Could handouts end the ‘wel­fare trap’?

The Washington Post Sunday - - BOOK WORLD - ECO­NOM­ICS RE­VIEW BY STEVEN PEARLSTEIN

Over the last three decades, tech­nol­ogy and glob­al­iza­tion have com­bined to elim­i­nate mil­lions of jobs in ad­vanced in­dus­trial coun­tries, shift­ing an in­creas­ing share of na­tional wealth to those at the top while in­comes at the bot­tom stag­nate or de­cline. And if you be­lieve the talk in tech­nol­ogy cir­cles, ro­bots and in­tel­li­gent soft­ware are quickly be­com­ing so so­phis­ti­cated and so ubiq­ui­tous that they are about to take over the work done by mil­lions more. How will we deal with a world where leisure is abun­dant and there aren’t enough good-pay­ing jobs to go around?

To meet this po­lit­i­cal and eco­nomic metachal­lenge, the hot new idea is the uni­ver­sal ba­sic in­come — us­ing some of the wealth gen­er­ated by all this new tech­nol­ogy to guar­an­tee ev­ery­one a base­line in­come, whether they are work­ing or not.

It’s not as crazy as it may sound. In re­cent years, a guar­an­teed in­come has been pro­posed on the right by Charles Mur­ray at the Amer­i­can En­ter­prise In­sti­tute and Michael Tan­ner of the Cato In­sti­tute, and on the left by for­mer la­bor sec­re­tary Robert Re­ich and la­bor leader Andrew Stern. Switzer­land gave it se­ri­ous con­sid­er­a­tion last year be­fore three-quar­ters of its vot­ers turned down the idea in a na­tion­wide ref­er­en­dum. And be­gin­ning this year, well­funded, large-scale, long-term ex­per­i­ments in Fin­land and Kenya will ex­am­ine whether pro­vid­ing a guar­an­teed in­come is an ef­fec­tive way to re­lieve poverty and cush­ion the ef­fects of eco­nomic dis­lo­ca­tion with­out en­cour­ag­ing idle­ness and sloth.

To cap­i­tal­ize on this sud­den surge of in­ter­est, Phillippe Van Par­ijs and Yan­nick Van­der­borght have reprised and up­dated their decade-old study in “Ba­sic In­come: A Rad­i­cal Pro­posal for a Free So­ci­ety and a Sane Econ­omy.” The two Bel­gian aca­demics are charter mem­bers of a global net­work of ac­tivists and thinkers who for decades have been try­ing to build the in­tel­lec­tual and po­lit­i­cal foun­da­tion for the idea.

Guar­an­teed-in­come schemes can take var­i­ous forms, but in its sim­plest the gov­ern­ment sends ev­ery ci­ti­zen an an­nual check in an amount suf­fi­cient to keep the wolf from the door when mis­for­tune strikes but not large enough to sat­isfy any­one’s idea of a good life. Pay­ing for it would re­quire rais­ing taxes in some fash­ion that would have the ef­fect of claw­ing some or all of the money back from most house­holds while hit­ting up the wealthy for even more.

For Van Par­ijs and Van­der­borght, the case for a guar­an­teed in­come be­gins and ends with free­dom. There is the free­dom from want, de­spair and psy­cho­log­i­cal in­se­cu­rity that would come from hav­ing in­come suf­fi­cient to pro­vide the ne­ces­si­ties of life. But there is also the free­dom to choose not to work for a time in or­der to take care of fam­ily mem­bers, pur­sue a pas­sion, ac­quire ed­u­ca­tion or con­trib­ute to a worth­while com­mu­nity project. There is the free­dom to start a new busi­ness with an un­cer­tain fu­ture, the free­dom to say yes to a job that pays lit­tle but yields joy and sat­is­fac­tion — and the free­dom to say no to a job that pays too lit­tle or is de­mean­ing and un­pleas­ant. Why, they ask, should such free­doms be re­served only for the wealthy?

“Its point is not just to soothe mis­ery but to lib­er­ate us all,” they write. “It is not sim­ply a way of mak­ing life on earth tol­er­a­ble for the des­ti­tute but a key in­gre­di­ent of a trans­formed so­ci­ety and a world we can look for­ward to.”

