Carbon Pricing and Its Enemies

On December 4, I made a presentation to a student group on Carbon Pricing and Its Enemies. Here is a link to the slides for the presentation. Watch this space for a narrative version, hopefully available soon,

Can We Put Everyone to Work?

Temporary link to slideshow "Can We Put Everyone to Work," presented at Economic Club of Traverse City, MI, November 15, 2019.

Can Pete Buttigieg Save Democrats from the Medicare for All Trap?

The Democratic Party is at risk of falling into a trap on health care — a trap called “Medicare for All.” But at the Democrats’ October 15 debate for presidential candidates, Pete Buttigieg offered a plan that could allow a timely escape.

Buttigieg began by characterizing his plan, Medicare for All Who Want It (M4AWW), as one that “trusts you to make the right decision for your health care and for your family. Unlike the purist form of Medicare for All promoted by Warren and Bernie Sanders, Buttigieg maintained that his plan could be “delivered without an increase on the middle-class taxes.”

Warren replied, “So, let’s be clear. Whenever someone hears the term Medicare for All Who Want It, understand what that really means. It’s Medicare for all who can afford it,” clearly implying that M4AWW would leave some Americans still unable to afford the health care they need.

This attack on the Buttigieg plan misses the mark. Contrary to Warren’s claim, the approach taken by Buttigieg — and shared by several related reform proposals — would not, regardless of their income, leave out “the family whose child has been diagnosed with cancer” or “the person who’s just gotten an MS diagnosis.” It would instead protect everyone from ruinous medical bills, but do so in a way that avoids, as Buttigieg puts it, blowing a “giant multi-trillion-dollar hole” in the federal budget.

All this is easily understood by anyone who takes the time to see how Medicare for All Who Want It, and related proposals, actually work. Here are some of the plan’s key points.

What Can Welfare Experiments of the 1970s Tell Us About a UBI?

In a recent commentary, I examined what economic theory can tell us about the effects a universal basic income would have on work incentives. But theory alone is not enough. We need also to look at evidence. The following will review the evidence from a set of experiments that were conducted in the 1970s as part of an attempt to make antipoverty policies of that era more effective.

These welfare experiments — or income maintenance experiments (IMEs) as we should more properly call them — were true randomized field trials. Such trials are considered the gold standard for testing new medicines or new crop varieties, but they are used all too rarely for testing economic policies. (By way of exception, another set of welfare experiments were conducted in the 1990s in conjunction with the welfare reforms of the Clinton years.)

Critics often say that UBI supporters pay insufficient attention to the IMEs. As Bryan Caplan puts it, in a recent piece for at the Library of Economics and Liberty,

If I were an enthusiastic UBI advocate, I would know this experimental evidence forwards and backwards. Almost all of the advocates I’ve encountered, in contrast, have little interest in numbers or past experience. What excites them is the “One Ring to Rule Them All” logic of the idea: “We get rid of everything else, and replace it with an elegant, gift-wrapped UBI.” For a policy salesman, this evasive approach makes sense: Slogans sell; numbers and history don’t. For a policy analyst, however, this evasive approach is negligence itself. If you scrutinize your policy ideas less cautiously than you read Amazon reviews for your next television, something is very wrong.

Writing on the Heritage Foundation website, Robert Rector and Mimi Teixeira echo Caplan’s sentiments. They point to the IMEs of the 1970s to support their view that a UBI would harm recipients and increase dependence on government. Their conclusion:

Universal basic income policy is an idea with a record of failure; policymakers seeking to reform the welfare state should focus instead on policies proven to work.

But are those really the lessons of the IMEs?

Would a UBI Reduce Work Incentives? Some Answers from Econ 101

More than half of all U.S. college students take a basic economics course. A lot of them hate it. The course is full of graphs and charts. That would be bad enough, but what makes it worse is that the graphs in a typical Econ 101 textbook are about boring stuff — whether a farmer should grow beans or peas, whether a student should eat pizza or burritos for lunch. Who cares?

But, what if we put those Econ 101 tools to work on something we do care about — something like a Universal Basic Income? Then things could get interesting. Read on to see how we can use some basic econ graphs to answer one of the most frequently asked questions about basic income: Would a UBI reduce work incentives?

How our welfare system kills work incentives

We can begin by showing how our current welfare system kills work incentives. Welfare as we know it is based on means testing. The concept of means testing, as applied to programs like SNAP, TANF, and Medicaid, is that if you are really poor, the government gives you benefits, but if you try to work and get ahead on your own, the government takes your benefits away. Not surprisingly, that is not the way to encourage work.

Rather than go through the incentive effects of existing programs one by one (I’ve done that elsewhere), this post will keep things simple by looking at a generic means-tested income support (MTIS) policy.

How Generous a Basic Income Could We Afford?

Summary: Basic income advocates often encounter the objection, “We can’t afford it!” To counter that objection convincingly, they need to address several key questions:

• What resources can a basic income draw upon? Which existing income support programs would be rendered unnecessary if an adequate basic income were in place?
• How would a basic income mesh with other social programs, especially health care, child care, and social security?
• Who would be eligible for a UBI? The entire population? Citizens only? Adults only?
• Does an adequate basic income have to be generous enough to raise everyone out of poverty by itself, or would something less than that be enough?

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In search of a baseline UBI

To many people, a universal basic income (UBI) sounds like a good idea — until you start thinking about whether we could afford it.

Robert Greenstein, President of the Center for Budget and Policy Priorities, is no enemy of  robust government programs to help the poor, yet he is an outspoken critic of a UBI. Affordability is Greenstein’s number one concern. He argues that giving a UBI of $10,000 a year to the entire U.S. population of 327 million people would cost $3.27 trillion, about equal to the entire annual revenue of the U.S. government. It’s hard to imagine that such a UBI would advance very far, he says.

But is asking whether we could afford a UBI of any given size really the right question? A more sensible starting point might be to ask how much basic income we could afford if we used only what the government is already spending on income support, without raising taxes or total spending at all. The answer to that question gives us a baseline UBI that that we can use as a point of reference.

Determining how generous that baseline UBI would be involves two steps: First determining how much money could be made available by redirecting existing income support spending to a basic income (the numerator), and second, determining how many people would be eligible to receive benefits (the denominator). The baseline UBI is then equal to total funds divided by the eligible population.

Here goes.

Latest Data on Poverty and Inequality Show Small Improvements but No Break in Long-Term Trends

On Tuesday, the Census Bureau released the latest data on poverty and income distribution for U.S. households. They show small improvements for 2018 compared with the year before, as would be expected with unemployment nearing 50-year lows. However, the short-term gains were not large enough to constitute a break with long-term trends.

One piece of welcome news was a drop in the percentage of people living in poverty from 12.7 percent in 2017 to 11.8 percent in 2018. Still, as the following chart shows, the 2018 poverty rate remains above the lows reached in the 1970s and again at the turn of the century. The longer-term trend of the official poverty rate since the late 1960s remains upward even when recent decreases are taken into account.

The official poverty rate is only one of several ways of looking at income distribution in America. The Gini index provides another perspective. This statistic varies from a possible value of zero, when distribution is perfectly equal (like a cake cut into equal slices) and 100 for a winner-take-all situation (like a hand of poker where the winner gets everyone else’s chips). The same statistic is sometimes on a scale of zero to one, in which case it is called the Gini coefficient or Gini ratio.