No, Universal Basic Income Is Not the Secret to Economic Growth

Jose Nino Comments

A new study on the universal basic income contends that giving every American adult a $1,000 cash stipend per month would grow the economy by 2.5 trillion by 2025.

The study came from the left-leaning Roosevelt Institute.

Three proposals were analyzed during this study: a full UBI where every adult gets $1,000 per month ($12,000 per year), a partial basic income where every adult receives $500 monthly ($6,000 a year), and a child allowance where parents received a monthly stipend of $250 per month ($3,000 a year).

The report argues that the larger the UBI, the more the economy would benefit. This study found that a $1,000 no-strings attached handout to all adults would increase GDP by 12.56 percent after 8 years.

According to Congressional Budget Office figures, GDP is around $19.8 trillion. In effect, the UBI stipend would increase GDP by $2.48 trillion based on research that Vox conducted. On the other hand, the $250 allowance would promote GDP growth of 0.79 percent and the $500 monthly payment would grow GDP by 6.5 percent.

These estimates are based on the assumption that the federal government will be increasing the deficit. This same study calculated the economic impact of a UBI when it is financed through higher taxes. In this case, the report did not find any positive effects on economic growth.

The report stated “When paying for the policy by increasing taxes on households rather than paying for the policy with debt, the policy is not expansionary.” It added, “In effect, it is giving to households with one hand what it is taking away with the other. There is no net effect.”

Claims about UBI’s potential for economic growth should be taken with a grain of salt. At the end of the day, the UBI is a redistributionist scheme that takes resources from one class of people and gives them to another. No wealth is effectively created in this process, as it runs contrary to the way wealth is created, which is done through the accumulation of capital. As a result of this increase in the overall capital stock, worker productivity is boosted. That is how societies ultimately become wealthier.

On the other hand, financing a UBI program through deficit spending is the economic equivalent of kicking the can down the road. Large deficits will either lead to taxation of future generations or the use of easy money policies to stave off the increased debt. In both cases, citizens end up being taxed and future generations are left with precarious economic prospects.

Instead of the UBI, let’s look at other bold policy proposals. Say for example, scrapping our federal tax system, phasing out central banking, or scaling back federal bureaucracy. These are actual reforms that liberate entrepreneurs from the shackles of government control and let them invest, save, and create businesses.

However, today’s political climate only makes policymakers think in terms of redistributionism or fiscal changes around the margin.

The days of beating around the bush are over. The road to prosperity is paved with bold reforms, not half-measures. 

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