Universal Basic Income: The Complete Caplan-Dolan Dialog

Bryan Caplan is Professor of Economics at George Mason University and Senior Scholar at the Mercatus Center. He is the author of The Myth of the Rational Voter: Why Democracies Choose Bad Policies, named "the best political book of the year" by the New York Times, and Selfish Reasons to Have More Kids: Why Being a Great Parent Is Less Work and More Fun Than You Think. He has published in the New York Times, the Washington Post, the Wall Street Journal, the American Economic Review, the Economic Journal, the Journal of Law and Economics, and Intelligence, and has appeared on 20/20, FoxNews, and C-SPAN. He is now working on a new book, The Case Against Education.

Ed Dolan is a retired economist, active blogger, and Adjunct of the Niskanen Center. At various times, he taught at Dartmouth College, the University of Chicago, George Mason University, the American Institute of Business and Economics in Moscow, the University of Economics in Prague, and the Stockholm School of Economics in Riga. He is the author of TANSTAAFL: A Libertarian Perspective on Environmental Policy and editor of Foundations of Austrian Economics. He contributes regularly to Economonitor.com, SeekingAlpha.com, The Milken Institute Review, and Ed Dolan’s Econ Blog. He holds a PhD in economics from Yale University.

This impromptu dialog took place over several days in early 2017 on several different platforms. For readers’ convenience, I have put all the separate segments together here. To help keep things straight, everything written by Caplan is set in the Helvitica font and everything written by Dolan in Times

CAPLAN: Opening Statement (Econlog, Jan 24, 2017)

The Many Faces of Means Testing

Isn't a Universal Basic Income just another name for a negative income tax, such as Tax = -$10,000 + .3*Income?  If so, isn't a Universal Basic Income means-tested by definition?
The answer to the first question is Yes.  UBI is just Milton Friedman's negative income tax in new packaging.
The answer to the second question, however, is more equivocal.  The UBI is means-tested in the weak sense that your net payment falls with income.  But the UBI dispenses with many other traditional forms of means-testing.  Most notably:
1. Means-testing by age.  Most welfare states prioritize children and the elderly.  The implicit theory is that, unlike prime-age adults, the very young and the very old are unable to provide for themselves.
2. Means-testing by dependents and marital status.  Most welfare states prioritize single moms with minor children.  The implicit theory is that single moms have reduced opportunities to work due to their family responsibilities.
3. Means-testing by health.  Most welfare states prioritize the disabled.  The implicit theory is that they're not healthy enough to work.
4. Means-testing by job history.  Most welfare states prioritize people who recently lost their jobs over people who have never worked, or lost their jobs a long time ago.  The implicit theory is that the short-term unemployed are unlucky, while the long-term unemployed are lazy.
If your UBI proposal includes factors like these in its formula, it's very hard to see what makes it a UBI. 

If your UBI proposal dispenses with most or all these factors, then it is a distinctive reform indeed.  But "distinctive" is a far cry from "good."

Advocates correctly note that dropping multi-faceted means-testing reduces moral hazard: If your monthly payment doesn't depend on your health, you have no reason to fake bad health.
But there is also a gargantuan disadvantage: Dropping multi-faceted means-testing greatly increases the number of eligible recipients.  If perfectly able-bodied, childless adults are eligible for free money, plenty will take it - and many won't work at all.  Taxes on remaining workers have to rise to pay for them.  This probably won't create a "UBI death spiral," but a milder sloth spiral definitely kicks in, especially over the longer run as stigma against idleness erodes.  And the burden of supporting able-bodied non-workers is also very likely to cut into funding for the more deserving poor.
Frankly, given the bleak long-run fiscal forecast for the U.S., I'm baffled that anyone with libertarian sympathies takes the UBI seriously.  The welfare state is already unsustainable, largely because our means-testing by age and health isn't stringent enough.  The elderly may have trouble working now, but since they had a lifetime to save for their own retirements, few of the indigent elderly are victims of circumstance.  And given the huge long-run rise in the share of U.S. adults on disability despite rising health and less strenuous jobs, its clearly far too easy to plead disability.
What's especially strange is that the bleak long-run fiscal forecast makes old-school libertarian austerity more relevant than ever.  Why are so many libertarians running away from our core ideas when conditions are nearly ripe for mainstream America to finally listen to us?

