Andrew Yang's Really Bad Idea
I'm wary (and weary) of political candidates who fail at basic math, and Yang, who's trying for the 2020 Democratic nomination for President, seems to be one of them.
David R. Henderson writes at Hoover about Universal Basic Income -- giving a taxpayer-funded handout to every American adult -- which Andrew Yang is for:
Under his proposal, which he calls the "Freedom Dividend," the U.S. government would pay $1,000 a month to every American adult. There are two major problems with a UBI. First, it would dramatically expand the size of the federal government and, thus, require more than a 70 percent increase in federal taxes. Second, it would dramatically reduce the incentive to work, not for people already on welfare but for millions and possibly tens of millions of people not currently on welfare....A UBI, moreover, would create more of a welfare culture than we have now. Imagine four young men meeting in college and figuring out that when they reach age 21, they can each get $10,000 a year from the federal government forever. There are a lot of places they could go in America and rent a three- or four-bedroom house for $1,500 a month ($18,000 a year), leaving $22,000 a year to spend on food, cable, and various amenities. Would they want to stay out of the labor force forever? Probably most of them would not, but the UBI could easily postpone their becoming responsible adults for five years or more.
Note the irony in the fact that some libertarians defend a UBI. They propose a large expansion of government that the majority of Americans think is too expensive and too unfair. We can argue about whether to tax people to help those who are poor through no fault of their own. I have in mind children in poor families and disabled people, to name two groups that most Americans would probably favor subsidizing with taxpayer funds. But how can we justify handing $10,000 or $12,000 a year to people who are completely able bodied? Bryan Caplan, in the 2017 debate on a UBI, pointed out that his father, who is not at all libertarian, would have a real problem with a program that transferred funds to such people forever. He then chided his audience of libertarians that they should be at least as libertarian as his non-libertarian father.
A UBI is a very bad idea. What, then, should we do about the bad incentives under the current system?
Don't forget that a good reform, welfare reform, was done in the 1990s. There were two key elements of the welfare reform that Republicans in Congress pushed, and President Clinton signed, in 1996. First, one cannot receive welfare funded by the federal government for more than two years in a row unless one works. Second, there is a five-year lifetime limit on receiving welfare. Thus the word "Temporary" in the name of the program: Temporary Assistance for Needy Families. Those two provisions offset the disincentives caused by the pre-reform welfare state. It's still true that while you are on welfare, you can literally make yourself worse off financially by getting a job that pays a fairly low wage. But if you are about to bump up against the two year in a row limit, or if you want to "bank" a few years of the five for when life gets tougher, you might well take that job. And that's good, not bad.
I like this guy.
Why is it that being sensible seems to immediately eliminate you from the ranks of those running for President?
Also, while we're on money and running out of it, any thoughts on what we should do about Social Security?
via @mungowitz
Remember when you tearfully claimed that you would never need algebra?
This is why you needed algebra.
To show you what happens when you add the same thing to both sides of any equation: NOTHING.
Radwaste at June 17, 2019 1:17 AM
> This is why you needed algebra.
Crid at June 17, 2019 1:51 AM
US taxpayers already subsidize children of impoverished families through a tax credit, which was increased in the tax reform law enacted by Republicans (with some Democrat support), and persons who are disabled and unable to support themselves are eligible for the Social Security Disability Income benefit and Medicaid. Accordingly, if your concern is with these groups, there are programs in place. If you believe that the support offered by them is inadequate, then they can be raised without creating massive deficits or new bureaucracies. So, anyone arguing that these groups need help, as a rationale for a guaranteed basic income program not only is mathematically challenged, they are ignorant of the facts.
Wfjag at June 17, 2019 3:55 AM
"There are a lot of places they could go in America and rent a three- or four-bedroom house for $1,500 a month ..."
Hey big spender. I know lots of places you can rent a house for $500/mo.