Van Par­ijs and Van­der­borght trace the po­lit­i­cal roots of guar­an­teed ba­sic in­come to Eng­land in the late 18th cen­tury, when Prime Min­is­ter Wil­liam Pitt pro­posed to re­place the coun­try’s poor law, which chan­neled pub­lic gen­eros­ity through grue­some work­houses, with cash sup­ple­ments to low-wage work­ers. Pitt’s pro­posal drew the op­po­si­tion of the lead­ing econ­o­mists of the day, Thomas Malthus and David Ri­cardo, who pre­dicted that rather than mak­ing the poor rich, they would wind up mak­ing the rich — and ev­ery­one else — poor by re­duc­ing in­cen­tives to work and in­vest. And so the eco­nomic ar­gu­ment against it has been framed ever since.

Pro­po­nents, how­ever, pre­fer to frame the de­bate in moral terms. In propos­ing a na­tional trust fund that would award ev­ery Amer­i­can 15 pounds upon reach­ing the age of 18, Thomas Paine said, “It is not char­ity but a right, not bounty but jus­tice, that I am plead­ing for.” The Bri­tish philoso­pher John Stu­art Mill ar­gued for “a le­gal guar­an­tee of sub­sis­tence for all the des­ti­tute . . . whether de­serv­ing or not.” Then, as now, schemes that would have al­lowed able-bod­ied men to live off the hard work of oth­ers were as apt to prompt moral out­rage as moral sym­pa­thy.

With the grow­ing af­flu­ence gen­er­ated by the In­dus­trial Revo­lu­tion, how­ever, came the grad­ual rise of the wel­fare state, a safety net wo­ven from myr­iad pro­grams of­fer­ing cash and ser­vices to any­one who was poor, dis­abled or in­vol­un­tar­ily un­em­ployed. En­forc­ing such con­di­tion­al­ity not only re­quired a large and ex­pen­sive bu­reau­cracy, but cre­ated a per­verse in­cen­tive for ben­e­fi­cia­ries to re­main poor and un­em­ployed so as not to lose their ben­e­fits. It was the de­sire to free the poor from this “wel­fare trap” and elim­i­nate the bu­reau­cratic mid­dle­men that re­vived in­ter­est in a uni­ver­sal guar­an­teed in­come in the 1960s and at­tracted sup­port from across the ide­o­log­i­cal spec­trum.

As free-mar­ket cham­pion Friedrich Hayek saw it, guar­an­tee­ing ev­ery­one a sub­sis­tence in­come was the moral pre­con­di­tion for op­pos­ing broader so­cial­ist schemes to equal­ize in­comes. For Mil­ton Fried­man, it was an op­por­tu­nity to elim­i­nate ex­pen­sive lay­ers of gov­ern­ment bu­reau­cracy.

On the left, a guar­an­teed in­come won the sup­port of econ­o­mists James Tobin, Paul Sa­muel­son and the sharp-tongued John Ken­neth Gal­braith, who chided the idle rich about their out­rage at the prospect of be­ing joined by a new class of idle poor. Among Amer­i­can po­lit­i­cal lead­ers, pop­ulist Huey Long was first to em­brace it, fol­lowed later by Martin Luther King Jr. In 1972, Demo­cratic pres­i­den­tial can­di­date Ge­orge McGovern pro­posed send­ing an an­nual check of $1,000 to ev­ery Amer­i­can but changed his mind after it be­came the sub­ject of at­tack ads run by his Repub­li­can op­po­nent, Richard Nixon, who him­self had pre­vi­ously flirted with the idea.

Although their goal is utopian, Van Par­ijs and Van­der­borght aim to in­fuse it with eco­nomic and po­lit­i­cal re­al­ism.