DOLAN: Opening statement. (Niskanencenter.org, Feb. 6, 2017)

Why Should a Libertarian Take a Universal Basic Income Seriously?

In a recent post on EconLog, Bryan Caplan writes, “I’m baffled that anyone with libertarian sympathies takes the UBI [universal basic income] seriously.” I love a challenge. Let me try to un-baffle you, Bryan, and the many others who might be as puzzled as you are. Here are three kinds of libertarians who might take a UBI very seriously indeed.

Libertarian pragmatists

Philosophical issues aside, what galls many libertarians most about government is the failure of many policies to produce their intended results. Poverty policy is Exhibit A. By some calculations, the government already spends enough on poverty programs to raise all low-income families to the official poverty level, even though the poverty rate barely budges from year to year. Wouldn’t it be better to spend that money in a way that helps poor people more effectively?

A UBI would help by ending the way benefit reductions and “welfare cliffs” in current programs undermine work incentives. When you add  together the effects of SNAP, TANF, CHIP, EITC and the rest of the alphabet soup, and account for work-related expenses like transportation and child care, a worker from a poor household can end up taking home nothing, even from a full-time job. A UBI has no benefit reductions. You get it whether you work or not, so you keep every added dollar you earn (income and payroll taxes excepted, and these are low for the poor).

But, wait, you might say. Why would I work at all if you gave me a UBI? That might be a problem if you got your UBI on top of existing programs, but if it replaced those programs, work incentives would be strengthened, not weakened. In which situation would you be more likely to take a job: one where you get $800 a month as a UBI plus a chance to earn another $800 from a job, all of which you can keep, or one where your get $800 a month in food stamps and housing vouchers, and anything extra you earn is taken away in benefit reductions?

Or, you might say, a UBI might be fine for the poor, but wouldn’t it be unaffordable to give it to the middle class and the rich as well? Yes, if you added it on top of all the middle-class welfare and tax loopholes for the rich that we have now. No, if the UBI replaced existing tax preferences and other programs that we now lavish on middle- and upper-income households. Done properly, a UBI would streamline the entire system of federal taxes and transfers without any aggregate impact on the federal budget.

Classical liberals

Not all of those with libertarian sympathies are anarcho-capitalist purists. Many classical liberals, even those whom purist libertarians lionize in other contexts, are more open to the idea of a social safety net as a legitimate function of a limited government.

In his book Law, Legislation, and Liberty, classical liberal Friedrich Hayek  wrote,

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 a wholly legitimate protection against a risk common to all, but a necessary part of the Great Society.

Philosophically, classical liberals see “social insurance” of this kind as something to which they would willingly assent if they considered it behind a “veil of ignorance,” where they did not know if they themselves would be born rich or poor. Once the philosophical hurdle is overcome, the practical advantages of a UBI become highly attractive. In terms of administrative efficiency and work incentives, a UBI wins hands down over the current welfare system, and beats even the negative income tax famously championed by Milton Friedman, another classical liberal,.

Lifestyle libertarians

The libertarian sympathies of still others arise from the conviction that all people should be able to live their lives according to their own values, so long as they don’t interfere with the right of others to do likewise. These lifestyle libertarians are drawn to a UBI because of its contrast with the nanny state mentality that characterizes current policies. Why should social programs treat married couples differently from people living in unconventional communal arrangements? Why should welfare recipients have to undergo intrusive drug testing? Why should food stamps let you buy hamburger and feed it to your dog, but not buy dog food?

Writing for Reason.com, Matthew Feeney urges libertarians to stop arguing in principle against the redistribution of wealth. Instead, he says, “scrap the welfare state and give people free money.” Feeney sees a UBI as an alternative that “promotes personal responsibility, reduces the humiliations associated with the current system, and reduces administrative waste in government.”

