The Pragmatic Libertarian Case for a Basic Income Guarantee

From the perspective of anyone concerned with limiting government and encouraging individual responsibility, the contemporary American welfare state is a disaster. According to a report by the Cato Institute’s Michael Tanner, welfare programs at the federal level alone cost more than $668 billion annually, spread across at least 126 different programs. Add another $284 of welfare spending at the state and local level, and you’ve got almost $1 trillion dollars of government spending on welfare - over $20,000 for every poor person in the United States.

Not only does the U.S. welfare state spend a lot; it spends it badly. Poor Americans receiving assistance face a bewildering variety of phase-outs and benefit cliffs that combine to create extremely high effective marginal tax rates on their labor. As a result, poor families often find that working more (or having a second adult work) simply doesn’t pay. And still, despite massive expenditures by the welfare state, some 16% of Americans are left living in poverty.

Wouldn’t it be better just to scrap the whole system and write the poor a check?

In what follows, I will make the case for a Basic Income Guarantee (BIG) as a replacement for the current welfare state. There are a number of distinct ways of arguing from libertarian premises to a BIG, some of which I have discussed in the past. In this essay, however, I will focus on what I take to be the strongest and most persuasive libertarian argument. I will argue that a BIG, even if it is not ideal from a libertarian perspective, is significantly better on libertarian grounds than our current welfare state, and has a much higher likelihood of being achieved in a world in which most people reject libertarian views.

I begin in the next section by explaining what I mean by a BIG. I then proceed to set out four reasons why libertarians should support a BIG over the current American welfare state. I close with some reflections on libertarian ideals and political compromise.

A Basic Income Guarantee

For purposes of this essay, I will use the phrase “Basic Income Guarantee” quite broadly to refer to a wide range of distinct policy proposals, including Milton Friedman’s Negative Income Tax (NIT), Bruce Ackerman and Anne Alstott’s proposal for a Stakeholder Grant, the Thomas Paine / Henry George inspired idea of a citizen’s dividend, the Alaska Permanent Fund Dividend, and Charles Murray’s 2006 proposal for the government to write a $10,000 each year to every American citizen over the age of twenty-one.[1] There is, of course, quite a bit of variation among these plans in terms of cost, payouts, implementation, and so on. Despite these differences, however, they all have in common two important features.

First, they involve a cash grant with no strings attached. Unlike other welfare programs which encourage or require recipients to consume certain specific kinds of good – such as medical care, housing, or food – a BIG simply gives people cash, and leaves them free to spend it, or save it, in whatever way they choose.

Second, a BIG is an unconditional grant for which every citizen (or at least every adult citizen) is eligible. It is not means-tested; checks are issued to poor and rich alike (though on some proposals payments to the rich will be partially or fully recaptured through the tax system). Beneficiaries do not have to pass a drug test or demonstrate that they are willing to work. If you’re alive, and a citizen, you get a check. Period.

A Pragmatic Libertarian Argument

No libertarian would wish for a BIG as an addition to the currently existing welfare state. But what about as a replacement for it? Such a revolutionary overhaul of the welfare state would almost certainly require a constitutional amendment, both to insulate debate somewhat from the pleas and protests of special interests, and to make it considerably more difficult to renege on the deal afterwards. Charles Murray has given us a rough idea of what such an amendment might look like:

Henceforth, federal, state, and local governments shall make no law nor establish any program that provides benefits to some citizens but not to others. All programs currently providing such benefits are to be terminated. The funds formerly allocated to them are to be used instead to provide every citizen with a cash grant beginning at age twenty-one and continuing until death. The annual value of the cash grant at the program’s outset is to be $10,000.

Suppose, to indulge in a bit of speculative fancy, that this deal was actually on the political table. Should libertarians take it? Given that it is not on the table now, should libertarians make some effort to get it there? I believe the answer to both of those questions is “yes.” A BIG might not be libertarians’ ideal policy – though more on this later – but it is almost certainly a lot better on libertarian grounds than what we have right now. Here are four reasons why.

Less Bureaucracy

Every one of the more than 126 federal welfare programs comes with its own bureaucracy, its own set of arcane rules, regulations, and restrictions, and its own significant (and rising) overhead costs. A BIG, in contrast, requires significantly less in terms of administrative expense. A program in which everyone gets a check for the same amount is simple enough to be administered by a computer program. And even a more complicated proposal, like Murray’s or like Friedman’s NIT, could largely piggyback off of the already existing bureaucracy of the federal tax system.

Eliminating a large chunk of the federal bureaucracy would obviously be good from the perspective of a libertarian concern to reduce the size and scope of government. But it would also be good from the perspective of welfare beneficiaries. Actually getting signed up for all the various welfare benefits to which one is entitled is tremendously costly in terms of time, effort, and skill at bureaucratic navigation. Many people miss out on benefits for which they qualify simply because they don’t know that the program exists, or what they need to do to draw from it. Getting the benefit of a BIG, in contrast, requires just a single signature on the back of a check. If we’re going to spend money on helping the poor, shouldn’t we make sure that they actually get the help we’re paying for?

