Free Money

Sarah Perry is a contributing editor of Ribbonfarm.

To: Human Subjects Review Board
Re: Universal Basic Income Study

We propose to give people money for five years. We will have them fill out some surveys.

Recently, Y Combinator announced plans to fund a research study on universal basic income. Everybody is all excited and/or mad about it. I do not have an opinion; rather, I’m interested in using it as a lens to think about predictions in complex systems, avoiding harm, the modern invention and subsequent fall of the work ethic, and the innovation-driving effect of procrastination and useless hobbies.

What is universal basic income? Certain features distinguish it from related phenomena:

1. It is universal – everyone in a particular political jurisdiction receives it.
2. It may be (partly) need-based in its initial award, but in its purest form it is universal in the sense that it goes to everybody. In this form, it is sometimes criticized as “welfare for the rich.”
3. Even if it is need-based in the initial award, it is not reduced by increased income after the initial award (often distinguished from a basic income guarantee). In other words, it has a low or zero “take-back rate” or marginal tax rate.
4. It lasts for the foreseeable future of the entity providing it (“for life”).

The proposed study will last five years, so it can’t meet the fourth criterion, but the other criteria may be approximated – especially if the study participants are concentrated together in a single neighborhood.

What The Study Will Find

No perfect study has ever been done, and this will not be a perfect study. But enough imperfect studies have been done that we can make some predictions about what the new study will find.

Some sources of data that best approximate universal basic income include:

• conditional cash transfer studies in the developing world, such as PROGRESA in Mexico
• a small study on Belgian lottery winners, whose prize was very similar to a lifetime basic income
• studies on negative income tax in the United States and Canada in the 1970s

I’d like to add to the mix another source that doesn’t approximate UBI very well, but helps put the other studies in context:

• a study of the effects of being deemed eligible for disability benefits on labor force participation

Prediction 1: People Won’t Stop Working

In the PROGRESA study in Mexico, cash transfers were “conditional” not in the sense of conditional on staying poor, but in the sense that, for instance, children were required to attend school. This closely approximates the third criterion for universal basic income: while poor people were chosen to receive the benefit, there’s no disincentive to earning more money once they are in the program. This is also the case in the study of Belgian lottery winners: their prize of monthly income was not reduced by their earnings. The PROGRESA study found no significant effect of cash transfers on adult workforce participation, and in the small Belgian study hardly anyone quit their job, and very few reduced the amount that they worked.

In the negative income tax studies, there was a significant “take-back” rate – the more income earned, the less benefit received (this varied by study). As predicted, there was some reduction in labor force participation. People didn’t tend to leave the workforce altogether; they spent more time between jobs or worked fewer hours. Male heads of household reduced their work the least (Widerquist reports between 0% and 9%, depending on the source and the data); single mothers reduced their work a bit more; and married women and teenagers living with their parents reduced their work the most, presumably having equally socially important things to do, such as care for families or study.

As an important contrast, the study on disability benefits found that receiving disability benefits seemed to cause a significant reduction in employment and earnings. The authors made use of the fact that there is significant variation between administrative law judges who decide disability cases; some are more lenient, some more strict, so there is considerable randomness in whether a marginal case will be approved or denied benefits. Identifying these marginal cases, the authors found that receiving disability benefits had a strong negative effect on later employment and earnings.

Social security disability has one of the most onerous “take-back” (marginal tax) rates; even very small amounts of earnings reduce benefits, and earning an amount well below what is required to live will disqualify one altogether.

Taken together, the studies suggest that a basic income program with no reduction in benefits for money earned will have very little effect on labor force participation. What effect it does have, such as allowing one partner in a two-earner household to work less, is likely socially beneficial.

The main outcome reported by the Belgian lottery winners was that they felt more secure about the future. Of course this is not replicable in a five-year study.

Prediction 2: People Won’t Suddenly Become Entrepreneurs

In the PROGRESA study, adults tended to try to shift their work from poorer-paying home-based work toward salaried work. Zero winners of the Belgian lottery became self-employed. Entrepreneurship is a risky and self-selected endeavor. The study probably won’t reveal any change in self-employment unless participants interested in starting businesses are specifically selected.

Can Giving People Money Hurt Them?

The disability income example suggests one way that giving people money can hurt them: paying people on the condition that they stay too disabled to work incentivizes being too disabled to work. Money without strings attached does not have this downside.

However, giving people money within the existing web of conditional benefits could potentially hurt them: potential recipients currently receiving need-based benefits (including medical, educational, and disability-related benefits) may lose them, and the loss in some cases could be greater than the gain.

I have previously written on the counterintuitive point that merely being given an option can be harmful. The convenience store clerk on the night shift is worse off having the option to open the safe, because it makes her a target for robbers, even though opening the safe is in her best interests once she has the choice. Restrictions on the sale of organs presume that people are better off not having the option to sell their organs, because this is more likely to be demanded of them in such a regime.

What about free money? A poignant example comes from sociologist Carol Stack in her book All Our Kin (at p. 309). She relates the story of Magnolia and Calvin, a married couple who receive an inheritance of $1,500 (in 1971). Their welfare was immediately terminated, including medical care and food stamps. And within six weeks, the entire amount was used up, “dissipated” throughout the kin network, paying for emergency funerals, a sick relative’s rent, and winter clothing.

Lewis Hyde, in his excellent The Gift: Creativity and the Artist in the Modern World, writes that

The only way this couple could have capitalized on their good fortune would have been to cut themselves off from the group.