So there you are. A UBI is a policy for pragmatic critics of well-intentioned but ineffective government, for classical liberals, and for advocates of personal freedom. No wonder so many libertarians take the idea seriously.

CAPLAN: Reply to Dolan (EconLog, Feb. 7, 2017)

Ed Dolan thoughtfully replies to my Universal Basic Income challenge on the Niskanen blog.  Here's my point-by-point reply.  [Dolan blockquotes in Times.]

Here are three kinds of libertarians who might take a UBI very seriously indeed.

Libertarian pragmatists

    ...By some calculations, the government already spends enough on poverty programs to raise all low-income families to the official poverty level, even though the poverty rate barely budges from year to year. Wouldn't it be better to spend that money in a way that helps poor people more effectively?

Sure, holding spending constant.

A UBI would help by ending the way benefit reductions and "welfare cliffs" in current programs undermine work incentives. A UBI has no benefit reductions. You get it whether you work or not, so you keep every added dollar you earn (income and payroll taxes excepted, and these are low for the poor).

But, wait, you might say. Why would I work at all if you gave me a UBI? That might be a problem if you got your UBI on top of existing programs, but if it replaced those programs, work incentives would be strengthened, not weakened.

This is a serious overstatement. 

First, as Dolan acknowledges elsewhere, the disincentives are theoretically ambiguous.  Yes, the UBI encourages work via the substitution effect—if you get paid more per hour after taxes, work is more attractive.  But it also discourages work via the income effect—if you get more free money, work is less attractive.

Second, as I emphasize in the piece to which Dolan is responding, existing welfare states make it hard for prime-age, healthy, childless citizens to get free money.  For the vast population in this category, a UBI is a clear addition to existing programs, because they're currently ineligible for most existing programs.

Or, you might say, a UBI might be fine for the poor, but wouldn't it be unaffordable to give it to the middle class and the rich as well? Yes, if you added it on top of all the middle-class welfare and tax loopholes for the rich that we have now. No, if the UBI replaced existing tax preferences and other programs that we now lavish on middle- and upper-income households. Done properly, a UBI would streamline the entire system of federal taxes and transfers without any aggregate impact on the federal budget.

I urge the friends of UBI to click on the "Done properly" link.  In it, Dolan crunches a lot of numbers to estimate the maximum feasible UBI if (a) taxes stay the same, and (b) we abolish a vast array of government programs.  His answer: $4,452 per person per year.  I say this confirms the obvious: A UBI high enough to be politically appealing would be utterly unaffordable because it wastes so much money on the non-poor.

Classical liberals

Not all of those with libertarian sympathies are anarcho-capitalist purists. Many classical liberals, even those whom purist libertarians lionize in other contexts, are more open to the idea of a social safety net as a legitimate function of a limited government.

Indeed.  But even moderate classical liberals have traditionally tempered this concession with elevated concern for scarcity, disincentives, desert, and long-run fiscal stability.  Concern for scarcity makes them ask, "Shouldn't we target anti-poverty resources on the very poor, instead of helping everyone?"  Concern for disincentives makes them ask, "What about the UBI's effect on prime-age, healthy, childless citizens?"  Concern for desert makes them ask, "Shouldn't we target anti-poverty resources on people who genuinely can't help themselves, like children and the severely handicapped?"  Concern for long-run fiscal stability makes them ask, "Shouldn't we get our fiscal house in order before we contemplate massive new spending programs?"  I'm not saying that libertarians should oppose the UBI because it's inconsistent with anarcho-capitalism.  I'm saying that libertarians should oppose the UBI because it's even more oblivious to our many well-founded reservations about the welfare state than the status quo.

Lifestyle libertarians

The libertarian sympathies of still others arise from the conviction that all people should be able to live their lives according to their own values, so long as they don't interfere with the right of others to do likewise. These lifestyle libertarians are drawn to a UBI because of its contrast with the nanny state mentality that characterizes current policies. Why should social programs treat married couples differently from people living in unconventional communal arrangements? Why should welfare recipients have to undergo intrusive drug testing? Why should food stamps let you buy hamburger and feed it to your dog, but not buy dog food?

