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Handing out Free Money; Does it Work?

Here you go: 1000 dollars. A gift from me. What would you do with this? Buy a new laptop? Go on holiday? Pay off some of your debt? Or simply put it into your savings account?

Serf Doesborgh will tell us today how "free" money can effect us all, and what lies at the heart of the Universal Basic Income.

It’s fun to think about, right? What would you do with that money? Now imagine that I would give you this money every single month.

You would probably question my motives and also be very sceptical of how I am making all this excess money. You would be right to do so. I’ll admit, I do not have that amount of money (Probably spending too much on white Russian cocktails or something).

So, let’s just say that you get this money from the government. Why? Because we can. Because this has been done, is being done, and might be done in the near future again. It is the idea of a basic income.

Most of you have probably heard about this already. In past decades it has been a topic of discussion for fighting poverty, improving welfare programs, and most recently due to the discussion around the automation of labour, a.k.a. robots taking your job.

Before you brush this idea off as a utopian fantasy, let me remind you that the idea of a basic income has been promoted by the right (Milton Friedman), the left (Martin Luther King), was almost implemented by president Nixon in 1969, and is now again being promoted by popular democratic candidate and entrepreneur Andrew Yang in 2019.

There are many different ways a basic income can be implemented, depending on people’s worldview, resulting in vastly different outcomes. This, to me, makes the discussion about a basic income much more interesting (and unfortunately a lot more complicated). The discussion around a basic income is not about “Yes” or “No”, “Good” or “Bad”, it is about “How?”

The basics of a basic income

The most extensive wording of the idea would be a “universal guaranteed basic income”. Described in this way, it is:

  • Basic: meaning that it should be enough to pay for the cost of living;

  • Guaranteed (or unconditional): meaning that you get it no matter what: no conditions, duties, rules and regulations are attached;

  • Universal: everybody gets it from poor to rich, young or old, employed and unemployed.

Other differentiations might be, it being:

  • paid per household or individual;

  • deductive or additive with your income;

  • received before or after tax.

Looking at all these aspects it immediately becomes clear that many different variations of a basic income are possible. But let’s first look at two real-world experiments:

Dauphin - Canada (Negative income tax).

This was a village where everybody who fell under the poverty line got it topped up with additional money. This meant for example that a family household that was earning around $1.600 a month would get a $400 top-up per month. Some of the results of this experiment were as follows: married women returned to work less quickly after childbirth, children stayed in school longer, and there was an 8,5% drop in hospitalisation rates. Moreover, there was a decrease in family violence, and a reduction in mental health problems and stress. Overall, people did not stop working.

Madya Pradesh - India (Universal basic income).

This is an area where individuals in 8 villages received an unconditional cash transfer. 300 rupees for adults ($24 which was considered enough to cover their basic needs.) and 150 rupees for children. Some of the results of this experiment were: savings increased, nutrition improved, school attendance and performance improved, economic activity, work and production increased, and people were three times more likely to start a new business.

Both of these experiments show promising results, yet are not a panacea. Experiments often cover a small area and have a limited timeframe. This is why they are good for raising awareness, yet offer limited insight for generalization.

Implemented differently, a universal basic income might, for example, become very costly, while a targeted income might cause social friction. A negative income tax might remove expensive bureaucratic programs, yet could eliminate essential government programs. The variations of a basic income make the discussion complicated, but in this variation also resides its strength.

Taking the current welfare program and gradually applying carefully considered aspects of a basic income can improve the current system. A basic income then eventually becomes just another intermediary step transitioning towards a better socio-economic system for all.

The push for a basic income, however, requires a strong and bold story that pushes this idea forward. For building this story we can look at the bigger stories that already exist:

The story of the Left: Money as a right

A basic income is not a privilege; it’s a human right. With all the wealth created over the past few years, we no longer need to live in poverty, because poverty is not a lack of character; it’s a lack of cash. As stated by Martin Luther King: “I’m now convinced that the simplest approach will prove to be the most effective – the solution to poverty is to abolish it directly by a now widely discussed measure: the guaranteed income.” By taxing the rich (and CO2 output), it would give more power to the working class, making them less susceptible to exploitation by the business owners. Capitalism is now creating so-called “bullshit jobs” that do not add any value to society, yet are grossly overpaid. By providing a universal basic income people can switch jobs much more easily, meaning that the jobs that are essential to society, but people might not want to do, need to be incentivised by increasing the wage. Furthermore, it would bridge the gender divide by providing money to groups who are doing all kind of unrecognised and unpaid work. The result is a re-evaluation of the meaning of work.

The story of the Right: Money for the free market

A basic income provides the freedom to participate in the market. There is so much that people want to do, but simply cannot because they cannot meet their basic needs. A basic income allows people to take more risks, start new businesses and spend back into the system. Eradicating poverty should therefore also be seen as an investment since poverty is hugely expensive. With it, we can remove the bureaucratic and inefficient welfare programs and give the individual the freedom to participate in the free market. As stated by Milton Freedman: “We should replace the ragbag of specific welfare programs with a single comprehensive program of income supplements in cash — a negative income tax.”. Alaska, a country that became rich due to its oil, provides not the government but the people with what they call a “petroleum dividend.” A basic income would be a crown upon capitalism, celebrating the efficiency it has produced.

The Tech-story: Money to save you from robots

Robots are taking our jobs. Recent technological advances in digitalization, artificial intelligence, and robotics have led to the automation of labour for especially routine type middle income jobs, like for example manufacturing workers. The advances in these fields and digitalization of society will continue, threatening even more jobs in the future: truckdrivers, retail workers, call centres, fast-food workers, etc. This is why Andrew Yang proposes a basic income for every American adult. It would be a “technology and data dividend,” by not only taxing the big tech companies but also distributing the earnings from our data by getting a slice of every Facebook ad, Google search, and Amazon sale. As Elon Musk stated: “I think we’ll end up doing universal basic income, it’s going to be necessary.” Yang: “I have done the math. It’s not right, it’s not left, it’s forward.”

What is your story?

These stories are oversimplified stereotypes but, in the end, it doesn’t matter since all these ideas combined contribute to a more nuanced and well-thought-out story. Eventually, we need one story that is being pushed forward. What that story is going to look like is up to us. So, let’s get back to fantasising about what to do with that $1.000 a month…


Behavioural Science

Personal Finance



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