THE IDEA OF UNIVERSAL BASIC INCOME

In the previous article, we mentioned that Universal Basic Income has been proposed as one of the solutions to the paradox of welfare. Here, we explore what the idea is, its empirical feasibility and the possible hurdles in its implementation. Imagine that one fine morning, you get up and hear the news that the government would now transfer a certain amount of money, every month, in every citizen’s bank account, irrespective of one’s existing employment status, without it getting taxed. This is exactly what the Universal Basic Income would mean! By definition, the UBI is a financial support system that gives a certain minimum amount of money to everybody in the economy, which is needed for the fulfilment of one’s basic needs. However, there exists no consensus on what form this minimum basic income would take, or what amount is necessary for minimum subsistence. Nonetheless, this ambitious social policy is being increasingly viewed as an alternative to the existing system of welfare programmes.

The advocates of the UBI assert that this policy would effectively eradicate poverty, unemployment and wealth inequality from society. Moreover, people below poverty line would no longer be trapped in the welfare trap because a basic income can never be cut, and hence, any additional income through a new job will always make one’s financial situation better. In other words, the incentive to work will not cease to exist. Further, the economy would be able to get rid of the huge administrative and bureaucratic costs of running welfare programmes. On the other hand, critics have raised some grave concerns that the implementation of this policy would inevitably lead to. The most important of these being the problem of inflation. The resulting economic stimulus due to the UBI would certainly lead to more consumption and more investment but would also give rise to demand-pull inflation. However, some people refute the argument by saying that the UBI will be a shift of funds rather than an injection of new money into the economy. These funds would come from the eliminated administrative expenditure and by taxing the wealthy population of the economy. In addition to this, since the amount of the basic income is ambiguous, a large UBI can disincentivize people from working, thus, essentially becoming ineffective in tackling the welfare trap. Debates also surface on the issue of how this policy would affect society’s notion of “work”. Work provides meaning to one’s life; so what impact would eliminating the necessity to work have on society? Other problems such as those of capital flight which would occur due to higher taxes on the rich, as well as difficulty to withdraw this policy once implemented, have also been raised.

At present, we veritably lack enough empirical research to reach a conclusion regarding the policy of UBI. Several questions need to be addressed; if UBI is just a shift of funds, how will it result in a net increase in the aggregate demand in the economy? What about the difference in the consumption patterns of the rich and the poor? Is it not necessary to consider the fact that UBI would impact everyone differently, depending on factors like one’s existing income and the cost of living? Therefore, more empirical evidence and research is what can help us to answer the question whether UBI is a mere ‘socialist utopia’ or an actual change-maker.