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Basic income could mean free cash for every US adult — here's what experts say and real-world tests show

Twenty/20

What do Elon Musk, Martin Luther King Jr., and presidential candidate Andrew Yang all have in common? Support for the idea of basic income, or UBI — a policy that would guarantee everyone a predetermined amount of money every month, no strings attached.

Although a policy that simply gives out money may seem far-fetched, some places have actually tried it out while others are trying it right now.

Here's what you need to know about how basic income policies could function, and what real-world experiments have shown.

Basic income proposals take many different forms

Basic income is not a one-size-fits-all policy proposal. The core concept — giving residents or citizens cash — remains the same, but in practice, a basic income program could take many forms.

Some UBI proposals would replace all existing social programs (Social Security, food stamps, etc.) with a single cash transfer from the government to the citizens. Others would keep those programs in place while paying out money, effectively strengthening the social safety net.

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Geographic and political boundaries vary, too. A single city or state could implement a UBI program, or only include certain members of the population, such as low-income households.

UBI could also include every adult in the country. That's the idea behind "The Freedom Dividend," a basic income proposal by 2020 presidential candidate Andrew Yang to give all American adults over the age of 18 an unconditional $1,000 per month to cover expenses.

Why proponents say the US needs a basic income

Though the concept of a basic income has been around for generations, it's gained real momentum over the past several years. There are several reasons for that, but chief among them are fears related to economic uncertainty surrounding jobs lost to automation and increasing levels of wealth inequality.

The prospect of mass unemployment due to automation led Elon Musk to become a supporter of basic income. And Martin Luther King Jr.'s concern about growing inequality, even way back in the 1960s, caused him to lay out an argument for a guaranteed middle-class income for all Americans.

On top of strengthening the safety net, proponents tout the economic benefits of a UBI. If the government gives people money every month to help them with essential expenses like rent, groceries, and transportation, residents would then, in turn, have more disposable income to spend on everything else — thus creating demand and helping the economy.

By Yang's team's estimates, his proposed basic income plan would "permanently grow the economy by 12.56 to 13.10% — or about $2.5 trillion by 2025 — and it would increase the labor force by 4.5 to 4.7 million people."

The biggest hang up, of course, is that the money has to come from somewhere. A program of that scope and scale would be massively expensive.

Objections to UBI: Cost and unintended consequences

For Yang's proposal, some back-of-the-envelope math shows that paying every American adult, of which there are roughly 250 million, $12,000 per year would cost the government $3 trillion annually, or about three times the current U.S. defense budget.

"Where do you get all of that money?" asks Marco Annunziata, a former chief economist at General Electric who now works as a consultant and writes about economic policy, including basic income.

Annunziata says that, unless a massive tax increase is levied alongside any UBI program, the math doesn't work. Instead, he says the United States should focus on creating new social programs and expanding existing ones to strengthen the safety net. "We should focus more on giving targeted assistance to people, workers who are losing their jobs, people who can't make ends meet," he says.

We should focus more on giving targeted assistance to people, workers who are losing their jobs, people who can't make ends meet.
Marco Annunziata
former chief economist, General Electric

Cost isn't the only concern. Critics say UBI programs could cause runaway inflation (assuming money is introduced into the economy, rather than transferred via taxation) and that it will disincentivize work (why get a job if you're already getting paid?).

But other experts say that arguments, both for and against basic income, are overblown. "There is no reason to expect that people will systematically work less if there is a basic income," says Maximilian Kasy, an associate professor of economics at Harvard University. But, he adds, "there is no reason to expect a significant boost in economic growth" from UBI, either.

How real-world basic income experiments have fared

There are and have been dozens of proposals and experiments in communities across the world that are probing the real-world viability of a basic income. Perhaps the best example of an existing basic income program is the Alaska Permanent Fund Dividend, under which Alaskan residents receive an annual basic income funded by oil and gas production in the state. Its amount varies based on the number of eligible residents and revenues from the previous several years.

Alaska's program has been around since the 1970s. In 2019, it will give 631,000 Alaskans more than $1,600 each. This serves, in the minds of some experts, as an example of how a larger basic income program could operate. "True UBI programs are larger versions of Alaska," says Kent Smetters, a risk and insurance professor at the University of Pennsylvania's Wharton School.

The Alaskan system model was intended to return some of the wealth generated by the state's natural resources to residents, and it works as designed.

There have been several pilot programs to see how the effects of a basic income would play in the real world, including:

  • Stockton, California: In 2018, Mayor Michael Tubbs implemented the Stockton Economic Empowerment Demonstration (SEED), an 18-month project giving 125 residents $500 per month. The experiment will wrap up in the fall of 2020. The results are limited so far but the program appears to work as intended: Recipients are using the money to buy food and pay utility bills.
  • Ontario, Canada: More than 4,000 residents of Hamilton, Thunder Bay, and Lindsay, Ontario, participated in the Ontario Basic Income Pilot in 2018. Participants were given varying amounts (between $13,000 and $19,000 USD per year) depending on household and employment status. The program was canceled after only 10 months due to high costs, despite promising early results.
  • Helsinki, Finland: In Finland, a UBI experiment in early 2017 gave 2,000 unemployed people 560 Euros per month. The results found that recipients didn't work more or earn more money than those in a control group.

There are other UBI experiments in progress, too, some run by governments and others by private organizations like Y Combinator, which is currently in the first year of a five-year basic income experiment. A spokesman for the group tells Grow that they will not be sharing the results of the program until more data is collected.

As for what we can learn from these programs: They're expensive, as predicted, but many seem either promising or successful, like Alaska's. That program works in part because it's funded by oil revenues, though, and that may be the key. Experts say a nationwide UBI program would probably need to be funded by a massive tax increase, something that the public is unlikely to support unless it's targeted only at the wealthy.

There is no reason to expect that people will systematically work less if there is a basic income.
Maximilian Kasy
Associate professor of economics, Harvard University

Key takeaways, and what all this could mean for you

Americans outside Alaska have seen similar programs and projects. For example, during the Great Recession, the government sent out stimulus checks as a part of a larger package of legislation in an effort to spur consumer spending — with mixed results.

The bottom line is there isn't an easy or clear answer yet as to whether or not basic income programs work.

Regardless, the idea has caught on with a significant portion of the public. As many as 43% of Americans support a UBI program, according to a recent Gallup poll, with more support among younger and more highly educated groups. (Though that's down from 2018, when Gallup found 48% supported the idea.) In Canada, 75% of the public supports the idea and, in the U.K., UBI has 77% support.

Even with a lot of public support, it's hard to imagine a bill creating a federal basic income program making it to the president's desk. Congress hasn't been able to pass other, more popular proposals, such as raising the minimum wage.

Individual states and cities, though, could implement their own programs, just as Alaska has done. Other types of legislation, like cannabis legalization, that began on the local level have proven popular and effective enough to be adopted more broadly around the country.

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