Other alternatives to Basic Income
Alternative Suggestions for boosting an economy.
This page describes a number of alternatives that have been suggested to a Basic Income that governments may use as a means to boost an economy and prevent or alleviate problems associated with a contracting economy during an economic collapse. Particular attention is paid to the problems associated with an economic collapse associated with a pandemic.
Pandemics can lead to a recession or to the collapse of a national or the world economy. Governments will act to protect and stimulate the economy. Basic Income provides some answers but does not necessarily provide all the answers and other measures may be adopted in addition to a Basic Income. A number of alternatives to Basic Income are often suggested as ways to boost the economy during an economic downturn. However, when compared to Basic Income, Basic Income works better at relieving hardship and boosting economies than most alternatives and the alternatives may sometimes be counter-productive. Some of the more common suggestions are discussed below.
Changes to the current welfare system. With a rapid increase in unemployed people, including some people that thought they had secure employment and would never be unemployed, there will be a surge in demand for welfare services and insufficient staff available to handle the surge. The current welfare system can be modified to reduce the impact on individuals, to overcome problems with the demand for services, and to make it a more fair system. Changes can include: allowing online registration for jobseeker support, previously known as the unemployment benefit; eliminating the standdown period before people are eligible for payments; eliminating or reducing periodic interviews; and reducing the abatement rate. This will make the system more humane and a little more efficient, but the system will retain its complexity and high administration costs. All the changes suggested make the welfare system more like a Basic Income. If the standdown period and thresholds are removed and the abatement rate is reduced significantly the results will be almost the same as are achieved with a Basic Income but the administration costs will remain much higher. The alternative of changing to a Basic Income with a uniform tax of 33% offers a more efficient system that targets money to those most in need with near-zero administration costs.
Negative Income tax. A negative income tax can be used to target money to those most in need and achieve the same objectives as a Basic Income. However, negative income tax is a complex system that is difficult to set up and implement and costly to administer and offers no advantages over a Basic Income. Basic Income is more efficient as it achieves the same objectives, is simple, and is inexpensive to set up and administer. Basic Income is consequently a more efficient system.
One-off payments to all citizens. Some governments have used one-off payments to all citizens to promote wellbeing and stimulate economic growth during or following an economic slump. To be fair, governments need to make equal payments to all citizens. Ideally, this should include children with either an amount equal to the adult amount or a lesser amount being paid for each child to their caregivers. While this may work to a limited extent, one-off payments are often spent very quickly resulting in a temporary boost or blip in the economy but leaving those people most in need still struggling to meet everyday needs shortly afterwards. Businesses can benefit in the short term from the short term boost in expenditure but can then be left struggling again afterwards. Experience has shown, that rather than providing a lump sum it is better to divide the money and provide it as a modest Basic Income over time. This encourages those who receive it to budget and spend their money carefully.
Helicopter Money. Helicopter money is a term used to describe the distribution of money by the government when needed to boost the economy during an economic downturn. This may include one-off payments to citizens as described above, single or multiple payments to essential industries or companies when such payments are thought to be necessary, and may also include low cost or interest-free loans to companies. Helicopter money is often criticised as an inefficient way of distributing money and is open to corruption. Governments must somehow determine where the money should go and often those industries that make the most noise will get the most money. Businesses receiving money are not necessarily the most efficient businesses or those that should survive an economic downturn. While one-off payments can work to a limited extent, they are often spent very quickly resulting in a temporary boost or blip in the economy but leaving the organisations that receive the money in need and still struggling shortly afterwards. Rather than providing money to businesses, it is better to provide money as a Basic Income to all individuals. Those who receive the Basic Income will budget and spend their money carefully and this will ensure the survival of those businesses that are needed and those that are most efficient.
Tax cuts. Tax cuts are often touted as a way to boost an economy but they are a poor alternative when compared to a Basic Income. During an economic crisis, a Basic Income directs more money toward those most in need than to others and those in need will spend it immediately on essentials. This relieves hardship for the needy while boosting local businesses and economies, increasing the velocity of money, and boosting government tax revenues. In contrast, tax cuts, no matter how well-intentioned, always give away more of what would have been government tax revenue to the wealthy. As the wealthy do not need the money for immediate needs they accumulate the money and this slows the velocity of money and reduces government revenue leading to deficits and calls to tighten government expenditure which then leads to further economic decline and hardship for those most in need. Tax cuts can be counterproductive. For more information on tax cuts see the page on Tax and Basic Income and read: How do tax cuts work and who benefits the most?