On Social Security there is only one way to stabilize the program. Make it a defined contribution program instead of a defined benefit. You can continue to tinker around the edges by raising taxes or eligibility ages or even removing the cap on taxed income. But all you are doing is tinkering around the edges. In a decade or less you will be back tinkering again. Which has been the history of Social Security. This is hardly the first time issues have come up.
Ben at June 17, 2019 5:59 AM
The government could stop raiding it and leaving T-Bill IOUs in place of the real money they take from it. Investing in a managed S&P 500 index fund would have had them earning at least an 18% return and the system more than solvent.
But no, Congress "invested" people's retirement funds in T-bills - essentially an act of embezzlement wherein the government took the money and left an IOU in its place.
That will never work. There are too many people who won't or can't work paying into it who don't understand why they should get lesser benefits. Too many people who don't have an IRA or a 401K or who didn't work for a defined benefit pension provider. And these folks vote.
On another note: I was at my local camera club meeting recently and wondering that all the regular members are 50- to 60-somethings with no job. Turns out, they're mostly retired teachers, military, and civil servants who retired at 40-something and never went back to work. Their defined benefit pensions provide them enough to live on and even travel. Hmmm. I shoulda got a government job.
Conan the Grammarian at June 17, 2019 7:30 AM
Ya I'm not buying it. The government always has plenty of money for Israel. Not just the foreign aid but fighting Israel's war in the Middle East. Right now Israel want's the U.S. to fight a war for Iran and the same people who complain about funding UBI usually don't have anything to say about how war is too expensive.
The world is entering a new economic mode, thanks to AI, where much less labor is needed and more stuff is produced,. We need a new system to distribute all of this stuff. Our current economic system will mean a few superrich people and billions of impoverished masses and I don't want to live in that world. So we need to readjust into a new mode of distribution.
Jewish Cat at June 17, 2019 8:10 AM
At some point, a universal basic income might make sense - like when the machines are doing all the scut labor - picking crops, sweeping floors, etc. - and a good deal of the office-type labor as well.
Even then, however, the UBI would have to be only a subsistence level income - mostly to encourage people to find other ways to contribute to society - i.e., through the arts, custom hand-made products, etc. A limited number of steady corporate jobs would be available in overseeing the machines and supervising the overseers; at least until the machines could be trusted to do those jobs, too.
We are not there yet; today, a UBI is just another socialist wet dream, long on promise and short on reality.
Conan the Grammarian at June 17, 2019 11:39 AM
"The world is entering a new economic mode, thanks to AI, where much less labor is needed and more stuff is produced."
I'm not buying that, at least not yet. I see far too many skilled and semi-skilled labor jobs going wanting, especially in the construction trades, but also in manufacturing. What has declined, and will probably continue to decline, are highly repetitive unskilled-labor jobs -- the easiest jobs to automate. What happens to that group of workers? To be honest, I'm not sure. At the moment I can't conceive of what future labor category would provide jobs for them. However, in the early stages of the industrial revolution, when farm jobs were disappearing, nobody could conceive of what would provide jobs for farm laborers. Industrial manufacturing did that in spades. So although the situation bears watching, it's not time to panic yet. It is important to start impressing on teenagers and young adults that they will probably not find employment as unskilled laborers.
Cousin Dave at June 17, 2019 12:07 PM
"Even then, however, the UBI would have to be only a subsistence level income - mostly to encourage people to find other ways to contribute to society - i.e., through the arts, custom hand-made products, etc."
Somehow that just sounds dreary to me. It reminds me of a future from a Joe Haldeman book where 90% of the population consists of "artists" who live in enormous, high-density apartment complexes and sit around and smoke pot all day. I think the book was The Forever War, but I don't remember for sure right now.
Cousin Dave at June 17, 2019 12:15 PM
And don't forget that every government program needs a bloated staff of bureaucrats which will waste anywhere from 30 to 50% of the tax money seized to administer it. That means that for every $1000, the gov't gives each person, it must seize $1300 to $1500. Totally unsustainable as well as insane.
