After my response to Steve Randy Waldman on the Universal Basic Income proposal, I got into a Twitter scrum with one Morgan Warstler (MW) and Bro. Waldman. I was under the impression that MW was promoting the UBI and promised to respond to his arguments. Turns out he is not promoting a UBI at all. He’s got a different scheme to replace the social safety net. I’m afraid I can’t endorse it.
MW wants to subsidize wages and require work. Jobs bubble up by virtue of a huge Federal wage subsidy and an online labor exchange. Employers can pay as little as a dollar an hour. The Gov tops up the wage offers to minimum wage levels (along with abolishing the minimum wage). You are required to accept one of the jobs on offer. You don’t work, you don’t get any money. It’s workfare-by-software.
Fortune 1,000 companies are barred from participation in the program, so someone dismissed from such a firm gets routed to a smaller company. At the same time, employers must be located within some short range of employees. I don’t see what would stop small employers from flooding into the program, though the geographical requirement would drastically limit job offers, especially in very low-income areas.
Morgan makes a number of puzzling claims. One is that prices would go down in low-income/low-wage areas, I suppose because the wage subsidy pushes down employer costs and the prices they charge. Though we have assumed there will be employers and we are ignoring the extent to which people consume goods and services originating elsewhere. And we neglect the impact of higher incomes in an area not pushing prices higher. He also thinks competition would force employers kept out of the program to pay higher wages. Again this assumes that jobs are generated in sufficient volume to force such a move. And for some reason he thinks everyone could do a job they positively love, like delivering singing birthday cards. (I initially wrote ‘singing telegrams,’ but you might not know what those are. Were.)
This won’t cost anything, we are told, because it would replace unemployment insurance. So we are back to a failure to grasp the basic functions of social insurance and in this case, fiscal policy. So let’s back up. What problem is the scheme supposed to solve? Poverty, or low employment?
If it’s low employment, you could read the scheme as an elliptical substitute for public employment and fiscal activism (deficit spending). The Gov can create oodles of productive jobs much more easily than a wage subsidy to decentralized, and in this case fictitious employers. There is no lack of public work to be done. Do you want to pay taxes so that a jobless person can go to work tending somebody’s flower beds, or rebuilding America? (Cue the trumpets.) The Gov created lots of work in the 1930s, without benefit of the Internet or PCs. Too slow? Jobs can be created in real time by strengthening automatic fiscal stabilizers, such as the progressive income tax and unemployment insurance. These boost aggregate demand when the economy goes south. MW would replace unemployment insurance with his scheme.
If the problem is poverty, the implication of the scheme is that the problem of the poor is that they won’t work. Before I deal with that ancient prejudice, let me remind you of the social insurance argument underlying unemployment benefits.
Unemployment insurance allows workers to collectively prepay to insure against the risk of job loss. Part of the employer’s labor cost is dedicated to a fund that provides for some wage replacement in the event of layoff. Workers in effect pay for their benefits by receiving less labor compensation. It’s that contributory thing again, to protect against FDR’s “disturbing factors of life.” To be sure, the connection between contribution and return is rough, but there is a connection. It’s not welfare. There is no reason to fix unemployment insurance. It is not broken. It could be improved, but it is not broken.
Unemployment insurance provides an incentive for workers to seek jobs in the first place (since the risks of impoverishment during layoff are reduced), and to keep searching if they have lost their job (to get benefits, you have to look for work). Unemployment insurance is not welfare. The problem with unemployment benefits is not that workers are refusing to work; it’s that they lost a damn job.
To address poverty, MW wants the beneficiaries of his program to work for their benefits. Of course, this is what state governments are doing now with Temporary Assistance for Needy Families (not social insurance). How’s that going? In a nutshell, for this approach to be valid, two things have to be true: the poor will work if jobs are available, and jobs will be available. Neither are true.
Jobs are not available in sufficient number to employ the poor and unemployed. If the Gov poured more money into job creation, as noted above, this problem could be addressed. But MW’s scheme is not the only way to do that, and I would say far from the best. Second, many among the poor are either children, disabled, or elderly. They are not expected to work. Among the able-bodied of working age, for many, labor market attachment is precisely their problem, even if jobs are available.
Given the chance, MW would fold in other programs providing means-tested benefits. This is a little careless, even if it’s in the realm of fantasy. As I’ve pointed out in other posts, churning existing benefits into some new system creates huge numbers of losing parties. Ordinarily that is not a disabling criticism, since any big change is going to shake things up. In this case, however, there is no well-defined rationale for the pattern of redistribution from existing beneficiaries to new ones. This follows especially if we are rerouting funds dedicated to those not expected to work into some kind of wage subsidy scheme.
As I cruise into my dotage, I am increasingly aware of age differences with others. Part of the me vs. UBI vs. MW vs. etc. I suspect is an age thing. Younger folks are looking for new things, of course you are. Away with the old and moldy! But one needs to be aware of value in what might be lost.
Social insurance is the greatest achievement of the modern liberal state. It is the most important institution protecting hundreds of millions from penury. If you haven’t looked into it, you really should. I would further argue that when most enjoy protection from the “great disturbing factors of life,” they are more indulgent of public altruism. Poverty and inequality are alleviated. That is the real historical experience of modern social-democracy.