Cheaper

Second, a BIG could be considerably cheaper than the current welfare state. How much cheaper depends on the details of the particular proposal. Some, like Murray’s, which involve a progressive tax on the BIG once a certain threshold of income is reached, appear to be considerably cheaper. Other analyses, like Ed Dolan’s, suggest only that a moderate BIG would not cost more than what we currently spend.

Part of the explanation of the relatively low cost of a BIG comes from the reduction of bureaucracy, described above. But another reason is to be found in Director’s Law: If you’re like most people, when you hear “welfare” you think about transfers from the rich to the poor. But in reality, most political transfers benefit the middle class at the expense of the poor (and rich). If the BIG is going to replace the welfare state, then transfers to the middle class such as subsidies for higher education, the mortgage interest deduction, and tax benefits for retirement savings ought to be cut right along with (if not before) SNAP, TANF, etc.

Again, how much a BIG would cost relative to the current welfare state depends on the details of the particular BIG proposal. Various proposals need to be evaluated on their own merits, and of course I do not wish to claim that every BIG proposal will be more affordable than our current welfare state. But neither is there any reason to believe that no reasonable proposal could be.

Less Rent-Seeking

Whenever there exists a bureaucracy with the power and discretion to take from some in order to benefit others, there will also exist powerful incentives for individuals to manipulate that bureaucracy in order to better serve their own private interests. Agents of the bureaucracy itself will seek to expand its scope and budget regardless of whether such expansion serves the interests of its clients. And special interest groups will use various political mechanisms to channel the organization’s resources into their own pockets.

In theory, the welfare state doles out money and other resources on the basis of such factors as need and desert. But need and desert are both philosophically contested and impossible to measure objectively. And so, in practice, resources are doled out to those who can make the best political case that they need or deserve it. And this is a contest in which the genuine poor are at a serious disadvantage relative to the better educated, wealthier, and more politically engaged middle class.

A BIG, in contrast, allows virtually no room for bureaucratic discretion, and thus minimizes the opportunities for political rent-seeking and opportunism. It is, as the late James Buchanan once noted, a perfectly general policy that treats all citizens the same. It is thus entirely ill-suited for use as a method of political exploitation. We should therefore expect to see much less rent-seeking and opportunism with a BIG than we do with the present welfare state, and therefore a more effective transfer of resources toward the genuinely needy as opposed to the politically well-connected.

Of course, no policy is perfectly immune to rent-seeking or political manipulation, and others have expressed what seem to me to be some entirely reasonable concerns about a BIG in this respect. But nothing that I have seen has yet convinced me that the problems with a BIG would be worse than those we have now, and there still seems to me to be good reason to think those problems would be considerably diminished.

Less Invasive / Paternalistic

One of the main differences between a BIG and the current welfare state is the unconditionality of the former. Under a BIG, everybody gets a check. Under the current welfare state, only people who meet the various stipulated qualifications are eligible for assistance. The precise nature of those qualifications varies from program to program, but can include not earning too much, not earning too little, not being on drugs, not having won the lottery, making an earnest effort to find work, and so on.

Conditions are put on welfare in order to ensure that assistance goes to the deserving poor, and not to the undeserving. But distinguishing between the deserving and undeserving is difficult business, and requires a variety of invasive, demoralizing, and degrading inspections into the intimate details of applicants’ lives. “Fill out this form, tell us about that man you live with, pee in this cup, and submit to spot inspections of your home by our social workers, or else.”

Maybe the state shouldn’t be in the business of giving out welfare at all. Maybe it shouldn’t be running schools, or highways either. But, as Jacob Levy notes, since it does do these things, libertarians have good reason to demand that it does so in a way that is as “more rather than less compatible with Hayek’s rule of law, with freedom from supervision and surveillance by the bureaucracy, with the ability to get on with living their lives rather than having to waste them proving their innocence.”

The conditional welfare state is not only invasive, it is heavily paternalistic. Restrictions on eligibility are imposed in order to encourage welfare recipients to live their lives in a way that the state thinks is good for them: don’t have kids out of wedlock, don’t do drugs, and get (or stay) married. And benefits are often given in-kind rather than in cash precisely because the state doesn’t trust welfare recipients to make what it regards as wise choices about how to spend their money. This, despite the fact that both economic theory and a growing body of empirical evidence suggest that individuals are better off with the freedom of choice that a cash grant brings. In-kind grant programs like SNAP (food stamps) persist in their present form not because they are effective but because they are the product of a classic Bootleggers-and-Baptists coalition: well-meaning members of the public like the idea that welfare recipients have to use their vouchers on food rather than alcohol and cigarettes, and the farm lobby likes that beneficiaries are forced to buy its own products. Poor people, meanwhile, are deprived of the opportunity to save that a cash grant would give them, and they are forced to waste time and effort trading what SNAP allows them to buy for what they really want.

