The city of Newark, New Jersey, plans to hop on the Universal Basic Income bandwagon rolling across the nation.
Democrat Andrew Yang has made Universal Basic Income (UBI) a major plank on his presidential campaign’s platform, helping to boost the idea’s popularity.
UBI has even attracted some disillusioned Trump supporters who, having to compete with the massive influx of inexpensive labor from the south and the Pacific, have given up on the idea of being able to support a family on a single income here in the United States.
Last week Newark Mayor Ras Baraka announced the creation of a task force and pilot program to test the feasibility of this program. By going through with this program, Newark will be the largest city in America to experiment with the UBI so far. Under a UBI, citizens will receive a stipend regardless of whether they are employed or not.
Baraka claims that one-third of Newark lives in poverty, and this requires the government to take action. Baraka says, “We believe in Universal Basic Income, especially in a time where studies have shown that families that have a crisis of just $400 a month may experience a setback that may be difficult, even impossible to recover from.”
Baraka did not provide more details on the specifics of plan— how it would be funded or when an official decision would be made.
Despite the UBI’s rosy marketing, the results worldwide have been a mixed bag. In 2017, Finland kicked off the UBI campaign by giving 2,000 randomly selected Finns a monthly stipend of roughly $634. However, after two years, the Finnish government decided to pull the plug on the project.
The Finnish government’s decision was reasonable. According to the Organisation for Economic Co-operation and Development (OECD), Finland would have to raise income taxes by 30 percent to fund its UBI program. On top of that, the UBI scheme could increase the Finnish poverty rate by 11.4 percent to 14.1 percent according to the OECD’s research.
Finland wasn’t alone. Ontario, Canada pulled the plug on its UBI program citing that it was “not sustainable” and “expensive.”
Some economists believe that the focus on the UBI is misplaced. Economic growth does not happen through income redistribution, as our current tax code has demonstrated for the past century. Rising living standards are the product of increased worker productivity. According to market analyst Troy Vincent, “investment in capital goods like tractors, or welders, or production facilities” is needed for more goods to be created, which in turn translates into economic prosperity.
Other economists like Dan Mitchell argue that a UBI could have negative cultural effects. Mitchell sustains that “Having a job, earning a paycheck, and being self-sufficient are valuable forms of societal or cultural capital.”
The economist also believes that the welfare state is here to stay and that if a UBI were implemented, he doesn’t “trust that the rest of the welfare state would be abolished”.
Moreover, I worry that universal handouts would erode the work ethic and exacerbate the dependency problem.
The economist argues that replacing the welfare state with a UBI “would probably make the system simpler, but at a potentially very high cost in terms of cultural capital.”
The consensus that has emerged among free market economists is that UBIs could be experimented with at the local level but not turned into a national program. For them, reduced taxation and regulations are still key for generating economic growth for all.
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