Jay at June 17, 2019 2:25 PM
"What happens to that group of workers? To be honest, I'm not sure."
There will always be a percentage of the population which is flatly, definitely, completely {insert absolute modifier here} unemployable.
Though those ranks may be rising due to the removal of natural selection as a thinning agent.
They will sit, entertaining themselves as it occurs to them, and voting for more entertainment.
Radwaste at June 17, 2019 3:28 PM
Here's my answer to Social Security: it's a Ponzi scheme, and so always has been mathematically doomed. So the best we can hope for is to end it with some kind of "soft landing." I would start by means-testing benefits, and by enacting a phaseout schedule. Then if funds ran short, I would print the money and accept the resulting inflation.
I'd also consider requiring contributions to private retirement plans, with the individual given as much choice as possible.
And finally, I'd strip civil servants of their taxpayer-funded sweetheart pension deals and put them on the same Social Security benefits as everyone else.
The blame belongs to FDR and those members of his Congress who voted for it. But as with slavery, it's no longer possible to punish those individuals, and it would be wrong as well as pointless to try.
jdgalt at June 17, 2019 5:21 PM
"The government could stop raiding it and leaving T-Bill IOUs in place of the real money they take from it. Investing in a managed S&P 500 index fund would have had them earning at least an 18% return and the system more than solvent."
You just nationalized the US economy. Payroll taxes (which pay for SS as well as Medicare and Medicade) take in 1.2 trillion a year. SPY an S&P 500 index fund has assets of 249 billion. You just bought the entire index fund and then some. The NYSE and NASDAQ combined are only 32 trillion. It wouldn't take that long to buy a controlling interest in everything.
Even if you avoid the nationalizing the US economy problem it still wouldn't keep SS solvent. Look up the history of the program. When there was lots of extra money not only did it get spent on T-bills but benefits were raised and the pool of beneficiaries was expanded. It's a political program run by politicians. It's used to buy votes or fear monger on the other party.
This is inherently unstable Conan.
"The government always has plenty of money for Israel."
Look at the size of the numbers between Israel and SS. You are off by quite a few zeros Jewish Cat.
Ben at June 17, 2019 6:29 PM
"Look at the size of the numbers between Israel and SS. You are off by quite a few zeros Jewish Cat."
Ben
Why don't you factor in the money lost in Iraq and Afghanistan as well since those were wars for Israel.
Jewish Cat at June 17, 2019 7:30 PM
I've always wondered if Jewish Cat is in fact Jewish, just as I've wondered is Radwaste is actually radioactive, and whether or not Conan is in fact a Grammarian, and whether or not Cousin Dave is truly my cousin.
But mostly I wonder if Jewish Cat is Jewish.
Crid at June 17, 2019 8:46 PM
A. No they weren't Jewish Cat
B. Even if you add them in you are still off by quite a few zeros.
Run the actual numbers. They aren't hidden or secret. Wikipedia has a page with them. Plenty of other places too.
Ben at June 18, 2019 5:12 AM
A. No they weren't Jewish Cat
B. Even if you add them in you are still off by quite a few zeros.
Run the actual numbers. They aren't hidden or secret. Wikipedia has a page with them. Plenty of other places too.
Ben at June 18, 2019 5:17 AM
“And finally, I'd strip civil servants of their taxpayer-funded sweetheart pension deals and put them on the same Social Security benefits as everyone else.”
Already been done. Regular federal pensions are not nearly as generous as most state pensions. Roughly 33 percent of base pay after thirty years service. And federal employees do pay in to social security.
This happened during the Reagan administration so you are a bit behind the times.
Isab at June 18, 2019 7:26 AM
"whether or not Cousin Dave is truly my cousin."
Probably not. But I do, from time to time, detect a few similarities.
Cousin Dave at June 18, 2019 10:50 AM
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