Five Reasons Why Minimum Income Won’t Work

The Europeans are at it again. As if budget crises across the continent weren’t enough to temper their appetite for the welfare state, a proposal has emerged in Switzerland to write everyone in the country a check for $2,800 a month – simply for, as the New York Times put it, “being alive.”

Liberals are in love with the idea of trying a minimum income here at home, and some libertarians such as Charles Murray have sympathized with it – if only as a replacement for America’s bloated and inefficient entitlement programs. But while getting a check every month might sound like a good deal, it makes very little economic sense. Here are five reasons why “mincome” could never work in the U.S., or anywhere for that matter.

1. Cost

Let’s start with the obvious. Proponents of mincome have been remarkably mum on where all this money is going to come from. Bloomberg columnist Megan McArdle estimates that the equivalent of Switzerland’s proposal here in America would be a per-person check for $2000 a month. That amounts to an expense of $7.6 trillion a year, or half of GDP.

Raising taxes won’t work; increasing marginal rates to the levels you’d need to attain such a number would crush free enterprise. The only option would be running the money off the Fed’s printing presses – a recipe for hyperinflation. The U.S. would look less like Switzerland and more like Zimbabwe.

2. Work Disincentive

I will concede that mincome is different fromĀ  other welfare programs in that its disincentive to work isn’t double-edged. That is, it doesn’t phase out as private income goes up, since everyone in the nation would be guaranteed a check. However, the single edge of mincome’s sword is a deadly one – with a guaranteed income, fewer people will see a need to work for a living. Under such a program, not only would the productivity of our society plummet, but the tax base needed to finance mincome would shrink. Our nation of producers would become a nation of givers and takers.

Proponents of mincome charge that the work disincentives in mincome aren’t as strong as they appear. They cite the work of Evelyn Forget, who conducted the original “mincome” experiment back in the 1970s. She argues that the number of folks who dropped out of the labor force wasn’t as great as some feared. However, she fails to mention entry into the labor force. A middle-aged individual with a family to support and the wisdom that all experiments end might not give up his work, but a high school dropout who sees $2000 a month as all the money in the world? Try mincome in America, and the number of young people who enter the labor force at all would collapse.

3. Inflation

Every nation that has tried to finance a war or welfare program with printed money for any extended period of time has grappled with inflation. Remember the trillion-mark cup of coffee from the Weimar Republic? The logic is simple: print money to buy things, and producers will raise their prices. Mincome might even push prices so high that the people it’s intended to help slip back into poverty. Politicians then set the level of minimum income higher, and it goes on. I sense a vicious cycle coming.

Forget skirts around addressing commodity prices in her experiment, claiming they’re unobservable. Apparently she’s never heard of the Consumer Price Index. What proponents of mincome need to understand is that printing money or redistributing it is not the same as creating wealth – a concept that can only be fully realized in a free-market economy.

4. Improper Use of Income

As a libertarian, I’m not a huge fan of the government telling people what to do with their money – whether it’s to purchase Obamacare or pay taxes. However, when it’s not actually your money that you’re spending – as would be the case with mincome – I’m okay with a little more paternalism.

Inefficient though they may be, one of the reasons the government has programs like food stamps is to ensure that parents don’t recklessly spend taxpayer money that’s supposed to be feeding their children. Replace food stamps with mincome and such a guarantee goes away.

5. Implementation

Suppose we could do away with all of mincome’s other problems. Let’s even take Charles Murray’s much less ambitious mincome proposal of giving everyone over 21 an income of $10,000 – something that, cost-wise, might be feasible with massive cuts to other programs. How would such a proposal even make it out of committee?

To finance mincome, and to stay true to its presentation as “one welfare program to rule them all,” you would have to redirect funds from an array of other welfare and entitlement programs. Would the Social Security recipient really be willing to give up her $15,000 a year in benefits for a $10,000 mincome check? What about Medicare beneficiaries? Getting conservatives on board is one thing. Getting the rest of the people who benefit from our bloated entitlement system to say yes is another task entirely.

The real solution to poverty is to roll back taxes and regulations to unleash the free market to drive down unemployment and raise real wages. Just look at North Dakota, where an oil boom combined with a friendly regulatory climate has pushed salaries for oil field workers up to $100,000. The end of poverty lies in market-driven prosperity, not more government programs.