Californians can always learn from other states and countries. So it’s commendable at some level that Los Angeles County Supervisor Holly Mitchell and Assemblymember Matt Haney, D-San Francisco, recently traveled all the way to Kenya to learn something.
The purpose of the trip was to learn about a program in Kisumu County giving $25 a month to each resident, a lot in that poor country. It’s a Universal Basic Income program similar to the $1,000 a month proposed by entrepreneur Andrew Yang during his 2020 presidential run.
GiveDirectly, a nonprofit, hosted the trip. Its website explains, “Every eligible adult in a target region receives a monthly cash transfer specifically sized to lift them above the local extreme poverty line.” Among the economists designing GiveDirectly’s programs is Alan Krueger, a former chairman of President Obama’s Council of Economic Advisers and professor at Princeton.
These kinds of UBI programs are growing in popularity. In February, CalMatters identified more than 40 similar programs across California, handing out $180 million in public and private money to 12,000 Californians.
And it isn’t just liberals who have historically advocated for UBIs.
Nobel Economics Laureate Milton Friedman, a libertarian, in his 1962 book “Capitalism and Freedom” touted what he called a Negative Income Tax. Under Friedman’s proposal, individuals earning below a certain threshold would receive payments from the government and only start paying taxes above a certain threshold. But one key part of Friedman’s proposal is that it would effectively replace, not be in addition to, existing welfare programs.
When it comes to the recent experiments in UBI-like programs, the reality is they’re too small-scale to really learn much from.
For one, these recent pilot programs are paid by charities. A large program covering, for example, the millions of impoverished Californians, would require enormous sums of money. But that’s just the start of the problem for UBI enthusiasts.
“Guaranteed income programs or universal basic income programs have good intentions but they are fraught with disincentives, funding issues and disagreements within society which outweigh their benefits,” Raymond Sfeir, director of the A. Gary Anderson Center for Economic Research at Chapman University, told us. He notes it’s unlikely governments will cut current programs or raise taxes to pay for widespread UBI program.
He brought up another factor: Right now there’s a labor shortage across the country, including California. The state unemployment rate is just 4.6%. “We actually need to take steps to encourage people to join the labor force since the labor force participation rate is at a low level these days,” Sfeir said. “A guaranteed income in my view provides less incentive for people to find work.”
If Mitchell and Haney really want to learn from exemplary foreign programs, they should travel to the top countries on the Heritage Foundation’s 2023 Index of Economic Freedom. Singapore leads the way, with a top income tax rate of 22%, compared to California’s combined top rate of 50.3% (37% federal, 13.3% state).
Prosperity, not government handouts, is the best way to end poverty.