Economic Revival and Universal Basic Income

Economic Revival and Universal Basic Income


The COVID-19 pandemic has shut down the economy, with many peoples’ income dropping and their savings dwindling. We are forced to consider how to restart our economy, when people have a lot less capital and will be less inclined to go out and spend. Will it make sense for governments to leverage their resources, prime the pump, and give people starter cash?

When you play Monopoly, you start with some dough. Incidentally, the $200 you get when you pass Go is nearly $3,800 in 2020 dollars.¹ That’s the kind of money we’re talking about. The COVID-19 crisis is causing many citizens to restart with little to no capital, therefore having no way to get past Baltic Avenue.

For those in dire straits, Canada’s inadequate social safety net would kick in to give them a pittance. But how might we reimagine this to serve us better? Perhaps the crisis can be a catalyst to a healthier restart of the economy.

Former Conservative Senator Hugh Segal, chief of staff for both Ontario premier Bill Davis and Prime Minister Brian Mulroney, has been a long-time advocate of Universal Basic Income (UBI): a minimum payment made by the government to every individual regardless of their employment status. He was tasked by premier Kathleen Wynne to design the basic income pilot project that was scrapped under the current government. Segal maintains that UBI would represent an improvement over Canada’s “rickety” case-based welfare system.

While our economy and work styles have advanced, we continue to operate our Canadian social support systems under frameworks that were established in the 1960s. Consider that sixty years ago there was little robotic automation, a far smaller service economy, virtually no computer productivity, and little capacity for people to work from home. Working from home at that time would have meant living in the apartment above your shop. In stark contrast, our severely outdated support structures are hopelessly overdue for a re-think.

“What if, instead of supporting a case-by-case investigation of a citizen’s moral or circumstantial failings to secure work or health, we grant a financial floor above the poverty line, which no citizen is permitted to go below?”

“We must broaden the base of understanding just how badly our welfare and EI systems operate and how disconnected they are from modern times,” says Segal. “The average welfare recipient gets something between six and eight-hundred dollars a month, usually less than fifty percent of the poverty line.”

When a citizen cannot make ends meet, Canada’s case-management systems kick in—a cumbersome and expensive bureaucracy investigates and manages the plight of the citizen to avail him or her of subsidizing programs. This is the derelict system Segal derides.

What if, instead, we provided cash to everyone each time they passed Go? Rather than support a case-by-case investigation of a citizen’s moral or circumstantial failings to secure work or health, we grant a financial floor—above the poverty line—which no citizen is permitted to go below? For those who can afford a luxe existence, the floor is a tax-free basis (we have elements of this in our Guaranteed Income Supplement now). For those who cannot afford the luxury, there would be a negative income tax, a top-up amount the government provides to ensure all citizens live above poverty. This, in essence, is the Unconditional (or Universal) Basic Income that Ontario experimented with a few years ago.

There are many forms UBI may take, but the principle is the same: citizens deserve a universal grant to live and consume. There is enough money in the system to make it happen, and it is simpler to run than a welfare state.

We may recognize this structure as the Guaranteed Income Supplement (GIS) for those over 65 in Canada. Once a tax return is filled out, the system kicks out money based on where the individual’s baseline of income exists to top them up to a minimum of $1,200 per month (which, admittedly, is not enough but the principle is there).

“[A universal basic income] is far better than the endlessly judgemental system—whether by algorithm or individual rules—which evaluates whether you are one-fourth of pi Employment Insurance and half welfare, or if you live in

Charlottetown you have X number of weeks of work that qualify but if you live outside Charlottetown you have Y weeks that qualify … I mean, it’s a bureaucratic maze,” Segal says.

UBI is not a new idea and it’s not without precedent. In Alaska, for example, the state provides all residents a dividend of the sovereign wealth fund (recently exceeding $1,000 per year).

“[Alaska] is hardly viewed as a socialist bastion, but rather more libertarian,” says Scott Santens, a senior policy advisor and a UBI advocate. The fund was signed into law in 1976, and shares with every resident a piece of the state’s oil revenues. The people expect it, and Santens says the universality of the annual grant means that “there is no stigma attached to it.” Alaskans do not view it as a hand-out from the government.