Simple: Because people on welfare are interfering with taxpayers' right to live their lives according to their own values.  It's entirely appropriate, then, for taxpayers to impose conditions on (a) who gets the money, and (b) what they have to do to get it.  This principle is widely accepted even for voluntary charity: If you want to sleep on my couch and eat my food, you have to follow my rules.  This applies even more clearly for involuntary charity: If you're living off my money without my consent, you have a grave responsibility to spend my money prudently and strive to become self-supporting.

Writing for Reason.com, Matthew Feeney urges libertarians to stop arguing in principle against the redistribution of wealth. Instead, he says, "scrap the welfare state and give people free money." Feeney sees a UBI as an alternative that "promotes personal responsibility, reduces the humiliations associated with the current system, and reduces administrative waste in government."

This neglects a middle path for libertarians: Arguing for limits on the redistribution of wealth.  What kind of limits?  "You shouldn't get money unless you are absolutely poor through no fault of your own" isn't just great place to start.  It also has great intuitive appeal for non-libertarians.

Dolan, Rejoinder (EconLog Feb. 8, 2017) 

First of all, thank you, Bryan, for the civil, cogent, and detailed response. I think we might even find common ground--I might eventually be able to get you to concede that libertarian sympathizers should "take a UBI seriously" (that is not the same as drinking the UBI Kool-aid, after all) and in return, I will concede that a UBI is not a magic bullet, but nonetheless is worth serious consideration.

A couple of specifics:

1. You say that I acknowledge elsewhere that the incentives are theoretically ambiguous: income effect vs. substitution effect and all that. Fine, but you give the wrong link. The place where I discuss that issue in detail is in the two-part series that starts here. Part 1 of that post deals with theory, and shows that although there is some ambiguity, it requires very special and implausible assumptions for the income effect to outweigh the substitution effect. Part 2 looks at the empirical literature, and concludes that the overwhelming weight of evidence suggests that a UBI improves work incentives relative to any means tested program.

2. You are very right to zero in on the "done properly" proviso as critical. I completely agree that tacking a UBI onto the existing system would not work. I also strenuously object to the line you get from some conservatives that a UBI should replace welfare for the poor, but leave all tax and transfer goodies intact for the rent-seeking middle and upper classes. What is sauce for the goose is sauce for the gander. Does that make a UBI a hard sell politically? Maybe. I'm a lowly economist. As the song says, "If the rocket goes up/ who cares where it comes down?/ That's not my department/says Werner von Braun."

3. Taxpayers have right to attach conditions  to public charity. I don't dispute that. Whether pragmatic considerations might lead them to avoid excessive or silly conditions is another matter.

4. "You shouldn't get aid unless you are poor through absolutely no fault of your own." Yes, that argument has some moral force. However, pragmatically, it is hard to pull off since it requires a huge welfare bureaucracy to decide who qualifies, and the very effort to decide has a Heisenberger-like way of changing the nature of the phenomenon you are trying to evaluate. Exhibit A is our disability system, which tries to follow the principle you suggest, but ends up with massive unintended consequences (UBI vs. disability is subject of a forthcoming post.)

CAPLAN: Rejoinder on UBI (Econlog Feb. 9, 2017)

Caplan in Helvitica,  Dolan in Times

    First of all, thank you, Bryan, for the civil, cogent, and detailed response.

Likewise.

1. You say that I acknowledge elsewhere that the incentives are theoretically ambiguous,income effect vs.substitution effect and all that. Fine, but you give the wrong link. The place where I discuss that issue in detail is in the two-part series that starts here. Part 1 of that post deals with theory, and shows that although there is some ambiguity, it requires very special and implausible assumptions for the income effect to outweigh the substition effect. Part 2 looks at the empirical literature, and concludes that the overwhelming weight of evidence suggests that a UBI improves work incentives relative to any means tested program.

My apologies for neglecting your Part 2.  Well-done; I encourage everyone interested to read it.  But I'm puzzled that you describe the evidence you summarize as "overwhelming."  It seems fairly weak overall to me.  And my understanding of the empirical consensus is that, in general, income effects are at least as large as substitution effects.  I'd put more weight on that standard finding than experiments from decades ago.

