December 5, 2013 columns

The Libertarian Case for a Basic Income

Guaranteeing a minimum income to the poor is better than our current system of welfare, Zwolinski argues. And it can be justified by libertarian principles.

This morning, I did a short interview with the Cato Institute about the libertarian case for a Basic Income Guarantee. The immediate stimulus for the conversation was the recent Swiss proposal to pay each and every and every citizen 2,500 francs (about 2,800 USD) per month. But conversation quickly turned to the question of whether some form of basic income proposal might be compatible with libertarianism. Some of my colleagues at Bleeding Heart Libertarians have certainly expressed enthusiasm for it in the past. And over at Reason.com, Matthew Feeney recently published a short but favorable writeup of the idea.

Of course, as with any policy proposal, the details matter a lot. And the Swiss proposal is problematic in a number of ways. For starters, 2,800 USD a month means that a married couple could get $67,200 per year for doing nothing. And while it’s true that Switzerland is one of the richest countries in the world in terms of per capita income, that’s still an awful lot of money. Furthermore, the Swiss proposal seems to involve implementing a basic income in addition to their currently existing welfare system. Few libertarians would be willing to sign up for that deal. But as a replacement for traditional welfare programs, there is a lot for libertarians to like about a basic income.

Still skeptical? Well, here are three libertarian arguments in support of a Basic Income Guarantee. I begin with a relatively weak proposal that even most hard-core libertarians should be even to accept. I then move to stronger proposals that involve some deviation from the plumb-line view. But only justifiable deviations, of course.

1) A Basic Income Guarantee would be much better than the current welfare state.

Current federal social welfare programs in the United States are an expensive, complicated mess. According to Michael Tanner, the federal government spent more than $668 billion on over one hundred and twenty-six anti-poverty programs in 2012. When you add in the $284 billion spent by state and local governments, that amounts to $20,610 for every poor person in America.

Wouldn’t it be better just to write the poor a check?

Each one of those anti-poverty programs comes with its own bureaucracy and its own Byzantine set of rules. If you want to shrink the size and scope of government, eliminating those departments and replacing them with a program so simple it could virtually be administered by a computer seems like a good place to start. Eliminating bloated bureaucracies means more money in the hands of the poor and lower costs to the taxpayer. Win/Win.

A Basic Income Guarantee would also be considerably less paternalistic then the current welfare state, which is the bastard child of “conservative judgment and progressive condescension” toward the poor, in Andrea Castillo’s choice words. Conservatives want to help the poor, but only if they can demonstrate that they deserve it by jumping through a series of hoops meant to demonstrate their willingness to work, to stay off drugs, and preferably to settle down into a nice, stable, bourgeois family life. And while progressives generally reject this attempt to impose traditional values on the poor, they have almost always preferred in-kind grants to cash precisely as a way of making sure the poor get the help they “really” need. Shouldn’t we trust poor people to know what they need better than the federal government?

2) A Basic Income Guarantee might be required on libertarian grounds as reparation for past injustice.

One of libertarianism’s most distinctive commitments is its belief in the near-inviolability of private property rights. But it does not follow from this commitment that the existing distribution of property rights ought to be regarded as inviolable, because the existing distribution is in many ways the product of past acts of uncompensated theft and violence. However attractive libertarianism might be in theory, “Libertarianism…Starting Now!” has the ring of special pleading, especially when it comes from the mouths of people who have by and large emerged at the top of the bloody and murderous mess that is our collective history.

Radical libertarians have proposed several approaches to dealing with past injustice. But one suggestion that a lot of people seem to forget about comes from an unlikely source. Most people remember Robert Nozick’s Anarchy, State, and Utopia as a fairly uncompromising defense of natural-rights libertarianism. And most people remember that Nozick wrote that any state that goes beyond the minimal functions of protecting its citizens’ negative rights would be itself rights-violating and therefore unjust.

