Universal basic income

From the December 2019 print edition

If you’ve been following the US political scene, you may have heard of Andrew Yang. He hopes to be the Democratic nominee for president, which means that if he were successful, he’d be going head-to-head against Donald Trump next November. What has distinguished Yang’s campaign is his call for universal basic income or what he calls the freedom dividend. Every American 18 or older would receive a monthly check in the amount of $1,000, no questions asked, which amounts to $12,000 per year. A couple would receive a combined $24,000, which is enough to live on in most part of the US and very close to the poverty line which for a family of four currently stands at $25,750.

It’s an interesting idea from a deep thinker (the fact that he thinks deeply about issues almost guarantees that he won’t be elected). From listening to Yang, part of the motivation for the plan comes from his understanding that the ways that we measure economic well-being don’t capture anything particularly meaningful. We tend to look at gross domestic product (GDP) or more precisely GDP per capita. That means the more we consume, the better off we are. And perhaps once upon a time, when we were a manufacturing-based economy, this could have had some significance. But not so much anymore.

Measuring productivity
I teach at a school for a living. I am a full-time tenured professor at George Brown College and teaching is a service. My contribution to GDP is measured 100 per cent by how much I’m paid. This means that if I receive a two per cent pay increase, then I’ve become two per cent more productive. This is, of course, silly on the face of it. A more sophisticated and realistic measure of my productivity would be to chart the number of classroom hours, adjusted for the number of students in the room. In other words, if I taught for 12 hours and had, on average, 40 students one year, and then 10 hours of teaching and 50 students the next year, we could meaningfully say that I was approximately four per cent more productive (500/480). But that ignores the quality of my output which means it’s not particularly helpful either.

Back to Andrew Yang and his argument about economic well-being and the curious connection between his world view and Donald Trump’s. I believe that when Donald Trump said: “Make America Great Again” it meant one thing to his ideological foes and another to his supporters. His enemies saw him hearkening to a return to the 1950s, where women and visible minorities were discriminated against and this was actually codified into the law. His supporters looked back nostalgically to a time when a middle-class man and one income could support a wife and household full of children. And those days are definitely gone.
But this still begs the question: how can we more perfectly quantify economic well-being? It seems to me that the best measure would be to calculate how much it costs for an individual or family to provide for basic necessities: food, clothing and shelter. Then we would figure out the median individual or family income and see what percent of that income has to be allocated to those basic needs.

Practical necessities
There would be lots of things that could be understood as practical necessities that would be excluded. I would not include the cost of vehicles, even though owning a car is required for many North American families. I would not include the cost of mobile devices like smartphones, even though many would argue that it’s virtually impossible now to live without one. Except what we’ve seen over the years, is that the cost of products like these has increased at a rate much lower than inflation on the basic necessities I’ve cited previously, in particular food and shelter. Clothing prices have been coming down in real terms because of globalization.

That would be one measure. The other metric I think we should look at is the number of hours spent working and commuting relative to the number of hours in the week. Right now, we calculate average work week, but we don’t consider the time it takes to get to work. And this can be significant in a place like Toronto, where many folks are spending at least a couple of hours a day getting back and forth to their place of employment.

I think that Yang would agree that these measures are better than GDP per capita. It doesn’t fully address what he’s concerned about. When he talks about universal basic income, it’s more than just about the money. It’s about the freedom that this money would provide, and the safety net that would be provided to all Americans. And if we could actually quantify things like that, it would surely be a better way to understand economic well being than GDP per capita.

Toronto-based Michael Hlinka provides business commentary to CBC Radio One and a column syndicated across the CBC network.