By definition, a UBI takes a pool of money and redistributes it equally to everyone in a community, regardless of personal need. However, with the same pool of total funding, one can typically deliver more efficient benefits by targeting people with the greatest need, such as those in dire poverty or those who have been struck by bad luck.
If you imagine being a philanthropist who has access to $8 billion, it seems unlikely that the best way to spend this money would be to give everyone on Earth $1. Yet this scheme is equivalent to a UBI merely framed in the context of private charity rather than government welfare.
It would require an enormous tax hike to provide everyone in a large community (say, the United States) a significant amount of yearly income through a UBI, such as $1k per month. And taxes are not merely income transfers: they have deadweight loss, which lowers total economic output. The intuition here is simple: when a good or service is taxed, that decreases the incentive to produce that good or service. As a consequence of the tax, fewer people will end up receiving the benefits provided by these goods and services.
Given these considerations, even if you think that unconditional income transfers are a good idea, it seems quite unlikely that a UBI would be the best way to redistribute income. A more targeted approach that combines the most efficient forms of taxation (such as land value taxes) and sends this money to the most worthy welfare recipients (such as impoverished children) would likely be far better on utilitarian grounds.
Thank you for your insights Matthew, that all makes a lot of sense and helps me understand.
I wonder if there is an income bracket low enough in the US, where UBI focused just for that group, would have net positive impact. (This study was $29,900 average household income for the participants.) Or, if there is going to be a net negative for UBI in the US just no matter… even before getting detailed about potential counter-factual scenarios.
Funny that UBI seems to do better than more targeted approaches, in low-income countries… but in high-income countries, even for the poorest within those countries, more targeted approaches may be the better option.
By definition, a UBI takes a pool of money and redistributes it equally to everyone in a community, regardless of personal need. However, with the same pool of total funding, one can typically deliver more efficient benefits by targeting people with the greatest need, such as those in dire poverty or those who have been struck by bad luck.
If you imagine being a philanthropist who has access to $8 billion, it seems unlikely that the best way to spend this money would be to give everyone on Earth $1. Yet this scheme is equivalent to a UBI merely framed in the context of private charity rather than government welfare.
It would require an enormous tax hike to provide everyone in a large community (say, the United States) a significant amount of yearly income through a UBI, such as $1k per month. And taxes are not merely income transfers: they have deadweight loss, which lowers total economic output. The intuition here is simple: when a good or service is taxed, that decreases the incentive to produce that good or service. As a consequence of the tax, fewer people will end up receiving the benefits provided by these goods and services.
Given these considerations, even if you think that unconditional income transfers are a good idea, it seems quite unlikely that a UBI would be the best way to redistribute income. A more targeted approach that combines the most efficient forms of taxation (such as land value taxes) and sends this money to the most worthy welfare recipients (such as impoverished children) would likely be far better on utilitarian grounds.
Thank you for your insights Matthew, that all makes a lot of sense and helps me understand.
I wonder if there is an income bracket low enough in the US, where UBI focused just for that group, would have net positive impact. (This study was $29,900 average household income for the participants.) Or, if there is going to be a net negative for UBI in the US just no matter… even before getting detailed about potential counter-factual scenarios.
Funny that UBI seems to do better than more targeted approaches, in low-income countries… but in high-income countries, even for the poorest within those countries, more targeted approaches may be the better option.