Infrastructure projects. Following an economic downturn, an economy is boosted more rapidly and more efficiently by a Basic Income than by infrastructure expenditure. Infrastructure projects and similar government spending can help an economy recover when money is spent on projects that are needed and can be economically justified, showing a positive return, but more money always trickles up than down (see FAQ) slowing the velocity of money. What money trickles down will be slow to reach many in need. A significant portion of the money will go to the construction companies and their owners or those who do not need additional income, and a significant portion will go to overseas parent companies and investors taking money out of local economies.
Money spent on infrastructure projects that cannot be economically justified, either before or after the economic downturn is equivalent to throwing money away or just giving it to the wealthy, the only ones that will benefit. The result will be an overall decrease in living standards.
A Basic Income is much more efficient at targeting government expenditure to those most in need. When spent by those who receive the Basic Income, the money spent will support and boost local businesses and this generates tax revenue that may be used by governments to pay the Basic Income and support cost justifiable infrastructure projects. Spending money as a Basic Income tends to boost the velocity of money returning higher levels of tax to the government than expenditure on infrastructure projects.
Quantitative easing. This has previously been tried during an economic slump with poor results. With quantitative easing, governments channelled money to the banking system in the hope that the money would be passed on as loans to businesses to provoke economic growth. This did not happen. Banks continued with their reluctance to lend money during the downturn while paying their executives even larger bonuses, and companies remained reluctant to increase their debt when the future was uncertain.
A more efficient way to promote economic growth is for governments to distribute the money to those most in need through a Basic Income scheme and for the people who receive the money to spend it on goods and services and thus promote local businesses and enhance government tax revenue.
Reducing Interest Rates and Negative Interest Rates. Reducing interest rates is often suggested as a means to boost the economy. This can work when interest rates are high, and when there is no pandemic and business outlook is good. The downside to reducing interest rates is that mortgage rates will fall and people will then be prepared to borrow more to buy houses, boosting house prices significantly when the supply of housing is low. While this may advantage those who already own homes, rising house prices severely disadvantages those seeking to buy their first homes and higher house prices will also push up rental charges. People, such as retired people, who rely on interest earned on deposits will be disadvantaged. These trends will negate the overall gains made by reducing interest rates, disadvantage a large section of society and increase inequalities in society.
When interest rates are already low, further reductions in interest rates must be small and unlikely to have any impact. During a pandemic, or while the future is uncertain, businesses will not borrow money regardless of interest rates.
Some countries have gone further and charged negative interest. The theory is that this will encourage people to spend money rather than save money and boost the economy that way. This again is counterproductive. Saving money is discouraged with longterm undesirable impacts on the economy.
Overall, providing a Basic Income to all citizens works much better than reducing interest rates or negative interest rates.
Subsidising small businesses. Small businesses can be particularly hard hit during an economic downturn and particularly so during a lockdown. Governments could subsidise businesses but this can prove inefficient as governments may end up subsidising businesses that are inefficient and likely to fail when the subsidies end. Governments may need to subsidise inefficient business while also providing welfare to people at the same time. It is a better alternative to provide people with a Basic Income so they can spend it and support businesses that way.
Tax relief and refunds for small businesses. Other proposals to support small businesses include reducing tax rates, tax refunds, and refunding the GST paid by small businesses. Again this is an inefficient way of targeting money to it is really needed, to those on low incomes and those who have lost employment. Tax relief for businesses will result in less tax revenue for governments and this will require governments to borrow more. The tax relief or refunds will help support some businesses but others that have no need for support are also likely to receive the tax relief or refunds. Paying money as a Basic Income to all citizens is a more efficient means of distributing money and this will support small businesses when the people who receive the money spend it.
Increasing Student Loan limits. Because some students are unable to work during a lockdown, increasing student loan limits is suggested as a way of helping these students. While this will help some students in the short term, in the longer term these students will be disadvantaged as they will graduate with higher student loans to pay back. Their loans will be higher than students who may have completed their courses before or after the pandemic, or others that have other sources of income. Paying students a Basic Income would be a much fairer way to overcome the current problems.
Created 31 May 2020. Last revised 31 May 2020