Utopia is Not an Option

In Libertarian Utopia, we might not have any welfare state all, no matter how limited or efficient. Many libertarians believe that any redistribution of wealth by the state violates individual rights and is therefore morally impermissible. And even those libertarians who do not base their political ideology on a theory of individual rights will worry that welfare states will produce perverse incentives – both on the part of recipients and potential recipients, and in the political processes that sustain and shape government policy.

But we do not live in Libertarian Utopia, nor have any of its prophets yet produced any compelling plan for how to get There from Here. Moreover, most people are not libertarians, and so unless we are willing to impose our views on them by force, we must try to find policy proposals that can command the assent of those who do not share our fundamental moral commitments and empirical beliefs.

From this perspective, the question of social welfare policy becomes less an exercise in ideal theory and more a problem of comparative institutional analysis. The question is not whether a BIG is a perfectly libertarian policy in every way, but whether it is more libertarian than the other realistically available policy alternatives. I believe that the considerations examined above provide us with very strong reason for believing that it is.

But I also believe that a BIG need not be merely a compromise. Even in a Libertarian Utopia, in other words, I think there would be good reasons to provide a social safety net through the mechanism of a BIG. I have written about some of these arguments before, and while constraints of space prevent me from elaborating upon them here, I am happy to do so in the discussion that follows this essay.

For now I will say only that if the idea of a social safety net strikes many readers as obviously incompatible with libertarianism, this is testament to the way in which an excessively narrow understanding of libertarianism has come to dominate our political discourse. For many people, it seems, libertarian thought begins and ends with the ideas of Ayn Rand and Murray Rothbard. And, of course, both Rand and Rothbard were indeed important libertarians, and libertarians from whose ideas I and many others have profited immensely. But while those ideas have played and continue to play an important role in the libertarian intellectual tradition, they do not exhaust that tradition. Once we adjust our eyes to see past the giants of Rand and Rothbard, it is clear that the libertarian intellectual landscape is far more diverse than it first appeared, and far less hostile to the idea of a social safety net.

We can, of course, define libertarianism however we wish, and it is possible to conceive it in a narrow enough way so as to rule out all support for income redistribution by definitional fiat. But any definition of libertarianism that is so narrow as to rule out the likes of John Locke, Thomas Paine, Adam Smith, Milton Friedman, Friedrich Hayek, Robert Nozick, Loren Lomasky, and Eric Mack, to name just a few, seems both historically distortive and pragmatically unhelpful. The arguments these thinkers have advanced on behalf of a (limited) social safety net might be mistaken. But that is something to be established by a careful examination of the substance of the arguments themselves. Arguments about what counts as a “real” libertarian position, especially arguments poorly informed by the writings of seminal historical and contemporary libertarian thinkers, do little to advance the debate.

A Few Words About Work Disincentives

So far in this essay, I have said virtually nothing to say about the many possible objections to a BIG. As a philosopher, this makes me profoundly uncomfortable. I am comforted somewhat by the knowledge that there will be plenty of time to explore these objections in the discussion that follows – and almost certainly plenty of prompting to do so by my fellow discussants! Nevertheless, before I bring this essay to a close, I want to say just a few words about what I take to be the most common, and also the most overrated, objection to a BIG.

Many people argue that a BIG will create a strong disincentive to work. From a theoretical perspective, this makes sense. If you lower the cost of unemployment relative to employment, you’re going to get more unemployment. The famous Negative Income Tax experiments of the 1970s seem to lend some empirical support to this hypothesis.

I find this argument unimpressive for two reasons. First, it is not at all clear that a BIG really would lead to a significant increase in unemployment. The actual findings of the NIT experiments were much more ambiguous than they have generally been represented to be in the nonacademic press. And insofar as a BIG allows welfare recipients who start working to keep more of their money than they would under a conditional welfare system, we should expect at least some reduction of work disincentives relative to the current system.

But suppose that a BIG actually would, on net, increase unemployment somewhat. The second response is: so what? Is it so obviously a flaw in the system if it leads more parents to take time off work to stay home with their children? Or college graduates to take a year off before beginning to work? Or if, among the population as a whole, the balance between work and leisure is slightly shifted toward the latter? My point is not that there isn’t any story that could be told about why work disincentives might be a problem. My point is simply that, even if they were guaranteed to occur, they wouldn’t obviously be a problem. Explaining why these somewhat increased disincentives are a problem requires something more substantial in the way of economic, sociological, and philosophical analysis than often seems to have been assumed.

To my mind, there are other, much better objections to a BIG of the sort I have discussed in this essay. How, for instance, will it handle the issue of children? Would a BIG increase native resistance to increased immigration and thereby hurt the truly needy global poor for the benefit of the (relatively) wealthy American poor? And how could a BIG be politically feasible, given the strong investment various interest groups have in maintaining the current system? I look forward to exploring these questions, and no doubt many more that I have not anticipated, in the discussion that follows.