Guaranteeing incomes for the poor is politically unfeasible and financially unsustainable
by Jonathan Rhys Kesselman
Poverty is conventionally defined as the lack of some minimum level of income, so the “obvious” policy prescription is to shift more incomes to households deemed poor. Many observers spanning the full political-ideological spectrum have advocated scrapping the welfare system and instituting a broad program of cash transfers to eliminate or at least alleviate poverty.1
Proposals include British writer and politician Lady Juliet Rhys-Williams’s credit income tax in the 1940s; conservative economist Milton Friedman’s negative income tax in the 1960s; liberal economists James Tobin, Paul Samuelson and John Kenneth Galbraith’s 1968 call for a guaranteed income; and British economist James Meade’s citizen’s income. Conservative economist Friedrich Hayek stated, “I have always said that I am in favor of a minimum income for everyone in the country.”2 Other examples include the economic philosopher Philippe Van Parijs’s basic income in the 1990s and Canadian Senator Hugh Segal’s recent call for a guaranteed income. The U.S. Green Party has also promoted a guaranteed income. A Basic Income Earth Network holds biennial congresses and sponsors a scholarly journal Basic Income Studies; many countries have affiliates including the Basic Income Canada Network/Réseau Canadien pour le Revenu Garanti.3
Proponents of a guaranteed income or basic income generally share a distaste for the intrusive and paternalistic welfare bureaucracy, the pernicious distinctions between “worthy” and “unworthy” beneficiaries and the discretionary and often arbitrary aspects of the current medley of cash and in-kind transfer programs. They cite the various disincentive features of existing programs (while overlooking or downplaying the potential disincentives of their own schemes). They also critique the complex web of programs each with its own tangle of rules and regulations. For example, in an essay for the Literary Review of Canada, Senator Segal asserts that the problem demands a simple and direct solution: transferring the requisite incomes to those living below the poverty line.4 Complexity, he complains, is just society’s excuse for not addressing the problem.
I take a sharply different perspective from that of the proponents of an all-cash solution to poverty. My analysis leads to the conclusion that schemes to eliminate poverty purely by cash transfers are beset by many problems. A basic or guaranteed income that would raise all households above the poverty line carries severe hurdles of economic incentives, public finance and political feasibility that proponents typically neglect.5 A more multifaceted approach will be not only more effective but also much more likely to obtain the public support essential for progress. Complexity is unavoidable and indeed is the essence of the policy problem: better to face reality than deny it.