Free money with no strings attached—a “universal basic income” (UBI) or a “child allowance” would give unconditional cash payments to all adults or parents, respectively.
Liberalism of late has been seeking rationale to institute Free Money for the masses.
This from city-journal.org.
A massive socio-economic experiment has now provided compelling answers to the question, ‘What would be the end cost of free money?’
The answers, unsurprisingly, align with common sense:
– When people get free money, they work a bit less and play a bit more, and
– [W]hile they spend more on health care, they don’t see enduring health improvements as a result.
This study will not end the movement for no-strings cash, of course, but it certainly validates some common criticisms of such policies.
The experiment included 3,000 lower-income Americans aged 21 to 40, drawn from 19 counties in the Dallas and Chicago areas, with an average household income of just under $30,000.
– Two-thirds of these people were randomly assigned to the control group and paid $50 a month for their continued participation, and
– The other 1,000 got $1,000 every month for three years. That works out to $1 million a month, and $36 million over the whole time period, funded by private donations.
Researchers collected detailed data on what changed in the lives of the participants.
They published some key findings Monday in a pair of working papers through the National Bureau for Economic Research.
The first paper focused on employment results—a major focus of the UBI and child-allowance debates. And like data made available in an earlier study much of the results here were limited and contradictory.
Some advocates have even raised their hopes that a UBI could boost employment if recipients use the money, say, to get training or to pay for transportation, but that was not the typical result denoted by the study.
The one notable aspect of this experiment, though, is a reduction in work effort that, as the authors put it, “does not appear [to] offset other productive activities.”
Labor-force participation fell by two percentage points, and spells of unemployment grew about a month longer. Participants and their partners each cut their working hours by more than one hour per week, on average. Overall, giving someone $12,000 a year reduced their individual income by about $1,500, and also reduced partners’ income, for an overall reduction of more than 20 cents per dollar received. Scaled up nationwide, these would be substantial effects.
The authors also collected data on what individuals did with their extra time.
Leisure increased by about as much as work went down.
Recipients did not meaningfully increase ‘time spent on childcare, exercising, searching for a job, or time spent on self-improvement.’ However, the reduction in work was strongly concentrated among non-parents, implying that child allowances might have less impact than universal payments to all adults.
As far as investing in human capital, no detectable improvement occurred in recipients’ job quality (including amenities), though younger participants may have gotten a bit more education. There also was not much growth in savings; recipients went through “nearly all” of the money they received, either by reducing work or by increasing consumption.
The second paper, which shared some authors with the first, looked at health. Recipients spent about $20 per month more on medical care, went to the hospital more, and enjoyed short-term improvements in stress levels and food security. Yet the transfers did not seem to enhance overall physical health and only temporarily improved mental health.
As the authors summarized:
[M]ore targeted interventions may be more effective at reducing health inequality between high- and low-income individuals.
Of course, as large as this experiment was, it is just one study, testing a specific type of payment. Significantly larger or smaller payments would almost certainly lead to different outcomes. Permanent payments would also have different effects—in this experiment, the employment reduction got stronger with time until close to the end, when recipients knew that they could not count on the money much longer.
The experiment was also limited to lower-income Americans—those making at most three times the poverty level. Presumably, giving money to people making more money would have smaller effects on work. However, if “universal” benefits were funded through higher taxes, many higher earners would also face a new work disincentive.
At any rate, these results have—at great expense—confirmed what always seemed likely:
Unconditional cash transfers reduce work while benefiting recipients in generally short-term ways.
That finding may not end the debate, but it deserves to be a big part of any discussion on such transfers going forward.
Final thoughts: The point of this article, perhaps is that stupidity like this occurs and is considered valuable to the point that reports are written and published with at least a modicum of fanfare.
I see here a transfer of wealth having masqueraded as a socio-economic experiment.
Damn liberal think tanks throw around a lot of money seemingly seeking answers to common-sense questions.
This give-away entailed $36 million from private donations. Peanuts, right, when it’s someone else’s money?
