Basic Income: Here's Why It Could Be Even Worse for the Poor Lombardi Letter 2017-01-06 15:19:02 Basic Incomewelfare stateFinlandY-combinatorFinland basic incomeunemployedprivate sector basic incomeminimum wageunemployed Finland gives unemployed Finns a guaranteed basic income to reduce the disparity between rich and the poor. Is this an economically feasible solution? International Markets,U.S. Economy

Basic Income: Here’s Why It Could Be Even Worse for the Poor

Finland Is Testing It, But Basic Income Could Break the Modern Welfare State 

The country of Finland will give 2,000 of its citizens a basic income—amounting to €560.00/$587.00—for nothing. The rock band Dire Straits used to sing about “Money for Nothing” in 1985, but even in their interpretation, you would have to know how to strum a tune on a guitar before the money would come. Is basic income such a nutty idea as to cause economic collapse?

Not in Finland, which is one of the first to apply the “concept” of basic income. A lottery will determine the 2,000 unemployed Finns who will launch the basic income experiment. The Finnish experiment officially tests this guaranteed minimum income. It’s at a small enough level to avoid any risk of economic collapse.

Should any of the 2,000 income receivers find work, they will continue to receive the income. The experiment’s designers believe that this will encourage basic income recipients to find work. Other countries are considering the move, including Switzerland and Germany.

Interestingly, the basic income idea is not the brainchild of a left-wing or socialist government. The center-right Prime Minister of Finland, Juha Sipilä, has supported basic income. The Finnish project started officially on January 1, 2017, but the government toyed with the idea for months. Initially, the amount of income to be paid monthly to the unemployed individuals was estimated at over $850.00.

What’s the Hidden Cost of Basic Income?

The Finns consider this preferable than having the unemployed rely too much on the generosity of the many benefits that Finland grants. Now, Finland’s unemployment rate stands at eight percent (about 213,000 unemployed), but average income per person in the private sector is around €3,500 per month.

Thus, in the Finnish case, the potential to earn $500.00+ in addition to an actual salary might work as an incentive to find a job. But Finland, like other Scandinavian countries, is unique. The basic income idea has gained momentum across the globe. (Source: “Finland giving jobless workers ‘free’ money,” CBS Money, January 2, 2017.)

Growing automation has been used as an excuse to support basic income projects. Today’s society is faced with a problem that was thought to have been resolved decades ago. Like the industrial revolution, today’s society sees an enormous disparity between the rich and the poor.

It’s a fact that the wealth gap borders on the point of no return. Indeed, the 62 richest people in the world have as much wealth as the poorest half of the earth’s inhabitants. To counter the growing disparity, some have suggested basic income to reduce the gap between the rich and the most deprived.

Basically, at first sight,this is a utopian system of providing a fixed sum to each adult citizen of a population, regardless of sex, financial status, or social status. Several versions of this system are being considered. Regardless of the version selected, the basic income concept is that any male or female adult will receive an amount that will allow them to stand above the poverty line without any conditions.

However, the basic income seems worrisome for some people; by giving everyone a money allowance, we could see lower productivity. Several country leaders are studying the effects of such a system on the quality of life of their citizens. Herein lies the question: would it be morally acceptable to establish a basic income for all? It seems harmless as an experiment, but on a large scale, it’s a recipe for economic collapse.

At a more practical level, would it be economically feasible? Basic income might appeal to those hungry for simple solutions to complex problems, a trend on the rise these days. Basic income is not minimum wage. The latter has served as the cornerstone of welfare approaches in Western states for decades. Only those below a certain threshold of poverty and, above all, who are unemployed and willing to return to work can get it.

There Are Some Interesting Basic Income Projects…in the Private Sector

But the main problem, apart from the additional government interventionism it would prompt, is this: to finance a basic income, beyond the scale of an experiment, as in the Finnish case, governments would have to dismantle the welfare state.

Incidentally, that might be why basic income has found supporters on the left, but also on the populist right. The latter would use basic income as a tool to decrease bureaucracy of the welfare system and the intrusion of the state in individual choices.

Rather than a government experiment, Y-Combinator, a startup accelerator, has decided to test the idea of basic income. The experiment is underway, with selected citizens—employed and unemployed, rich and poor—receiving $2,000 each month. (Source: “The inside story of one man’s mission to give Americans unconditional free money,” Business Insider, June 26, 2016.)

Y-Combinator hopes to explore alternatives to the existing safety net. Automation is eliminating jobs. The lords of Silicon Valley know that this will affect the labor market. As artificial intelligence becomes more sophisticated, Silicon Valley wants to find ways to mitigate the social consequences of these phenomena to avoid grinding the system to a halt.

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