Universal basic income: Guaranteed money

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  Quantumrun Foresight
• November 22, 2024

Insight summary

Universal Basic Income (UBI) offers citizens a fixed monthly payment to reduce poverty and increase financial security. Proponents argue that UBI can lead to more entrepreneurship and flexible career paths, while critics worry it could increase tax burdens and discourage people from taking low-wage jobs. Governments may face funding challenges, and new policies could emerge as UBI programs gain traction globally.

Universal basic income context

UBI is a concept where the government regularly provides citizens with a fixed amount of money without any attached conditions. The idea has been promoted as a solution to poverty and economic insecurity, allowing individuals to spend the funds as they see fit. Notably, economist Milton Friedman proposed similar ideas through his negative income tax concept aimed at supporting low-income citizens. Various US states, including Iowa and Minnesota, have recently tested UBI models using COVID-19 relief funds, offering up to USD $500 per month to select participants. These trials have sparked debate over whether UBI can reduce poverty or merely serve as a disincentive to work.

As UBI programs evolve, proponents argue they offer a direct way to address economic disparities and reduce reliance on conditional welfare systems. For instance, in Minnesota, a legislative proposal seeks to fund UBI programs through state grants, with plans to distribute monthly payments to up to 10,000 recipients over 18 months. Meanwhile, some scholars, like Thomas Paine in the 18th century, argued for similar compensation for land deprivation, a foundational idea that continues to influence modern UBI discussions. 

However, these programs raise concerns about long-term sustainability, especially as many pilot programs have relied on one-time federal funds, which will eventually run out. Additionally, critics argue that UBI may increase state and local tax burdens and could discourage workforce participation. Internationally, UBI is also gaining momentum. GiveDirectly's initiative in Kenya provides residents of a rural village with a small daily income for 12 years, making it one of the longest UBI experiments ever conducted. Such trials show how UBI might work on a larger scale, though results remain mixed. 

Disruptive impact

Individuals might use the financial security provided by UBI to pursue education or career changes, without the pressure of immediately securing a high-paying job. However, UBI could also reduce the incentive to work, especially in low-paying or less desirable jobs. Additionally, people may start relying on this income to meet basic needs, leading to lifestyle adjustments based on the predictability of these payments. Over time, the way individuals plan for retirement or healthcare costs may shift, as UBI could supplement other savings or benefits.

UBI may also encourage more entrepreneurship, as individuals could feel more comfortable starting their own businesses without fearing complete financial failure. However, companies in low-wage sectors may face challenges in attracting workers if UBI reduces the need for individuals to take low-paying jobs. Meanwhile, consumer behavior may change with a guaranteed income, potentially boosting spending in e-commerce or local services. Companies may need to adapt their business models and offerings to meet the needs of a population with more financial flexibility.

Meanwhile, governments may need to adjust their policies and spending priorities to accommodate UBI programs. For example, they may need to restructure tax systems to ensure continued funding for UBI, especially if initial funding sources, like federal grants, expire. Additionally, international governments may need to address potential impacts on immigration, as UBI programs could make certain regions more attractive to migrants. Moreover, long-term UBI programs may encourage shifts in public spending, where resources are directed more toward income redistribution than traditional welfare programs. 

Implications of universal basic income

Wider implications of universal basic income may include: 

• UBI shifting demographics as rural areas become more attractive due to lower living costs and guaranteed income support.
• A rise in part-time work and freelancing, as more individuals pursue flexible careers without the pressure of full-time employment.
• Policies that balance UBI funding with existing social programs to prevent overlap and excessive spending.
• UBI encouraging technological adoption in automation, as businesses look for ways to reduce reliance on a shrinking low-wage workforce.
• Labor unions focusing more on work-life balance and job satisfaction, as basic financial needs are partially met through UBI.
• More political debate on wealth redistribution policies, with heightened tensions between supporters of free-market solutions and proponents of expanded social welfare.
• Reduced crime rates, as economic desperation decreases in lower-income communities.
• New business models around digital services and education, targeting individuals who seek to reskill or develop new competencies without financial pressure.
• Governments increasingly partnering with private sectors to co-fund or supplement UBI programs, leading to new forms of public-private collaboration. 

Questions to consider

• How might receiving a guaranteed income change how you approach your career choices or personal goals?
• How could UBI impact the spending habits of people in your community?