Universal Basic Income

Over the last several years there have been a number of proposals by economists and political scientists that would substitute universal basic income policies as credible alternatives to existing social programs such as unemployment insurance.

The idea is straight forward:  Provide citizens with a minimum allowance, without means-testing, that would give everyone the means to live on a basic level of dignity.

The idea is also not as far fetched as one might think.  Finland is moving closer to offering its citizens a tax-free payout of 800 euros per month, in place of current social welfare payments, child benefits and state pensions.  Switzerland is considering a referendum that would pay each citizen 2,500 Swiss francs per month and the Netherlands plans to begin universal income pilot projects in several cities in 2016.

In the U.S., Alaska currently provides one version of basic income through the Permanent Fund, passed in 1976, for the purpose of distributing dividends from Alaska’s oil deposits.

The debates regarding universal basic income tend to revolve around cost and whether adoption would increase or decrease incentives to work.  It should be noted that unemployment insurance stimulates the same kind of debates.

Investors should take note of the potential for this issue.  Currently, the U.S. economy is improving, but at a relatively moderate pace.  Corporate investment is soft, largely due to generally modest expectations for future revenue growth.  Most observers believe that improving worker productivity and consumer spending are key to a stronger economy.  Perhaps greater income security, combined with appropriate incentives to seek productive employment, would have a positive impact on the U.S. economy.

A more comprehensive discussion of the concept of income insurance can be found in a working paper published by the Federal Reserve Bank of St. Louis.

All comments and suggestions are welcome

Walter J. Kirchberger, CFA®