It is at this point that politics on the left and right tend to merge when discussing UBI. On the left, it is the desire for a compassionate society that supports all. On the right is the need for a society that enables people to fare their way in the world individualistically.

Base liquidity ensures that the economy chugs along. The more consumers, the more stuff people can sell. What keeps many from buying? Is it money, or rather the financial security that leads to disposable income—spending money?

Despite studies showing success along various metrics, such as Hugh Segal’s 2016–2018 Ontario Basic Income Pilot and the legendary Dauphin Manitoba “Mincome” pilot of 1975–1979, most opposition comes in the form of a moral argument: that handouts breed laziness. If the government gave me money, the thinking goes, then nobody would work.

“[A UBI system] allows people to maintain their privacy, their dignity, and respect, while ensuring they have the base liquidity to participate in the economy.” — Hugh Segal

If, however, “handouts” are thought of as “dividends” as they are in Alaska, even the most rugged individualists might get behind it. The idea is that citizens of a highly profitable venture such as the United States, deserve a piece of the pie, “in the same way Amazon and other corporations don’t pay taxes,” says Santens.

Last year, Democratic presidential candidate Andrew Yang carried on the idea of dividends in his primary campaign, naming his UBI platform a “Freedom Dividend.” In Ontario, Liberal Alvin Tedjo based his party leadership platform on expanding on the success of Hugh Segal’s pilot.

Although both Tedjo and Yang failed to secure the leadership of their prospective parties, UBI is finding its way onto major party platforms, with more and more people ready to seriously consider the idea.

“[A UBI system] allows people to maintain their privacy and their dignity and respect, but ensures they have the base liquidity to participate in the economy, says Segal. “Not for grand luxury, not for avoiding work, but rather to make sure they have the basic amount. In my judgement, it would be a huge step forward.”

There remains a cognitive bias against UBI, but a fresh opportunity lies within the COVID-19 crisis and its economic shutdown. Scott Santens is hopeful. “I think people may be changing the way they think about safety networks. So many people are experiencing government support for the first time [who] never thought they would be in this position, and it’s hopefully leading to new understanding.”

Santens has been fighting a cognitive bias called the “Just World” hypothesis for years. It is the assumption that you reap what you sow. It is the frustration you feel when someone you do not believe deserves misery receives it, and the pleasure of schadenfreude you feel when someone who does receive it gets it in heaps. American social scientist Melvin Lerner studied the bias extensively at the University of Waterloo in the 1960s. Finding this tendency pervasive in nearly all cultures, Lerner discovered we naturally fall back on primitive and simplistic explanations that disparage the poor and blame victims for their own suffering.

The complexities of structural forces that cause poverty (such as the lack of any compensation to former African slaves in the 19th century, but the contemporaneous granting of free land to European immigrants at the expense of Indigenous populations) or illness are less enticing to us than a black-and-white moral view that the world is just. Under this bias, people instinctually feel the world must be a consequential place, and consequences are appropriate to circumstances.

Religious sentiment is rife with this. Many Christians are familiar with the Protestant Work Ethic, which Ben Franklin summed up as “God helps those who help themselves.” In the US, it has evolved into the curiously anti-Christian Prosperity Theology of pastors such as Joel Osteen, Jim Bakker, or Creflo Dollar, who promote the belief that unconditional faith in God and ongoing financial tributes to the church will yield you wealth in your mortal life.

There is common ground with UBI here. Early Christianity under Paul Tarsus operated as a fictive kinship group whereby the community shared its common wealth. To be an Early Christian was to participate in a safety net that would ensure you and your family would not starve and have a base lifestyle.

The idea of supporting one’s brothers and sisters—fictive or otherwise—has been around a long time. To many, this sounds too close to Karl Marx’s edict of “each according to his need.” And at that point, belief crashes into bias. Especially in the USA, there are polarizations which prevent constructive dialogue about these sorts of things.