They are strong­est when fram­ing the guar­an­teed in­come as an eco­nomic div­i­dend to which all cit­i­zens are en­ti­tled. In any coun­try, they ar­gue, only a small por­tion of the in­come earned in any year is a re­sult of in­di­vid­ual work ef­fort, in­ge­nu­ity and risk-tak­ing. The rest is ex­plained by the nat­u­ral re­sources with which that coun­try is en­dowed, the phys­i­cal in­fra­struc­ture, the col­lec­tive know-how of fel­low cit­i­zens, the qual­ity of pub­lic and pri­vate in­sti­tu­tions, and the de­gree of trust that greases the wheels of com­merce, pol­i­tics and ev­ery­day life. This “so­cial cap­i­tal,” as the econ­o­mist Her­bert Si­mon once called it, was de­vel­oped by many peo­ple over many gen­er­a­tions and pro­vides a col­lec­tive in­her­i­tance that is now un­equally and un­fairly ap­por­tioned by mar­kets in set­ting wages and salaries.

“What a ba­sic in­come does is en­sure that ev­ery­one re­ceives a fair share of what none of us to­day did any­thing Van­der­borght write.

Giv­ing some a fairer share, of course, means tak­ing a share away from oth­ers, and th­ese Bel­gian aca­demics cer­tainly don’t shy away from the re­dis­tri­bu­tion­ist na­ture of their project. In their ideal setup, ev­ery adult would get the equiv­a­lent of an an­nual un­con­di­tional al­lowance from the gov­ern­ment equal to onequar­ter of the coun­try’s av­er­age per­sonal in­come (in the United States, that would be about $12,000). Ex­actly who would win and lose, and by how much, would be de­pend on the struc­ture of the tax regime used to fi­nance it.

While this give-with-one-hand, take-away­with-the-other qual­ity strikes some as in­ef­fi­cient, it is that struc­ture that al­lows guar­an­teed-in­come plans to avoid the “wel­fare trap” caused by to­day’s “con­di­tional” wel­fare pro­grams. But it also makes them a tough sell po­lit­i­cally. The sums in­volved would be enor­mous. And the rip­ple ef­fects — on wages, la­bor par­tic­i­pa­tion and the fate of other so­cial ben­e­fits — make it dif­fi­cult for many peo­ple to imag­ine how it would all turn out. In­deed, after a la­bored chap­ter as­sess­ing the po­lit­i­cal chal­lenges, even Van Par­ijs and Van­der­borght ac­knowl­edge that it is un­likely any coun­try will adopt a gen­er­ous, un­con­di­tional ba­sic-in­come plan, at least all at once. The best they can hope for are slow, in­cre­men­tal steps in that di­rec­tion.

Although not a tech­ni­cal book, “Ba­sic In­come” is more aca­demic than most read­ers would pre­fer. Amer­i­cans will not fail to no­tice the au­thors’ abid­ing en­mity for “the dic­ta­tor­ship of mar­ket” or the Euro­pean left-wing fil­ter through which they view po­lit­i­cal real­ity. The more philo­soph­i­cal sec­tions are given to hair­split­ting, while those on fi­nanc­ing beg for more specifics.

What Van Par­ijs and Van­der­borght bring to this topic is a deep un­der­stand­ing, an en­dur­ing pas­sion and a dis­arm­ing op­ti­mism. It is no more utopian, they ar­gue, for us to imag­ine the lib­er­a­tion that a guar­an­teed in­come would de­liver than it was for ear­lier gen­er­a­tions to imag­ine the abo­li­tion of slav­ery, uni­ver­sal suf­frage or adop­tion of pro­gres­sive in­come taxes. And while the com­ing de­bate over the guar­an­teed in­come will in­evitably fo­cus on po­lit­i­cal and eco­nomic vi­a­bil­ity, in the end the au­thors be­lieve we will em­brace it, as we em­braced those oth­ers, be­cause it is the right thing to do. for,” Van Par­ijs and Steven Pearlstein is a Wash­ing­ton Post busi­ness and eco­nom­ics colum­nist. He is also the Robin­son pro­fes­sor of pub­lic af­fairs at Ge­orge Ma­son Uni­ver­sity.

MAGALI GIRARDIN/AS­SO­CI­ATED PRESS

A poster in Geneva last year ahead of a Swiss ref­er­en­dum on guar­an­teed in­come.

BA­SIC IN­COME A Rad­i­cal Pro­posal for a Free So­ci­ety and a Sane Econ­omy By Philippe Van Par­ijs and Yan­nick Van­der­borght Har­vard. 384 pp. $29.95

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