Saturday, June 11, 2016

The poor will always be with us?

Soon after the fall of the Soviet system, in an issue devoted to poverty, The Economist included a lengthy essay with a title that was something like "the poor will always be with us."  Only when reading that piece did I know that the magazine newspaper was playing on a verse from the Bible.

Over the years, we have certainly seen a dramatic reduction in the number of poor around the world, and the percentages now are nothing compared to decades past.  But, we still have the poor, especially in rich countries.  When we overlay on this the issues of income inequality and the implications of the digital revolution, is there anything else that we can do?

Why not simply give everybody money and take care of poverty?
Figure out a reasonable amount — the official poverty line amounts to about $25,000 for a family of four; a full-time job at $15 an hour would provide about $30,000 a year — and hand every adult a monthly check. The minimum-wage worker stretching to make it to payday, the single mother balancing child care and a job — everybody would get the same thing.
Poverty would be over, at a stroke.
Being universal — that is, for the homeless and the masters of the universe alike — the program would be free of the cumbersome assessments required to determine eligibility. It would also escape the stigma typically attached to programs for the poor.
That is the very idea of Basic Income.  

In my classes, I present students with a thought experiment.  The digital technology is getting better by the minute and software and physical robots are making the economy highly productive. At the same time, quite a few, whose jobs have been eliminated thanks to the "digital workers" are earning little even  when working a lot.  So, in the near future, if the "digital workers" are productive enough and all it takes is a little bit of taxes on the rich to guarantee everybody a basic income, will the students support such an idea?

Switzerland put that to test, via a referendum:
Final results from Sunday's referendum showed that nearly 77% opposed the plan, with only 23% backing it.
Among those who opposed it, there was a worry that the open borders would immediately attract quite a few:
Luzi Stamm, a member of parliament for the right-wing Swiss People's Party, opposed the idea.
"Theoretically, if Switzerland were an island, the answer is yes. But with open borders, it's a total impossibility, especially for Switzerland, with a high living standard," he said.
"If you would offer every individual a Swiss amount of money, you would have billions of people who would try to move into Switzerland."
This is only the beginning.
Finland is gearing up to launch a large-scale trial next year, and a more limited effort is current underway in Utrecht, the Netherlands. Y Combinator, the US-based investment company, is doing a pilot in Oakland, California. The government of Ontario, Canada, is launching a test this year, and GiveDirectly, a cash transfer charity, is doing a test in Kenya.
Do not hastily conclude that it is only the knee-jerk liberals who support the idea.
Some thinkers on the right, too, have managed to overcome their general distaste for government welfare to support the idea. This month, Charles Murray of the American Enterprise Institute will publish an updated version of his plan to replace welfare as we know it with a dollop of $10,000 in after-tax income for every American above the age of 21.
We need to continue to think about these, and more, because we need to design a new social contract for the twenty-first century, in order to replace the highly frayed safety nets from the previous era.


Ramesh said...

To put it as mildly as I can, this is a daft idea. The worst way to attack poverty is to give freebies. India already has exactly the scheme these countries and provinces are fiddling with - NREGA. You have to come to rural India and see what a massive disincentive to work this has become.

The solution is to promote jobs and employment. Why is it so difficult for all of us to learn from China. The greatest success on poverty alleviation in history did not come from a handout - it came from economic growth.

By the way pause and think of the statement - "the official poverty line amounts to about $25,000 for a family of four" . This is where the problem is in the US. For 90% of the world's population, this is a fortune, not a subsistence wage.

Sriram Khé said...

The social contract will differ from society to society. The Norwegians might draw up a contract for themselves that does not have to be the same as the contract that Canadians draw up for themselves. So, unlike you, I am not shocked at the official poverty line for any country.

The Basic Income idea is an intellectual and policy discussion primarily for the advanced economies. These are countries where population growth has stagnated or is even in decline, and where the high levels of automation and outsourcing are not generating the kinds of jobs that are needed for the contractually agreed upon minimum level of existence. The Basic Income discussion does not have India in mind, or even China. You are mixing up apples and oranges and, hence, are coming up with very sour lemon juice ;)

Sriram Khé said...

Guess what?
I came across an op-ed on this very issue of basic income in India, by Pranab Bardhan who was awesome when I heard him talk way back when I was in second year of grad school ...
"If each of India’s 1.25 billion citizens received an annual basic income of 10,000 rupees ($149) – about three-quarters of the official poverty line – the total payout would come to about 10% of GDP. The National Institute of Public Finance and Policy in Delhi estimates that every year the Indian government doles out significantly more than that in implicit or explicit subsidies to better-off sections of the population, not to mention tax exemptions to the corporate sector. By discontinuing some or all of these subsidies – which, of course, do not include expenditures in areas like health, education, nutrition, rural and urban development programs, and environmental protection – the government could secure the funds to offer everyone, rich and poor, a reasonable basic income."

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