Santens is hopeful that UBI does not become labelled as a Democrat initiative, though he concedes it is the Democrats who have been the most interested. Still, knee-jerk opposition remains. A quick search on Google shows a rich dialogue ongoing. But two key opposing positions are that people do not deserve money unless they have worked hard for it, and that it is too expensive.

The first point centres around the moral argument on laziness. During the Dauphin Mincome project in Manitoba, male-earner households saw no drop in employment or desire to work according to a report generated by Derek Hum and Wayne Simpson from the University of Manitoba.

With female-earner households, however, there was a slight drop in employment. “This is entirely consistent with family responsibilities common to the ’70s,” Gregory Mason, economics professor at the University of Manitoba, wrote in the Winnipeg Free Press some forty years after the Dauphin experiment. In the 1970s, there was not an option to work from home in the way there is today. If these Manitobans were able to continue to work from home and manage their household responsibilities at the same time, would there have been any drop in the workforce? It is an enticing question.

The second argument is about the cost of UBI. Many of our social support systems may or may not survive the reformation that supporters of UBI envision under a new basic income regime. It is tough. It enters straw man territory and is difficult to calculate.

During Hugh Segal’s Ontario pilot, seniors were excluded, so the governmental cost of the Guaranteed Income Supplement, Old Age Security pension, and the Ontario Guaranteed Annual Income System remained. Provincial and federal Child Benefits remained. The Ontario Drug Benefit and Dental Benefit remained.

If Canada updates its approach, it would transfer 7.7 million Canadians from the edge of destitution, allowing them to play a greater role in the economy and reap its benefits with dignity and enthusiasm.

In the Ontario pilot, UBI would have replaced Canada Pension Plan (CPP), Employment Insurance (EI), Ontario Disability Support System (ODSS), and Ontario Works (OW). The federal plans cost taxpayers over $3 billion to operate, not including dispensations. For dispensations, in 2017, CPP issued $44.5 billion; EI was budgeted to dispense $20 billion in 2019. EI runs at a surplus, and CPP is well capitalized. Obtaining data for ODSS and OW is difficult to ascertain but it is probably somewhere north of $20 billion per year in dispensations. Operating costs are likely in the $3 billion range.

A few years ago, Ottawa Member of Parliament Pierre Poilievre, attempting to discredit Ontario’s pilot, asked the non-partisan Parliamentary Budget Office to fully cost the deployment of Hugh Segal’s negative income tax UBI plan. Their report, delivered in 2018, declared it would cost the federal government a mere $43 billion after CPP and other benefits were folded in, and allow provinces to reduce their burden of social programmes.

If we update our approach, it would transfer 7.7 million Canadians from the edge of destitution, allowing them to play a greater role in the economy and reap its benefits with dignity and enthusiasm. Santens thinks now might be the time to investigate new ideas, in the face of the COVID-19 crisis, be it in Canada or the US. “This is a real shake-up for people right now because they know they didn’t make any mistakes. This was a disaster that happened, and people were ordered to stay inside. They had no choice. For the first time, people who thought something like this would never happen, experienced applying for benefits in whatever country they are in. Some are also experiencing food banks for the first time.”

The cognitive bias of a Just World—that if I work hard, I deserve wealth—is crashing against our hubris as small people at the mercy of big forces. Why can’t we act for a common good?

Long ago, Canada made the decision to become a compassionate and just society, balancing a market economy with the understanding that a good government takes care of its people. This may be a good time to update our definitions and to revisit the collected decisions that led to our complex and inefficient social security system.

Libertarian and socialist cases can be made for a Universal Basic Income. Now that COVID-19 has helped us see that misfortune can befall any of us, can we follow the same inspiration which led to the Canadian Healthcare system? As we emerge from this pandemic-induced hibernation, we should not strive to simply return to normal, but to come back stronger. We can create an economic system in Canada that allows full participation, so why shouldn’t we live that way?

¹ According to the US Bureau of Labour Statistics consumer price index, inflation from 1935 (the year Monopoly debuted) to 2020
is 1,771.45%.

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