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Would a Universal Basic Income Be Good for the Economy?

August 31, 2017

A study from the Roosevelt Institute has concluded exactly that. It suggests that a government handout to every American of $12,000 a year, no strings attached, would boost the U.S. economy to the tune of a cumulative 12.5 to 13 percent over eight years. The report also says it would create more jobs.

Okay, time for the massive grain(s) of salt: the report's view is highly controversial, for a couple of reasons. First, the economic model it uses assumes that the U.S. economy is sitting in a state of artificially low demand. One reason for this, some economists think, is that income inequality has led a few rich people to hoard a disproportionate amount of wealth, instead of spending it, which acts to have a chilling effect on economic activity. (This is a view most notably espoused by Thomas Piketty—see "Technology and Inequality.") Assuming that's the case, a huge cash infusion from the government might be worth it because, the model suggests, it would lead to economic growth worth around $2.5 trillion, as well as the creation of millions of jobs. As Vox points out in its analysis of the report, though, this is an opinion that many economists disagree with.

A second assumption is potentially even more misleading. The Roosevelt Institute assumes that people given a basic income would not be inclined to work less. They cite several small-scale studies that support this. But as we have written before in an in-depth look at the impact a universal basic income would have in the U.S., the evidence is murky at best. That makes such a scheme incredibly risky—both from a labor standpoint and, if the return in economic activity is no guarantee, for its overall pricetag.

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