The city of Stockton, California has proven that basic income programs are the future of poverty reduction policies. At least that’s the imagination of those who cheered the results of a recent study that tracked Stockton residents who received non-binding cash payments in the years leading up to the pandemic. Given that prominent politicians, including New York mayoral candidate Andrew Yang, are advocating the implementation of such programs in dozens of cities and states, this study is reportedly a cornerstone. In reality, however, it is nothing of the sort.
The Stockton Economic Empowerment Demonstration (SEED) provided 125 low-income neighborhood residents with prepaid debit cards valued at $ 500 per month for two years. It found the recipients used the money to pay for food, utilities, and other goods, and the added flexibility was beneficial for mental health. Better still, although only 28 percent of the recipients worked full-time at the start of the demonstration, 40 percent ended up doing so. Such results, according to the authors of the study, show “a causal relationship between guaranteed income and financial stability as well as improvement in mental and physical health”.
Stockton Mayor Michael Tubbs celebrated the results and urged the media to “tell your friends and cousins that guaranteed income did not make people stop working”. According to Annie Lowrey of the Atlantic, SEED has “proven wrong” the adage that “the best way out of poverty is a hand-up, not a handout”. NPR reported that this “high profile universal basic income experiment. . . Participants’ employment prospects, financial stability and general well-being were measurably improved. “
Tubbs and his media allies should ease their enthusiasm. The new study shouldn’t have any impact on the conversation about basic income – mainly because it is not an experiment on basic income.
First, the program can hardly be called an “experiment”. The recipient pool comprised a tiny sample of Stockton residents who lived in low-income areas. (The “universal” pillar of the “universal basic income” has already fallen out of favor.) Although residents were actually randomly selected from these low-income zip codes, 125 geographically-delimited people are far from a representative sample of those Who did this would actually receive a basic income if it were implemented as a policy. It is absurd to use a study of 125 people from selected fields as a basis for action that would imply millions.
It is also very misleading to call the program a “Basic Income” pilot. The demonstration only delivered $ 6,000 a year to recipients, a significant addition to existing incomes, but not nearly enough to qualify as an income floor in a city where the median household income is more than $ 46,000. It bears more resemblance to abandoned monetary aid programs like Aid to Families with Dependent Children than it does to Andrew Yang’s $ 12,000 a year “Freedom Dividend”.
The SEED study does nothing to alleviate inflation fears as it is too small a shock to aggregate the demand that was only paid to a few dozen people for a couple of years.
Mr Tubbs, who now runs an organization called Mayors For A Guaranteed Income, insists that there is no place in the great fear of basic income programs – that they lead people to work less or stop working altogether. However, SEED says nothing about possible work effects in the real world. A key limitation of the study is that the recipients knew that the program was limited in time. We therefore do not know whether the basic income “would lead people to stop working” if implemented as a policy for the indefinite future. That the recipients did not disconnect from the labor market when they knew their benefits were low and temporary is not surprising and says nothing about the basic income as a poverty reduction policy.
Another major concern of basic income as a policy is that it would be enormously expensive even if it were only intended for the poor. As a privately funded endeavor, largely sponsored by billionaire Facebook co-founder Chris Hughes, SEED says nothing about how taxes might change to fund such a program. One possibility is for a state to run a basic income program just to tax its recipients at a higher rate to pay to give money with one hand and take with another.
Taxes are not the only second-order effect that remains unexplored by a study so far removed from the actual implementation of the basic income. For example, one of the fundamental problems with basic income programs is that they would cause significant inflation by driving up demand for certain goods and services. If all consumers suddenly had a significant – and especially predictable – extra monthly income for business owners, basic economic theory suggests that prices will rise to keep pace with the rise in aggregate demand.
There is a real possibility that this will nullify the basic income guarantees themselves. Even if a jurisdiction provides guaranteed income only for low-income households, we should expect price increases in the goods and services that low-income people tend to buy, thereby stripping payments of their value. The SEED study does nothing to allay that fear as it is too small a shock to aggregate the demand that only a few dozen people paid for a few years. In practice, if a demand shock is not simulated, it has little to do with a basic income program.
Finally, proponents of SEED state that the general concern that recipients of basic income are spending their money on undesirable goods is not justified: “Less than 1%” of SEED money “was spent on alcohol and / or tobacco, according to the study “. However, this only includes the expenses of the SEED debit card and not the household expenses of the SEED recipients. Money is fungible. A recipient of basic income could spend the money they received from the demonstration on groceries and the money they would normally use on alcohol needs.
Though its proponents tout it as an optimistic view of the future anti-poverty program, the SEED study reveals little more than what happens when you give a handful of people two years of extra money for welfare. Proponents of Basic Income, including those running for public office across the country, will tell voters that concerns about the unintended consequences of Basic Income have been addressed. In truth, they remain as justified as ever.