Even if you're right, you're ignoring my central point: The UBI unambiguously hurts incentives for the vast population that's currently ineligible for most government benefits.

2. You are very right to zero in on the "done properly" proviso as critical. I completely agree that tacking a UBI onto the existing system would not work. I also strenuously object to the line you get from some conservatives that a UBI should replace welfare for the poor, but leave all tax and transfer goodies intact for the rent-seeking middle and upper classes. What is sauce for the goose is sauce for the gander. Does that make a UBI a hard sell politically? Maybe. I'm a lowly economist. As the song says, "If the rocket goes up/who cares where it comes down?/That's not my department/says Werner von Braun."

My point is stronger: Even if we followed your proposal to the letter, the highest income floor you say we can afford is far lower than almost any non-libertarian would accept.  This isn't surprising, because you waste so much money on the able-bodied.

3. Taxpayers have right to attach conditions to public charity. I don't dispute that. Whether pragmatic considerations might lead them to avoid excessive or silly conditions is another matter.

I'm against "silly," too.  But where do you see "excessive" conditions in the U.S. welfare state?  Wherever I look, I see only profligacy.

4. "You shouldn't get aid unless you are poor through absolutely no fault of your own." Yes, that argument has some moral force. However, pragmatically, it is hard to pull off since it requires a huge welfare bureaucracy to decide who qualifies, and the very effort to decide has a Heisenberger-like way of changing the nature of the phenomenon you are trying to evaluate. Exhibit A is our disability system, which tries to follow the principle you suggest, but ends up with massive unintended consequences (UBI vs. disability is subject of a forthcoming post.)

The American disability system's whole problem is that it's gradually moved away from the principle I suggest.  It used to be hard to go on disability; now it's easy.  We should blame the unintended consequences not on standards, but lack of standards.  Reformist libertarians should be pushing to restrict benefits to the truly disabled, not extending them to everyone regardless of need.

DOLAN: Further rejoinder. (Comment posted Feb. 10, 2017 in reply to Caplan’s preceding post)

Dolan in Times New Roman, Caplan in Helvitica

Caplan: I'm puzzled that you describe the evidence you summarize as "overwhelming." It seems fairly weak overall to me. And my understanding of the empirical consensus is that, in general, income effects are at least as large as substitution effects. I'd put more weight on that standard finding than experiments from decades ago.

I agree that the evidence from the income maintenance experiments of the 1970s and 1980s is old and inconclusive. If it were not so often cited by UBI opponents as “proof” that a UBI could not work, I would not have spent so much time examining it. As for more recent evidence, the CBO working paper that I cited is the most comprehensive literature review I have been able to find. The CBO review reaches the following conclusions regarding labor supply elasticities:

• Among men and single women, substitution elasticities appear to have increased and now range from 0.1 to 0.3. Income elasticities still appear to be smaller in absolute value than substitution elasticities and remain in the range of -0.1 to zero.
• Labor supply elasticities of married women—historically much higher than the elasticities of men and unmarried women—have fallen substantially in the last three decades, although they are still higher than elasticities of men and unmarried women. The substitution elasticity of married women appears to range from 0.2 to 0.4, and their income elasticity appears to range from -0.1 to zero.

If you or any readers know of other recent studies that differ from these results, please send me the links.

Really, though, the numerical values of the elasticities are not the whole story. My central point is that when a UBI replaces existing forms of aid, there is no income effect at all. Suppose, for example, that a married couple with two children now get $18,000 per year in food stamps, housing vouchers, childcare subsidies, and other forms of aid, with a benefit reduction rate of 50 percent. We get rid of all of that and instead give the family an $18,000 UBI ($4,500 per person). Their base income does not change, so there is no income effect. However, there is a full substitution effect. Instead of keeping just fifty cents from each added dollar they earn, they get to keep all of it (subject only to payroll and income taxes, if applicable). That very well might be enough to make it worthwhile to put in a few more hours at a minimum wage job—especially for the wife, whose elasticity of supply is higher (according to the CBO).

