Universal Basic Income and the Ethics in Economics
Ilaria Popovic explores UBI and the different arguments surrounding it
CONFLICTING IDEAS
In 2019, Dartmouth College (USA) hosted a debate on the matter of Universal Basic Income (UBI). A radical idea, I’d thought, until about five minutes in when Karl Widerquist, a political and economic theorist, made the statement in support of the UBI “because [he thinks] it is wrong to come between people and the resources they need to survive”.
Only a year later, the world was thrust into a global pandemic that led to a debilitating standstill of economic activity, much of which affected employment and the ability of individuals and businesses to stay financially afloat.
Governments across the world implemented crisis measures in the form of stimulus packages and welfare payments.
Australia had one of the more comprehensive welfare responses, boosting JobSeeker payments for those looking for work, introducing JobKeeper payments to help businesses retain employees, supporting banks in the decision to allow mortgage relief, and legislating additional renter protections aimed at keeping people off the street.
It was a crisis, and the response was modelled to mirror the severity of the situation. But the decision to artificially uphold the economic wellbeing of individuals and businesses across the country begs the question of who gets to decide if, and when, we should be provided with adequate means to support ourselves.
Is it purely a question of economics or are there ethical concerns in addressing social inequality and policy responses to the lottery of life?
The idea of a universal basic income generates interest from economists and social scientists alike, but stances tend to be polarised. Support of the payment typically induces backlash due to scalability issues, the costs associated with the provision of basic income, and potential ramifications on the labour market.
As a society, Australians already support the provision of some form of social safety net. Evidence of this is the amount of money the government chooses to set aside for this safety net. In the year 2020–21, Australia’s social security and welfare expenditure reached $227.5 billion. The substantial increase from the $191.8 billion spent in 2019–20 is attributed to the increase in social security claimants resulting from the Covid-19 crisis.
Australia’s current social security system is income-tested. At the time of writing, the maximum JobSeeker payment offered by Centrelink is $668.40 on a fortnightly basis. With Australia’s poverty line averaging $489 per week (ABS), the inadequacy of the payment becomes glaringly obvious.
When the temporary, $550 government Covid supplement was reduced to $250 in 2021, it produced an outcry. Recipients of the supplement pleaded it be retained on a long term basis, arguing they experienced a life changing increase in quality of life and ability to attain employable skills with their income levels above the poverty line.
The money was not hoarded but rather spent on improving wellbeing through engagement in productive activities such as study, therapy, and driving lessons. For many, it was the first time they were able to stop skipping meals.
The increase in subjective well being comes as no surprise. There is a clear correlation between income and other measures of wellbeing established in the economic literature. The increase in income of low SES groups is also associated with increased spending due to consumption smoothing preferences.
Costs may be high, but so are the individual and collective benefits. Education, mental health, employment, and overall higher income are linked to lower crime rates, higher life expectancy, and an overall healthier society.
It seems to be very much the case that you’ve got to spend money to make money, and the positive externalities generated by poverty alleviation in the long run benefit not only those receiving social security payments, but society.
Nevertheless, it appears to be a pipe dream. Why? We’ve already established that it’s expensive, but so are numerous protectionist policies aimed at retaining producer surplus over consumer surplus in deadweight industries making enough noise to warrant government intervention.
If it were a matter of ideological opposition to government impositions on the free market, surely the argument would extend to tariffs, quotas, and subsidies favouring dying industries as opposed to those of the future, such as is the case in the energy sector. Or is it a matter of labour economics?
We are taught that, in order for the current labour market system to remain afloat, a certain level of unemployment must exist. This is known as the Non-Accelerating Inflation Rate of Unemployment (NAIRU) which determines the lowest level of unemployment in relation to wage and inflation control. The idea is that, in the absence of unemployment, an increase in an employee’s reservation option leads to a push in wages corresponding to the increase in employee bargaining power.
There is also the concern that a UBI will decrease incentive to work as it would technically be possible to live without supplementing the payment.
In challenging either end of the argument, it is necessary to dive into the bubbling intersection of economics and ethics.
One question that pops to mind is whether the threat of unemployment should be equated to the threat of homelessness and inability to finance a basic existence for worker’s reservation options to be low enough that motivation for work is determined to be sufficient? And, who is to make that determination?
When determining individual spending preferences, we assess our indifference curves in accordance to our personal preferences.
Democratically elected governments, representing the preferences and values of the society they govern, act in a similar way. When evaluating the combinations and trade-offs at their disposal, policy makers make choices according to the intersection of party preferences and relevant cost-benefit analysis.
What complicates policy decisions compared to individual decisions is the infinitely complex web of variables surrounding the former. Governments need to keep in mind the possible trickle down effects of the policies they put in place such as any effects on inflation and unemployment. So where does Australia stand on the scales of neoliberalism?
If governments really are exercising values and preferences, it could suggest that, as a society, we believe people should not be entitled to basic income simply for existing.
Given our welfare system, universal healthcare, and education, as well as support for basic income in recent YouGov (Green Institute) and Anglicare surveys, it is possible that our decision to implement a UBI in the current system is stifled by the trade-offs we are willing to make.
For the 935,280 people receiving unemployment benefits (ABS, March 2022) this means they are relegated to the economic fringe of society.
Although the recipients of unemployment benefits account for less than 4% of the population, they are mostly at risk groups such as young people, single parents, Indigenous Australians, and disabled individuals who do not satisfy the criteria for the Disability Support Pension.
History has taught us that failing to stay attuned to the dynamism of society will hinder our progress. Prior to the industrial revolution, Thomas Malthus theorised it was impossible to escape the trap of a subsistence level economy. Seemingly his ideas were correct, until the world was thrust into the industrial revolution, and everything changed.
Looking at the UBI, it may seem far removed from the merit based values we foster throughout our education system and labour market. But with all the changes we have been faced with in recent years, who knows.
References:
https://www.abc.net.au/news/2021-12-09/basic-income-push-in-australia-after-covid-welfare/100681912
https://www.abc.net.au/news/2022-04-24/ignore-people-pushing-the-dole-bludger-narrative/101003752
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