Three Big Economic Ideas for Revolutionizing Our Social Safety Nets
By some measures, it might seem as if Western nations have all but recovered from the economic crises that gripped them a decade ago. But despite generally healthy stock markets and low unemployment numbers, recovery from the crisis that started in the U.S. in 2007 has been anemic in many important ways. Wage growth has been sluggish, average household net worth never quite bounced back, and many of the jobs regained feel precarious, either because they are threatened by automation or because they are part of the bare-bones gig economy. The Great Recession also left behind a public increasingly attuned to issues of economic inequality. Citizens and politicians the world over are questioning the ability of existing social safety nets to meet people’s needs, and considering radically different models for fighting poverty and creating economic stability.
Universal basic income, also known as a guaranteed income, is one idea for overhauling social safety nets that has gained a surprising amount of political traction in recent years. A basic income program would pay every citizen in a nation a periodic cash sum, enough to provide basic economic security. Taxes could then claw the money back from those who don’t need it. Such proposals are attractive for their simplicity and bipartisan appeal: For supporters on the left, they promise to mitigate economic insecurity, while supporters on the right see a basic income as a way to streamline the inefficient bureaucracies of current welfare programs. This broad interest has led to a raft of nations, municipalities, and charities launching pilot programs, testing whether a basic income can work in the real world.
But while a basic income might be the most popular social safety net overhaul idea, critics believe there are better ways to achieve the intended results. Some progressives worry a guaranteed wage would entrench gig-economy jobs and poverty wages, be used to justify dissolving all other safety nets, and fail to tackle the roots of economic inequality. The key problem almost every critic sees, though, is the cost. Rutgers University economist Philip Harvey notes that paying even poverty threshold wages in the U.S. would cost trillions, well above current welfare spending levels.
Considering these criticisms, it’s worth exploring some of the other big financial stability concepts floating around today. These are a few of the most common alternatives out there, each gaining in popularity as more people begin to suspect that our jittery post-recession recovery might just be the new economic normal.
Negative Income Tax
A negative income tax, explains British economist Luke Martinelli, has similarities to a basic income. They both aim to make sure that no citizen’s income dips below a certain threshold. But instead of cutting everyone a check of equal size, a negative income tax designates an income floor. When people file their annual taxes, if they made less than that minimum amount the previous year, the negative tax would make up a portion of the difference. As individuals make more money, the size of the check would taper off, vanishing completely in years where their income reached or exceeded that guaranteed level.
By identifying need and responding to it, Martinelli points out, a negative income tax would be more efficient and cost far less than a basic income program that sent a check to everyone. It could also garner conservative support, like the basic income, by offering an avenue to simplify and streamline both complex tax codes and welfare ecosystems.
However, basic income advocate Guy Standing argues that the yearly payouts of a negative tax may not provide sufficient income security. One could, he explains, develop a sudden financial need months before the check arrived. A negative tax would also, like all tax systems, open up the possibility of false claims, necessitating means-tests and some kind of cumbersome auditing bureaucracy. And while proponents of a negative income tax claim it would cost half as much as a basic income, the system would still be expensive enough to face serious funding challenges.
Some progressive legislators in America have recently begun voicing support for the idea of a federal jobs guarantee. Senator Bernie Sanders has even begun developing a plan that would guarantee jobs to U.S. citizens, with a focus on creating state jobs that would benefit society and address infrastructural needs. These jobs would pay $15 per hour and offer federal employee-level health and retirement benefits. All one would need to do under Sanders’ plan (or most other job guarantee proposals) is walk down to a local job center and apply for a post, which would materialize soon after.
Such a program would, aside from guaranteeing job security, essentially eliminate the working poor by creating a de facto income and benefit floor for the private sector. It would also challenge the economic conditions that allow the spread of gig-economy labor and the financial insecurity that comes with it. Plus, most projections indicate that even employing tens of millions with decent wages and benefits would cost less than most basic income proposals, although estimates vary substantially.
Costs could, however, end up being much higher, given the administrative and training demands such a program could lead to down the line. Some economists also wonder whether the government will really be able to skill match or adequately train the un- or underemployed for priority jobs. Others worry that new income and benefit floors would kill off low-income jobs, accelerate automation, and push an unsustainably large portion of low-skilled workers into federal employment programs. Critics also wonder how these programs would react to jobseekers who do not want to do the kind of work the government matches them with. When it comes to a jobs guarantee, “I can’t see its implementation without substantial coercion,” says Andrew Percy of the Institute for Global Prosperity, an economic think tank at University College London.
Universal Basic Services
Percy and his colleagues popularized the term “universal basic services,” and it refers to programs that provide security through the state distribution of goods and services. Such a system would expand existing welfare programs, to the extent that anything one needed to get by—like shelter, food, travel, and telecom needs, like phones—would be fully free and readily available through local government programs.
This proposal, argues Percy, is more efficient than handing people cash. “There is nowhere that people are able, though private acquisition, to more efficiently purchase the same set of services that are delivered as a public service,” he says.
No matter how practical a basic services program might seem, though, critics argue this plan is paternalistic, limiting the autonomy and sense of agency that cash would give to economically insecure people. But Percy argues that such a program wouldn’t have to be made by some far-off bureaucrat making assumptions about what locals need and we wouldn’t have to take a one-size-fits-all approach to what qualifies as a basic service. Decentralized decision makers could accurately pinpoint exactly how to provide security to local people. Still, critics say, it would be hard to come up with standards that could meet every person’s nuanced, individual needs. “There are good arguments for subsidizing or providing basic essential services” at a higher level, says Martinelli. “But they do not negate people’s need for cash in the modern economy.”
Time for More Experimentation
Today, all these ideas only exist as vague conceptual outlines. It’s difficult to adequately weigh their benefits and pitfalls, much less describe in detail how all of them would work, because they haven’t yet been tested seriously in real-world situations. Figuring out how to overhaul social safety nets to better tackle looming threats to economic stability will require multiple iterations of each concept, modeled in well-designed trial programs. As basic income pilots show us, these experiments are far from impossible. They just depend on local, state, or national leaders learning about these programs, evaluating their potential merits, and deciding to set out the time and resources to run some real, meaningful tests.