Voters scoping out the 2020 presidential field likely know Andrew Yang as the non-establishment Democrat who wants to give everyone money. The entrepreneur’s plan, called the Freedom Dividend, is in effect a form of universal basic income (UBI), and would distribute $1,000 per month to every American citizen over age 18.
So, how might such a notion play out, and would it actually be viable? Here’s what you need to know about this potential nominee’s central campaign promise:
Where will the money come from?
The initial concept of UBI sounds like a far-left, socialist pipe dream. The U.S. currently owes approximately $22 trillion in debt, which doesn’t quite place it in a position to be handing out extra cash. Yang’s proposed Freedom Dividend, however, doesn’t aim to take from consumers, nor does it arrange to siphon money away from other parts of the federal budget.
Instead, a value-added tax (VAT) would serve as a resource tax on producers, collecting a percentage off of every stop in the production process—essentially putting more strain on corporate giants such as Amazon or Google and redistributing their wealth to households across the country. The ramifications would differ from socialism and communism, both of which are based on public consolidation of resources. Consumers with UBI would have more leeway to invest in as well as return money into the private sector, reinvigorating a capitalist society via the least offensive tax capable of providing for this monthly cushion.
How might it affect us?
Typically in the logic of economics, taxes levied on sellers can incentivize companies to simply raise prices and shift the burden onto buyers. But this only works on goods that are inelastic in demand: products such as insulin that a certain consumer group (in this case, diabetics) must purchase regularly regardless of whether prices change. Most goods, including a majority of those offered by Amazon, are not as essential. Any spike in price will likely only turn away customers, as a capitalist market provides for plenty of competing sellers to do business with. Meanwhile, Yang has said that consumer staples would be exempt from the VAT.
According to economic principle, inflation occurs when the supply of money in a society increases. This will not be the case under Yang’s Freedom Dividend system, as no new money will be printed. The demand-pull theory of inflation also posits that the phenomenon results when consumer demand exceeds producer supply. But an extra $1,000 per month is not such a dramatic amount that it would boost consumer spending to a level at which sellers cannot keep up. In a globalized world reliant on international trade and cost-effective technology, companies are ever more so capable of putting out more for less. In the case that inflation does become an issue, the Federal Reserve can implement safeguards to maintain economic stability via monetary policy and interest rates.
Critics of UBI pose concerns about the possibility that a guaranteed monthly stipend would induce citizens to stop working in favor of relying on free income. Yet $1,000 a month, or $12,000 a year, would put an individual at below the national poverty line if they were to rely on this alone. To continue living a comfortable life, some form of labor is still unavoidable for most households. One purpose of the Freedom Dividend is to provide people with more breathing room to undertake ventures previously sealed off by financial barriers. This means that people may quit their current jobs for more fulfilling (but riskier or less lucrative) means of work. On the other hand, more money also means more power in workers’ hands regarding the jobs they choose to take, meaning employers will have to offer higher compensation for less desirable labor.
Why haven’t we thought to implement UBI before?
UBI is not a novel concept, even to free-market American society. The initiative for a $1,600 (approximately $11,000 in 2019) yearly UBI was led by Republican president Richard Nixon, with support from 1,200 economists who signed an open letter to Congress stating that, even then, “the costs of such plans [were] substantial, but well within the nation’s economic and fiscal capacity.” Nixon’s program came close to fruition in 1969 when it passed the House of Representatives, before fierce backlash from Democrats—who insisted that the amount was not high enough—caused it to flounder in the Senate.
Several European countries have toyed around with the prospect of providing a basic income. A recent government experiment in Finland paid 2,000 unemployed citizens 560 euros ($635) every month for two years. According to the findings, participants ended up happier and healthier, although not more likely to be employed. Ohto Kanniainen, the trial’s chief economist, said that lack of results in the employment arena was not surprising, considering already jobless people usually possess few skills or struggle with health and other difficult life situations.
About three quarters of the world’s countries, however, do levy a VAT. The U.S. is the only one in the Organization for Economic Co-operation and Development that hasn’t hopped on the bandwagon. As of June 2018, VAT rates in the European Union average at about 21 percent, with Hungary collecting the highest at 27 percent and Luxembourg the lowest at 17 percent. Yang’s proposed rate for the U.S. is 10 percent.
It’s all speculation.
UBI is an idea well-circulated in the minds of academics and politicians around the globe, but no state in the world has yet enacted it on a nationwide scale. Previous experiments, though insightful, have also been dissimilar enough to Yang’s p
roposal that we still lack definitive answers as to how this particular Freedom Dividend program will play out. Yang has laid out economic solutions that seem to cover all the bases in terms of countering major repercussions, but the only reliable truth in history is that reality can be unpredictable. Whether you believe UBI to be a feasible solution or futile idealism, fill out your ballot and make that opinion count.