But Nozick’s entitlement theory of justice is a historical one, and an important component of that theory is a “principle of rectification” to deal with past injustice. Nozick himself provided almost no details at all regarding the nature or proper application of this principle (though others have speculated). But in one fascinating passage, Nozick suggests that we might regard patterned principles of justice (like Rawls’ Difference Principle) as “rough rules of thumb” for approximating the result of a detailed application of the principle of rectification. Here’s what Nozick has to say:

Perhaps it is best to view some patterned principles of distributive justice as rough rules of thumb meant to approximate the general results of applying the principle of rectification of injustice. For example, lacking much historical information, and assuming (1) that victims of injustice generally do worse than they otherwise would and (2) that those from the least well-off group in the society have the highest probabilities of being the (descendants of) victims of the most serious injustice who are owed compensation by those who benefited from the injustices (assumed to be those better off, though sometimes the perpetrators will be others in the worst-off group), then a rough rule of thumb for rectifying injustices might seem to be the following: organize society so as to maximize the position of whatever group ends up least well-off in the society (p. 231).

In a world in which all property was acquired by peaceful processes of labor-mixing and voluntary trade, a tax-funded Basic Income Guarantee might plausibly be held to violate libertarian rights. But our world is not that world. And since we do not have the information that would be necessary to engage in a precise rectification of past injustices, and since simply ignoring those injustices seems unfair, perhaps something like a Basic Income Guarantee can be justified as an approximate rectification?

3. A Basic Income Guarantee might be required to meet the basic needs of the poor.

The previous two arguments both view a basic income as a kind of “second-best” policy, desirable not for its own sake but either as less-bad than what we’ve currently got or a necessary corrective to past injustice. But can libertarians go further than this? Could there be a libertarian case for the basic income not as a compromise but as an ideal?

There can and there has.

Both Milton Friedman and Friedrich Hayek advocated for something like a Basic Income Guarantee as a proper function of government, though on somewhat different grounds. Friedman’s argument comes in chapter 9 of his Capitalism and Freedom, and is based on the idea that private attempts at relieving poverty involve what he called “neighborhood effects” or positive externalities. Such externalities, Friedman argues, mean that private charity will be undersupplied by voluntary action.

[W]e might all of us be willing to contribute to the relief of poverty, provided everyone else did. We might not be willing to contribute the same amount without such assurance.

And so, Friedman concludes, some “governmental action to alleviate poverty” is justified. Specifically, government is justified in setting “a floor under the standard of life of every person in the community,” a floor that takes the form of his famous “Negative Income Tax” proposal.

Friedrich Hayek’s argument, appearing 17 years later in volume 3 of his Law, Legislation, and Liberty, is even more powerful. Here’s the crucial passage:

The assurance of a certain minimum income for everyone, or a sort of floor below which nobody need fall even when he is unable to provide for himself, appears not only to be wholly legitimate protection against a risk common to all, but a necessary part of the Great Society in which the individual no longer has specific claims on the members of the particular small group into which he was born. (emphasis added)

To those who know of Hayek only through second-hand caricatures of his argument from The Road to Serfdom, his claim here will no doubt be surprising. But as my colleague Kevin Vallier has documented repeatedly, Hayek was not opposed to the welfare state as such (not even in the Road to Serfdom). At the very least, he regarded certain aspects of the welfare state as permissible options that states might pursue. But the passage above suggests that he may have had an even stronger idea in mind - that a basic income is not merely a permissible option but a mandatory requirement of democratic legitimacy - a policy that must be instituted in order to justify the coercive power that even a Hayekian state would exercise over its citizens.

Clarifications - BIGs vs. NITs vs. EITCs

I said in the beginning of this essay that in evaluating basic income proposals, the details matter a lot. But in the arguments above, I’ve mostly put those details to the side, even glossing over the difference, for instance, between a Basic Income Guarantee and a Negative Income Tax. Before I close, I want to say at least a little about the different policy options. But there are a lot of different options, and a lot of details to each. So bear in mind that what follows is only a sketch.

A Basic Income Guarantee involves something like an unconditional grant of income to every citizen. So, on most proposals, everybody gets a check each month. “Unconditional” here means mostly that the check is not conditional on one’s wealth or poverty or willingness to work. But some proposals, like Charles Murray’s, would go only to adult citizens. And almost all proposals are given only to citizens. Most proposals specify that income earned on top of the grant is subject to taxation at progressive rates, but the grant itself is not.

