

While small in scale and short in duration (the Finnish UBI experiment was only 2 years), it offered up several key takeaways regarding the potential benefits and challenges of UBI. It reinforced the need to ensure UBI payments adequately cover basic living expenses and stressed the need for complementary policies to tackle unemployment and poverty.

Conclusion

Universal Basic Income is a great idea" controversial, but also- promising idea that should no only revolutionise our social safety nets but also take- cares for the economy from the challenges of the future. Proponents say UBI might cut poverty levels, spur economic growth and help address the challenges posed by automation and A.I. But critics warn of its fiscal sustainability, its potential to spur inflation, its impact on work incentives.

The Finnish case study offers valuable lessons a universal basic income does not resolve every economic uncertainty, however improves mental health and financial security, thus giving policymakers a basis to explore potential outcomes in future. It's too soon to tell whether UBI will emerge as a common approach to income inequality and economic instability, but one thing is for sure: it will keep influencing debates around the future of welfare.

Work cited

1. KELA. (2019). Finland’s Universal Basic Income Experiment. Finnish Social Insurance Institution. www.kela.fi

2. Widerquist, K. (2017). The Case for Universal Basic Income. The Economic Journal, 14(3), 175-193.

3. Standing, G. (2017). Basic Income: A Guide for the Open-Minded. Yale University Press.