In fact, Magnolia’s sister, Lydia, did just that at one point: marrying, buying a house and furniture in the suburbs, and living alienated from the kin network for ten years. Only when her marriage broke up did she return to the network of obligation, beginning with gift-giving.

The third option, Hyde proposes, is deception; the money could be hidden from others within the kin network. None of these three options is very good; some may prefer not to have to make the choice at all, even if they make the best possible choice under the circumstances. Here, universality (within a local area, at least) could prevent the gift of free money from being a harm.

However, localizing the study in a particular area also concentrates any possible negative results. What if, contrary to prior studies, everybody does just start playing video games all the time, and the local economy collapses? It is difficult to be harmless when acting on complex systems. (It may also be difficult to be harmless when not acting, for that matter.) Spreading and concentrating each have their potential downsides.

The Modern Invention and Brief Life of the Work Ethic

Roy Baumeister, drawing on the work of Daniel Rodgers, suggests that the supposedly ancient value of the “work ethic” is a modern invention, whose internal contradictions soon grew so apparent that it was rather short-lived as a value base.

Ancients would have laughed at the notion that work is ennobling, says Baumeister; they had no such illusions. Work was to be avoided if possible. The work ethic was invented during industrialization, when religious justifications for social structures and work were fading. If work were valuable in and of itself, then people could always be motivated to work hard.

The new work ethic ultimately failed. It proposed that work was at once an act of self-fulfillment and an act of self-denial; but how could this be? It promised value based on individual self-determination, but in practice delivered work in corporations and bureaucracies. Social mobility proved to be limited. Working less and consuming more proved to be more attractive than working for work’s sake. The motivation of individual self-esteem and prestige through a career proved more sturdy than the motivation of the work ethic.

The work ethic is still called upon by those who work in order to feel superior to those who don’t – and feeling comparatively more valuable than others is an important basis for a sense of meaning in life. But the work ethic was never very real, and has ceased to be much of a motivation. We probably do not need to worry about universal basic income “eroding” it. Researchers should measure loneliness and depression, social participation, and the sense of meaning and happiness, not just workforce participation, in the study and control groups.

What good is work? The more it is not necessary to the economy, the more value it must provide to the individual worker. Work provides a sense of being valuable and not a burden, and gives people opportunities for social interaction and daily ritual. If they can find other ways to provide for these needs, then perhaps work is not so necessary.

People are mostly not very creative. We will not each come up with a new, fulfilling way to live life without work. Rather, a few innovators will come up with new ways of life, which will spread. In this way, rare human creativity and the more universal ritual stance (doing the same thing over and over) could interact to usher in whole new ways of peopling.

Did Procrastination and Laziness Make Us Human?

I conclude with an amazing paper by the late Seth Roberts. Roberts proposes that the near-universal human phenomenon of procrastination is not a tendency to do nothing – literally doing nothing is awful (as depicted in the Black Mirror Christmas special). Procrastination is, rather, the tendency to do the same thing over and over again, to avoid change. Roberts hypothesizes that this tendency is very good for creatures who, for instance, specialize in a particular kind of foraging, or spend lots of time making fussy tools that require a lot of repetitive action. Procrastination – the tendency to do the same thing over and over – is another way of saying specialization, and economic specialization is precisely what enables our complex economy. (See also Nick Szabo on protein specialization and the production of time-consuming collectibles.)

Roberts suggests that two tendencies allow humans to make leaps in technology: the tendency to make things better than necessary, and the tendency to value useless things (e.g., Szabo’s collectibles). Both these tendencies are realized in the phenomenon of gifts.

Some economists dismiss gift-giving as a drag on welfare; we would all be better off if we just bought ourselves what we wanted, rather than getting a bunch of useless stuff other people thought we might like. Roberts suggests that gift-giving is actually extremely beneficial to the economy, subsidizing gift-makers and thereby promoting innovation.

One feature of gifts is that they must be novel – not a duplicate of something the recipient already has. This in itself drives innovation, even if only (initially) in the form of decoration. Many technologies that were originally merely decorative formed the basis for useful technologies. Roberts says:

Desire for decoration pushed technology forward as recently as the 1800s, when William Perkin, a British chemist, accidentally created the first synthetic dye. Before this, dyes came from plants. The discovery led to the first chemical factories. Building on Perkin’s discovery, other synthetic dyes were developed and made in large amounts.
Desire for decoration increased innovation because it was easier to make something look better than work better. It is easier to decorate a cup than make it work noticeably better. Yet…attempts to make decoration led to accumulated knowledge that led to useful new products — such as sharper swords and chemical factories.

Roberts closes by suggesting that free time is a driver of innovation itself – precisely because of our human tendency toward procrastination (pursuing our particular specialized hobbies). Even if universal basic income does result in less workforce participation, and even though most recipients are unlikely to become entrepreneurs, we may see society-wide benefits from a few more geniuses having more free time (even if most people play video games – as if that’s the worst possible fate for humanity!). He says:

the tools, knowledge, and networks that made work more productive also made free time more productive – and free time is an especially fertile source of innovation. I have never come across an economist who considered free time productive. But this theory says that hobbies — and the innovations they produced – were in a sense the beginning of where we are now. In the beginning, all innovations came from free time. It is entirely possible that people are more innovative during their free time than during their job. People have more freedom during their free time. They are under less pressure to produce fast results. They are under less pressure to please others. It is entirely possible that the most important innovations in the next fifty years will come from what people do in their free time. [Emphasis mine.]

Elaboration of novel ways of living, of being valuable to each other and fulfilling our needs for meaning, requires just as much innovation as decorating material goods in novel ways. Perhaps the most interesting kind of basic income study would focus on creating these new ways of living.