Caplan: Even if you're right, you're ignoring my central point: The UBI unambiguously hurts incentives for the vast population that's currently ineligible for most government benefits.

Sorry if I’ve ignored this point, because it is a sound one. Isaac Schapiro makes a similar point in a report from the Center for Budget and Policy Priorities, to which I replied at length in an earlier post. To both you and Schapiro, I say, yes, the elasticities argument for a UBI is stronger for households that face high effective marginal tax rates than for those who face lower EMTRs because they receive no benefits. In the extreme case, they are exposed to the full income effect and get no help at all from the substitution effect.

I would make two points here. The first is empirical. I’d like to see a count of how many poor households or individuals get no benefits. Is it a “vast” number, or a relatively small one? And what kind of people are they? If, for example, they are mentally ill and substance-dependent homeless people, I’ll concede that a UBI would be unlikely to get them into the job market. I’ve often said that a UBI is not a magic bullet. It certainly is not an effective weapon against mental illness and substance abuse. I’ll try to do some research on this and post the results. Thanks for pointing out the importance of the question.

Second, I’ll concede that the target group I have the most sympathy for in my writings on the UBI consists of households that are already at least marginally attached to the labor market and who have incomes in the range from half to double the poverty level. They are the ones who are most screwed over by the current welfare system and who would benefit most from a UBI, IMO. 

Caplan: Even if we followed your proposal to the letter, the highest income floor you say we can afford is far lower than almost any non-libertarian would accept. This isn't surprising, because you waste so much money on the able-bodied.

First, I agree, there are some non-libertarians who want a UBI high enough to let everyone live a comfortable middle-class life without working at all. That is particularly the case with some who write about the UBI in the context of an imagined automated utopia in which no one at all has to work. I say, pie in the sky. But let’s not get off topic. This is a debate about why libertarians might take a UBI seriously. I don’t have to worry that my $4,500 UBI is too stingy. I have to make the case that it is not too high.

Second, I think when you write that my version of the UBI “wastes so much money on the able bodied,” you haven’t really thought through the whole program. Again and again, I have emphasized that in order not to “waste money on the able bodied,” a viable UBI I must replace not just welfare for the poor, but “middle-class welfare” as well—much of which comes in the form of tax expenditures. 

For example, let’s say a middle-class family of four is getting $18,000 per year in assorted tax deductions—minimum allowance, mortgage interest, retirement savings, employer-provided insurance, an all the rest. If we give that family an $18,000 UBI, and at the same time cancel their $18,000 of tax expenditures, we have not “wasted” any money at all. What we have done is to change the form in which that money is spent, and do it in a completely revenue neutral way. Along the way, we get rid of some of the perverse incentives in current tax expenditure programs, such as “job lock” resulting from deductions for employer-provided healthcare and the bias against renters embodied in the mortgage deduction.

Similarly, to avoid “wasting money on the able bodied,” I propose that all safety net programs for the nonpoor also be integrated into the UBI. Take unemployment benefits, for example. In some cases those are greater than my suggested level for the UBI, in some cases less. I say, give eligible individuals the right to take unemployment benefits or the UBI, whichever is greater, but do not allow “double dipping.” Same for Social Security and some smaller programs.

Caplan: But where do you see "excessive" conditions in the U.S. welfare state?

Example: Subjecting welfare recipients to drug tests. Example: Conditions that restrict interstate mobility, as is often the case with programs administered at the state or municipal level, and which would be intensified with some GOP proposals for “block granting” everything. Example: Provisions that unnecessarily add to the red tape of getting benefits, as with disability programs (see below).

Caplan: The American disability system's whole problem is that it's gradually moved away from the principle I suggest. It used to be hard to go on disability; now it's easy. We should blame the unintended consequences not on standards, but lack of standards. Reformist libertarians should be pushing to restrict benefits to the truly disabled, not extending them to everyone regardless of need.

I know I have been remiss in not dealing with disability at length, and I keep promising to do so. Be patient. Meanwhile, just one point: The real problem, as analyzed by Autor and others, is not that it is too easy to get on disability, but that it is too hard to get off.

