Basic Income can add $2.5 Trillion to US Economy

A $1,000 a month basic income would add $2.5 trillion to the US economy over eight years. If that claim is accurate a universal basic income (UBI) would raise the U.S. Gross Domestic Product (GDP) to $21.07 trillion.

Paying every citizen in the United States $1,000 a month would grow the economy by 12.56% in eight years, a report from a left-wing think tank called the Roosevelt Institute claims. That would certainly be better than the 1.6% U.S. GDP growth rate reported in 2016.

The Levy Institute apparently conducted the research upon which conclusions are based. The research was performed by Michalis Nikiforos of the Levy Institute; Marshall Steinbaum the research director of the Roosevelt Institute, and Gennaro Zezza an Associate Professor in Rome.

Would Basic Income Grow the Economy?

Important conclusions from the study called Modeling the Macroeconomic Effects of a Universal Basic Income include:

• “Enacting a UBI and paying for it by increasing the federal debt would grow the economy.”

• “When paying for the policy by increasing taxes on households, the Levy model forecasts no effect on the economy.”

 

• The effects of UBI would wane after three years, Business Insider reported.

 

• A $1,000 a month UBI would add $2.5 trillion to the gross domestic product.

 

• To achieve these results UBI would have to have no effect on the nation’s labor supply.

 

• The researchers did not study the potential effects of increased taxes on household behavior.

 

• UBI might increase the labor force in the United States by up to 4.7 million workers. Since the labor force was around 160.5 million in August 2017, according to the Bureau of Labor Statistics (BLS), this would increase the labor force to 165.2 million.

 

 

Researchers studied the potential effects of three UBI strategies. The first would pay $250 per month to families for each child under 16, the second would pay every adult in the country $500 a month, and the third would pay each adult $1,000 a month. Unfortunately, the effects of the first two proposals are not laid out.

Would Basic Income Really Stimulate the Economy?

The basic income would stimulate the economy because most people increase their spending when they get more income. The $1.2 trillion question here is how much would UBI stimulate the economy?

That question is problematic because nobody knows the answer. Most people, particularly lower income individuals would increase spending, there would also be some who will save or not take the benefit. The vast majority of Americans that are eligible for programs like Medicare and Social Security participate in those programs, but many that qualify for Food Stamps or Medicaid forgo those entitlements because of the hassle involved.

A potential drawback to basic income is that most of the additional spending would be at a subsistence level. People would use it to pay for things like groceries, rent, utility bills, fuel and basic clothing not the big ticket spending which drives major growth in the economy.

Some Potential Problems with UBI

There’s also the cost, a $1,000 UBI would cost roughly $2.45 trillion a year, if all 245.577 million adults in the nation received it. That would have to be taken from some other area of the economy in the form of taxes, probably income taxes on the rich.

A major problem here is that money would be diverted from investment in real estate or the stock market or other government needs, such as education and defense. This means the growth in economic activity might not be that great.

Other problems include inflation or deflation because of increases in the money supply. Another threat is overheating of the economy and higher interest rates, which is possible if spending increases too fast.

A Few Benefits from UBI

A universal basic income might correct some of the biggest defects in our modern economy. The biggest defect is the slow rate of income growth for most of the population which drives income inequality.

The average household’s income was growing at a rate of 1.4% in 2014, New York Times contributor David Leonhardt pointed out. The richest Americans saw their wealth increasing at around 6% a year in 2014.

A related problem is a geographic concentration of wealth, most of this income growth is occurring in just a few metropolitan areas; such as New York, Dallas, Austin, Denver, Los Angeles Chicago and San Jose. Persons who live in places like Canton, Illinois, Canon City, Colorado, and McComb, Mississippi, find themselves trapped in economic stagnation and decline. It is no coincidence that big retailers are closing stores in places like Canton and McComb – but opening locations in cities such as Denver.

How UBI might create more jobs

Basic income might shift spending to those areas and stimulate some growth there. A UBI might give people in Canon City more cash to spend at City Market (the local Kroger supermarket) or Walmart.

The increased business might enable Walmart or Kroger to hire more employees at the local store; and increase shipments to Canon City, which might create a new truck-driving job. A related benefit would be additional sales tax revenue for Canon City and Freemont County. That would mean more spending and jobs at the local government.

Additional demands from Walmart or Kroger might increase production at food or other factories, or imports flowing through the port of San Pedro. This might lead to additional jobs in manufacturing or transportation. A related benefit is that orders for trucks at PACCAR or Freightliner might increase, There would also be more demand for diesel fuel or electricity to power those trucks.

Even if the poor wasted their UBI on beer and video games it would benefit the economy. People get paid to brew beer and create video games. Trucks haul beer, and stores sell beer which would create jobs. There would also be additional tax revenue for federal state and local governments because taxes are higher on beer.

Other benefits might be less crime and violence. History has proven again and again that income inequality leads to violence and civil unrest. Crime is a natural and inevitable effect of poverty.

Hopefully, this study will get people thinking about basic income and convince some of our so-called leaders to start looking into it. It would be a better solution to our nation’s problems than the babble about trade coming out of the White House and the Senate Democrats.