What Is Universal Basic Income?
Where it came from, and why we’re hearing about it now.
On January 20th, 2020, the United States will observe a national day of service commemorating the legacy of Nobel Laureate Dr. Martin Luther King Jr. I’ve often considered this day an ordinary federal holiday, a misconception that apparently outlasted my early civic education. MLK Day is not just a federal holiday, but also “the only federal holiday designated as a national day of service to encourage all Americans to volunteer to improve their communities”. The following is a piece which aims to improve my community by way of exploring Dr. King’s guaranteed minimum income as it is proposed today: universal basic income (UBI).
— Dr. Martin Luther King Jr. (The Other America, 1967 )
There are many different ways to frame UBI, but I find it most compelling to use an analogy to the stock market. I like this analogy, because universal basic income is for everyone, and a key shortcoming of the US economy is that many households don’t (or can’t) participate in the stock market.
Consider Apple, a publicly traded company. You can own a fraction of Apple by purchasing shares of their stock (for $310.33 each, as of writing). Now, whenever Apple makes a profit, you (the shareholder) are entitled to some fraction of that profit, whenever Apple elects to pay it back as a dividend. Dividends make stocks valuable, and the price of stocks are (traditionally) determined by how investors think dividends will be paid out over time. Big dividends drive up the value of a stock, so you can sell your shares of Apple for more than you paid if Apple does well.
The big idea is, when stocks perform well, shareholders reap the benefits.
Stay with me here. There’s free money at the end.
Shareholders will naturally help Apple whenever they can (by voting for good company leadership, encouraging helpful tech legislation, etc.). In effect, the dividend is their reward as investors. But outside of investors, there are countless stakeholders in Apple who enable the company to succeed.
Suppose a good citizen finds a security vulnerability in the iPhone OS and reports it to company leadership discreetly. Does the good citizen benefit? Not unless they own Apple stock.
Or, suppose a dutiful city council approves new municipal construction better enabling Amazon delivery vans. Do the constituents benefit? What about the Amazon drivers? Not likely, unless they own Amazon stock.
So, what’s the problem? A proponent of UBI may contend that one way or another, everyone is a stakeholder in our economy. Not everyone, however, is a shareholder.
There is effectively no way to quantify the impact we may have as citizens who vote, raise families, manage land, and do good deeds. UBI contends that some of the economic prosperity therefore be redistributed to everyone. Dr. King spoke of a “guaranteed annual income”. The frequency and quantity of such an income is certainly a topic of political debate.
Having done my best to forego political leanings thus far, let’s have a look at two different ideas of UBI:
- Democratic Presidential Candidate Andrew Yang
- Alaska, a strongly Republican state with a universal income
2020 Presidential candidate Andrew Yang has campaigned for a UBI policy (The Freedom Dividend) with the following provisions:
- $1000 / month to every U.S. citizen over the age of 18
- A Value Added Tax (VAT) on the production of all goods and services
- Consolidating other existing welfare programs
It’s important to consider the context of this proposal in the 2020 US election cycle, where automation, corporate tax avoidance, and responses to the existing executive administration likely played a key role in shaping this proposal. With that said, Yang often cites Dr. King as an inspiration for this policy, suggesting that it adheres to his philosophy.
As this is a proposed plan, any further analysis on my part would be a value judgment going beyond the scope of this article.
Alaska’s Permanent Fund Dividend
Provided by Alaska’s state constitution, qualifying citizens are entitled to payments made by the state’s Permanent Fund, approved by voters in 1976:
“At least 25 percent of all mineral lease rentals, royalties, royalty sales proceeds, federal mineral revenue-sharing payments and bonuses received by the state be placed in a permanent fund, the principal of which may only be used for income-producing investments.”
Historically, these payments have fluctuated, and are tied to revenues from the state’s natural resources. There is a formula detailing how these payments are determined, mimicking the verbiage corporations often use to account for dividend payments to shareholders.
Despite the torrent of recent attention, UBI has been around for quite some time (even prior to the scope of this article’s discussion). Having seen two examples, I’ve noticed two seemingly essential common traits:
- A broad base: Both the Permanent Fund and the Freedom Dividend apply to nearly all constituents. Those who aren’t entitled to UBI are the exceptions to the rule. This adheres well to what Dr. King has suggested.
- A zero-based budget: For all UBI payments, there is a clear and analogous source of income. Alaska pays for UBI with natural resources, and Yang proposes paying for UBI with the VAT. I’ve taken some appropriate liberties in assuming the VAT generates income equal to $1000 / month per person, but that seems to be Yang’s implication.
This article doesn’t come with a thesis, so I won’t conclude it with any sort of value judgment on UBI. Instead, I hope this has been as educational for the reader as it has been for me. Given the volume of information I’ve learned recently on UBI, I’m excited for the ensuing conversation. My opinions on UBI aren’t materially relevant to this piece, but I’ll add that they are highly subject to change.
All that said, it’s been interesting to investigate a lesser-known, compelling idea of Dr. King’s in a familiar context. I encourage the reader to do the same.