It often takes several years and costly legal help to get on disability, especially if the person is (as you suggest) only marginally disabled. Once you succeed, there is a tremendous incentive to stay on, since disability is for life and includes full medical benefits. Even a short spell of work can kick you off for good, and once you are off, it is even harder to get back on. That is why I call disability a UBI with a perverse twist: You get it only if you guarantee that you will never work again.

My basic proposal would be to integrate the UBI and disability through a double-dipping rule. Now, leaving disability is an all-or-nothing, once-in-a-lifetime choice. If you attempt to get back to work is a failure, you are screwed. With a UBI in force, a person getting disability would at least have the UBI to fall back on. The UBI might be less than full disability is now, but the step down in benefits would be less for a person leaving disability. That would improve incentives for getting back to work, and also reduce incentives to spend on the legal representation a marginally disabled person needs to get on disability in the first place. I promise, I’ll expand on this in full in a coming separate post.

CAPLAN: Final Reply to Dolan on the UBI, For Now (Econlog Feb. 13, 2017)

(Caplan in Helvitica, Dolan in Times)

Caplan quoting Dolan: As for more recent evidence, the CBO working paper that I cited is the most comprehensive literature review I have been able to find. The CBO review reaches the following conclusions regarding labor supply elasticities: 

·         Among men and single women, substitution elasticities appear to have increased and now range from 0.1 to 0.3. Income elasticities still appear to be smaller in absolute value than substitution elasticities and remain in the range of -0.1 to zero.

·         Labor supply elasticities of married women--historically much higher than the elasticities of men and unmarried women--have fallen substantially in the last three decades, although they are still higher than elasticities of men and unmarried women. The substitution elasticity of married women appears to range from 0.2 to 0.4, and their income elasticity appears to range from -0.1 to zero. 

This is news to me.  I'd have to spend a week or so reading to evaluate this, but thanks for alerting me to this evidence. 

My other big concern is that behavioral economics is highly relevant here.  The disincentives you get after removing all inconvenience and most stigma will probably be larger than we get under the current regime.

Caplan quoting Dolan quoting Caplan’s previous post: Even if you're right, you're ignoring my central point: The UBI unambiguously hurts incentives for the vast population that's currently ineligible for most government benefits.

Caplan quoting Dolan: Sorry if I've ignored this point, because it is a sound one. Isaac Schapiro makes a similar point in a report from the Center for Budget and Policy Priorities, to which I replied at length in an earlier post. To both you and Schapiro, I say, yes, the elasticities argument for a UBI is stronger for households that face high effective marginal tax rates than for those who face lower EMTRs because they receive no benefits. In the extreme case, they are exposed to the full income effect and get no help at all from the substitution effect.

I would make two points here. The first is empirical. I'd like to see a count of how many poor households or individuals get no benefits. Is it a "vast" number, or a relatively small one? And what kind of people are they? 

I deliberately said "ineligible for most benefits," not all.  What kind of people do I have in mind? Healthy, childless (or non-custodial) adults, aged 18-64.  Labor force participation for this group is already shockingly low for people without college degrees.  I can easily see it going far lower under a UBI.

Caplan quoting Dolan quoting Caplan’s previous post: Even if we followed your proposal to the letter, the highest income floor you say we can afford is far lower than almost any non-libertarian would accept. This isn't surprising, because you waste so much money on the able-bodied.

 

Caplan quoting Dolan: First, I agree, there are some non-libertarians who want a UBI high enough to let everyone live a comfortable middle-class life without working at all. That is particularly the case with some who write about the UBI in the context of an imagined automated utopia in which no one at all has to work. I say, pie in the sky. But let's not get off topic. This is a debate about why libertarians might take a UBI seriously. I don't have to worry that my $4,500 UBI is too stingy. I have to make the case that it is not too high.

My point: If the UBI you propose is lower than most people would accept, then you, too, should be worried that if we get a UBI, it will be fiscally disastrous.  My challenge: Instead of coming up with a bold, new idea that could easily end very badly, why not join me in simply pushing for austerity within the current system?