A Negative Income Tax involves issuing a credit to those who fall below the threshold of tax liability, based on how far below the threshold they fall. So the amount of money one receives (the “negative income tax”) decreases as ones earnings push one up to the threshold of tax liability, until it reaches zero, and then as one earns more money one begins to pay the government money (the “positive income tax”).

The Earned Income Tax Credit is the policy we actually have in place currently in the United States. It was inspired by Friedman’s Negative Income Tax proposal, but falls short in that it applies only to persons who are actually working.

The US Basic Income Guarantee Network has a nice and significantly more detailed overview of some of the different policies. You can watch Milton Friedman explain his Negative Income Tax proposal with characteristic clarity to William F. Buckley here. And for an extended and carefully thought out defense of one particular Basic Income Guarantee proposal from a libertarian perspective, I highly recommend Charles Murray’s short book, In Our Hands: A Plan to Replace the Welfare State.

Objections

1) Disincentives - One of the most common objections to Basic Income Guarantees is that they would create objectionably strong disincentives to employment. And those who make this objection can draw some support from experimental studies with the Negative Income Tax in the United States in the 1960s and 70s.

But the significance of this objection depends a lot on the details of the proposal under consideration, and is probably overstated, anyway. After all, with a Basic Income Guarantee, the money you get is yours to keep. You don’t lose it if you take a job and start earning money. And so in that way the disincentives to employment it creates are probably less severe than those created by currently existing welfare programs where employment income is often a bar to eligibility.

With a Negative Income Tax, the disincentives are there, but arguably at an acceptable level. After all, under a NIT if you are unemployed and then you get a job, you’re going to have more money as a result. You won’t keep all of the money. But nobody keeps all of the money they earn from their job - a large chunk of it goes to taxes. It’s the same idea here, except in reverse - hence, the label of “negative income tax.”

2) Effects on Migration - When most people think about helping the poor, they forget about two groups that are largely invisible - poor people in other countries, and poor people who haven’t been born yet (see this paper by Tyler Cowen for more). With respect to the first of those groups, I think (and have argued before) that there is a real worry that a Basic Income Guarantee in the United States would create pressures to restrict immigration even more than it already is. After all, when every new immigrant is one more person collecting a check from your tax dollars, it’s not entirely unreasonable to view those immigrants as a threat, and to be more willing to use the coercive power of the state to keep them out. That worries me, because I think the last thing anybody with a bleeding heart ought to want to do is to block the poorest of the poor from access to what has been one of the most effective anti-poverty programs ever devised - namely, a policy of relatively open immigration into the relatively free economy of the United States. Especially when one’s justification for doing so is merely to provide a bit of extra cash to people who are already citizens of one of the wealthiest countries on the face of the planet.

3) Effects on Economic Growth - Even a modest slowdown of economic growth can have dramatic effects when compounded over a period of decades. And so even if whatever marginal disincentives a Basic Income Guarantee would produce wouldn’t do much to hurt currently existing people, it might do a lot to hurt people who will be born at some point in the future. Here’s a thought experiment for the mathematically inclined among you: imagine that Americans in 1800 decided to institute a social welfare policy that reduced annual economic growth by 1%, and that the policy was maintained intact to the present day. How much poorer a country would America be? How much poorer would the poorest Americans be? Even if the only thing you cared about was improving the lot of the poor, would whatever benefits the policy produced have been worth it?

Further Reading

Tyler Cowen and Jim Manzi put forward what seem to me to be the most damning objections to a Basic Income Guarantee - that however attractive the idea may be in theory, any actually implemented policy will be subject to political tinkering and rent-seeking until it starts to look just as bad as, if not worse than, what we’ve already got. Murray’s proposal to implement a Basic Income Guarantee via a constitutional amendment that simultaneously eliminates all other redistributive programs goes some way toward insulating the policy from the pressures of “ordinary politics.” But I’m not sure it’s enough.

The journal Basic Income Studies published a special issue on libertarianism and the Basic Income Guarantee, with contributions from me , Mike Munger , Pete Boettke and Adam Martin , Dan Moseley , Dan Layman , Brian Powell , and Peter Vallentyne .