Newark, New Jersey is embracing the Universal Basic Income craze that’s blazing across the nation.
Since Andrew Yang threw his hat in the presidential ring, the UBI has become the topic of discussion of the 2020 elections.
Newark Mayor Ras Baraka announced the establishment of a “task force” and pilot program to test this program. By carrying out this experiment, Newark will be the largest American city to test out the UBI to date.
Under this UBI scheme, the city of Newark will likely hand out stipends to all citizens irrespective of their employment status.
Mayor Baraka asserts that one-third of Newark residents live in poverty, thus necessitating that the government take bold action. Baraka said, “We believe in Universal Basic Income, especially in a time where studies have shown that families that have a crisis of just $400 a month may experience a setback that may be difficult, even impossible to recover from.”
Despite the upbeat nature of this UBI rollout, no specifics on how this program would be carried out were provided.
So far, the UBI has generated mixed results in places where it has been tested. The most notable example was Finland’s UBI experiment in 2017. The Finnish government conducted its UBI trial by randomly selecting 2,000 Finns and giving them a monthly stipend of roughly $634.
What could possibly go wrong?
Two years after the program was launched, the Finnish government decided to axe the project. Certain reports form the Organisation for Economic Co-operation and Development (OECD) vindicate the Finnish government’s course of action. According to the OECD, Finland would have to implement 30 percent tax hikes just to finance this program. Further, the OECD’s research found that the Finnish UBI scheme could have potentially increased the poverty rate in Finland from 11.4 percent to 14.1 percent.
Ontario, Canada also ran its own UBI pilot program and ended up scrapping it, arguing that it was “not sustainable” and “expensive.”
As more UBI experiments are conducted, we will get to see how these programs play out. However, free market fears of UBIs appear to be well placed based on the limited examples we have seen so far.
When we look at how wealth is truly created, we can see why UBIs don’t make sense. Economic redistribution makes for a lousy driver of economic, as witnessed with America’s current tax code. Adding another redistribution scheme like the UBI, which will very likely require another layer of taxation.
Poverty reduction is largely the product of increased worker productivity. Economist Ludwig von Mises observed in The Anti-Capitalist Mentality that the “increase in what is called the productivity of labor is due to the employment of better tools and machines.”
The tools and machines Mises refer to are the capital goods necessary for productivity to be boosted. This in turn, leads to increased prosperity. The common denominator in this equation is capital accumulation, not wealth redistribution.
Apart from the direct economic impacts of UBIs, these policies come with potential social baggage. Economist Dan Mitchell argues that jobs have a form of social utility. In his view, “Having a job, earning a paycheck, and being self-sufficient are valuable forms of societal or cultural capital.”
Mitchell also contends that the welfare state is not going away anytime soon, despite UBI proponents’ claims that UBIs would phase out the current welfare state model. Mitchell does not “trust that the rest of the welfare state would be abolished.”
The economist finally concludes that “universal handouts would erode the work ethic and exacerbate the dependency problem.”
Local jurisdictions have every right to experiment with these proposals, but nationalizing them would create a host of unintended consequences that America can’t afford to withstand. With America’s already cumbersome welfare state, it’s best to consider alternatives that decentralize welfare services and let smaller jurisdictions experiment with their own welfare programs.