Caplan quoting Dolan: Second, I think when you write that my version of the UBI "wastes so much money on the able bodied," you haven't really thought through the whole program. Again and again, I have emphasized that in order not to "waste money on the able bodied," a viable UBI I must replace not just welfare for the poor, but "middle-class welfare" as well--much of which comes in the form of tax expenditures. 

Both the status quo and your proposed reform waste hundreds of billions on the able-bodied.  But given the massive cuts you propose, it's not clear that you're wasting more money on the able-bodied than the status quo does.  My point, again: If we're going to be reformists, why push a bold, new idea that retains the basic flaws of the status quo, instead of just calling for less wasteful spending?

Caplan quoting Dolan quoting Caplan’s previous post:  But where do you see "excessive" conditions in the U.S. welfare state?

Caplan quoting Dolan: Example: Subjecting welfare recipients to drug tests. Example: Conditions that restrict interstate mobility, as is often the case with programs administered at the state or municipal level, and which would be intensified with some GOP proposals for "block granting" everything. Example: Provisions that unnecessarily add to the red tape of getting benefits, as with disability programs (see below).

Each of these has an obvious rationale.

a. Drug tests. If people want taxpayer help, they should be trying to make themselves employable, not getting high. 

b. Residency requirements.  These reduce incentives for welfare tourism, a classic perverse incentive of redistribution.

c. Red tape. If moderate inconvenience deters you from seeking benefits, you probably don't really need them.

Caplan quoting Dolan quoting Caplan’s previous post: The American disability system's whole problem is that it's gradually moved away from the principle I suggest. It used to be hard to go on disability; now it's easy. We should blame the unintended consequences not on standards, but lack of standards. Reformist libertarians should be pushing to restrict benefits to the truly disabled, not extending them to everyone regardless of need.

Caplan quoting Dolan: I know I have been remiss in not dealing with disability at length, and I keep promising to do so. Be patient. Meanwhile, just one point: The real problem, as analyzed by Autor and others, is not that it is too easy to get on disability, but that it is too hard to get off.

A fair point, but it's fully consistent with my claim that the problem is lack of standards.  People with conditions that occasionally get better should have to periodically prove continuing disability.  They should be subject to audits.  There should be credible penalties for fraud.  And so on.  If you were running a voluntary charity to help the disabled, these measures would be common sense.  Involuntary charity should be held to at least as high a standard.

Dolan: Closing statement 

Whenever I engage with people about a UBI, I think of the blind men and the elephant. One felt the tail and said, “An elephant is like a rope.” One felt the legs and said, “An elephant is like a tree,” and so on.

Reactions to a UBI are like that. Some insist that even a minimal UBI will induce people to quit their jobs and spend their lives singing Kumbaya around a campfire; others focus on the fear that automation will make work itself obsolete. Some see it as immoral to help someone who doesn’t need it; others worry more about failing to help someone who is in need. Some see the poor as neatly separable into people who are unable to help themselves through no fault of their own and those who are unwilling to make the effort to help themselves. Others see a more nuanced picture that includes many who are struggling against difficult odds (created in part by the current welfare system itself) to work their way out of poverty.

My own focus is on a UBI as a pragmatic improvement current policies, which impose high work disincentives on the poor yet leave poverty rates high, and at the same time, lavish billions of “middle class welfare” on the non-poor. A UBI is not a magic bullet that will solve all social ills, but I continue to believe that the most common objections to a UBI—“we can’t afford it,” and “it would destroy work incentives”—are wrong as a matter of  basic economics. Those are the reasons why I do not find it surprising that many people with libertarian sympathies take the idea of a UBI seriously.

I do recognize that there are many points of view within the libertarian community. Not all are pragmatists. Many libertarians are not interested in making government work better—only in shrinking it. I understand that these will be more sympathetic to Caplan’s call for welfare austerity than to my argument that replacing the current welfare system with a UBI would improve administrative efficiency, increase work incentives, and reduce intrusiveness. If pragmatic reform is the enemy of liberty, I plead guilty.

My thanks to Bryan Caplan for this dialog, which has improved my understanding both of his positions and my own.