Finland just concluded a two-year experiment with universal basic income, an idea promoted by prominent figures on the right and left in U.S. politics as one answer to rising automation and the unequal distribution of income. The outcome predictably was a disappointment.
UBI advocates have been quick to say the experiment was not a proper test of the idea, but the findings should not be surprising. They say more about the way social welfare systems can trap people into poverty than they do about the value of putting more money in their pockets.
In the experiment, the Finnish government gave a no-conditions monthly payment of $634 to 2,000 unemployed people and compared the effects with a control group consisting of other unemployed people on welfare. One hope was that the extra money would encourage the recipients to look harder for work.
The finding was that recipients of the payments “were no better or worse than the control groups at finding employment in the open labor market,” said Ohto Kaninen of the Finnish Labor Institute for Economic Research.
According to The Wall Street Journal, the Finnish researchers studying the results of the experiment found that providing unemployed people with a limited minimum income did not help them break free of the poverty trap created by Finland’s social welfare system, where finding work can result in reduced income as welfare benefits are withdrawn. Nor did it overcome the discouraging effect of the large amount of time and persistence required to engage with the welfare bureaucracy when seeking a job.
But the recipients did report feeling less stress about their conditions and more hopeful of getting a job, a clear indication that the small boost in disposable income had a positive psychological benefit.
The Finnish government wanted to test the theory that UBI could increase the supply of labor and the employment level. On those counts it was a failure. Other UBI proponents have expressed different objectives for the idea and similar income redistribution schemes.
Some, including a group that labels themselves “luxury communists,” say UBI is the answer to the lack of jobs they think the rise of robots will create, with the profits of production being redistributed by government to people at a level enabling everyone to enjoy luxury goods.
A growing number of American politicians who call themselves socialists believe the government should increase the level of public subsidies at the expense of the nation’s highest incomes. And Massachusetts Sen. Elizabeth Warren, one of the Democrats running for president, argues that fortunes of $50 million or more should be hit with an annual wealth tax, analogous to a property tax, to raise funds for redistribution.
There probably is no practical way to test every assumption about UBI and the effects of income redistribution. But it can help to look at what has happened for the comfortably rich here and for everyone in countries committed to “socialism.” For the postulated effects of guaranteed basic income, such as increasing the propensity for employment or the creative use of free time, it is likely that a lot of questions could be answered by looking at the effects of inherited income on the many tens of thousands of Americans who enjoy it, a number that has been rising in recent decades. The same questions could be asked of lottery winners.
Socialism substitutes central decision-making about the ownership of property and distribution of income for private decision-making and the market. The current American system is a cautious mix of socialist ideas, such as the nation’s safety-net social programs, and market forces shaped by government rules. Venezuela represents the contemporary cautionary tale about the bad outcomes that follow an overly centralized socialist state. The former Soviet Union presents another.
For questions like these, it does not take a controlled experiment, or a weatherman, to know which way the wind blows. Just look around.