Andrew Yang’s big idea

Andrew Yang is running as a Democratic presidential candidate. His flagship idea is to give out a universal basic income or a monthly dividend of $1,000 to every American. He often cited the dividend from Alaska Permanent Fund as an example for his policy. Let’s take a look at the idea and the Alaska Permanent Fund.

Would it be passed as laws?

I don’t know, but I think it’s highly unlikely. The partisanship in the government will make it so difficult that if he becomes the President (a big if), he will still have to garner enough support from both parties in the House of Representatives and the Senate. I don’t know the practicality of passing it with Executive Order, but given the financial implication of this policy, I really doubt he can do it without support from both sides of the aisle.

How would it be financed?

$1,000 a month for every single one of more than 320 million Americans is a phenomenally expensive bill to pay. Yang said he would find income from properly taxing tech companies. It sounds good, but keep in mind that companies pay a lot of money on lobbying to make sure that lawmakers are as friendly as possible to them. So, it may not be easy to pass laws that can generate enough money from companies to pay for his idea

Would it work?

Let’s say that he found a way to make it a federal law and pay for it. Would it bring the results as he wanted? It depends.

If he wants to make Americans happy, it would do the job. We don’t need academic studies to know that folks become happier after getting from free money. But in case you need one, take the experiment in Finland as an example. Finnish government ran a two-year program in which they gave out 560 euros each month to a select test group of citizens aged 25 to 58. The results are that the recipients of the grant became happier, but there is no favorable impact on employment rate.

Since Andrew Yang is fond of using Alaska Permanent Fund as an example, let’s take a look at that. Alaska Permanent Fund was signed into laws in 1976 by a Republican governor named Jay Hammond. The fund gives out an annual dividend to residents who live in Alaska for a full year and intend to stay indefinitely. In the past year, the dividend was worth around $1,600/year. According to a study by Jones and Marinescu, the fund’s results are as follows:

The employment to population ratio in Alaska after the introduction of the dividend is similar to that of synthetic control states. On the other hand, the share of people employed part-time in the overall population increases by 1.8 percentage points after the introduction of the dividend and relative to the synthetic controls. The unconditional cash transfer thus has no significant effect on employment, yet increases part-time work

The Labor Market Impacts of Universal and
Permanent Cash Transfers: Evidence from the
Alaska Permanent Fund

What it means is that it cannot be statistically proven that the dividend decreases the employment rate, even though does increase part-time work. However, it isn’t proven to increase employment either.

As the two cases of Finland’s experiment and Alaska Permanent Fund show, whether Yang’s proposal would work depends on the questions asked and what outcome is desired. If it’s happiness, the answer is likely Yes. If it’s meant to increase employment, it remains to be seen.

One thing to keep in mind is that Finland is a small country with a population of around 5.5 million people and high with homogeneity. Alaska, I would think, has more or less the same conditions. Applying the Universal Basic Income to a small test population with people from the same background, mindset and needs is one thing. Doing so to a population of more than 300 million people with various backgrounds, mindsets, cultures and needs is a totally different issue.

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