The Long, Weird History of Universal Basic Income—and Why It’s Back

Thomas Paine, Napoleon, and Martin Luther King, Jr., don't have much in common at first glance. Nor do socialists and libertarians, or Finnish bureaucrats and Silicon Valley tycoons. Some policies have a habit of creating strange bedfellows—like the idea that governments should guarantee their citizens a minimum level of income. Not by creating jobs or providing traditional welfare, but by cutting checks for the same amount to everyone.

Universal basic income (UBI) is an old idea that is gaining considerable momentum, partly due to the threat of automation. There may not be enough paid employment to go around.

"I appreciate that argument," Basic Income Earth Network (BEIN) co-chair Karl Widerquist told Investopedia. "But I'm worried about overstressing it."

The COVID-19 pandemic brought even more urgency to the topic, as unemployment and financial hardship spread across the globe. In April 2020, the Spanish government announced that it planned to pay a basic monthly income to roughly a million of the country's neediest households to help them through the pandemic.

What Is a Universal Basic Income (UBI)?

In its purest form, a basic income is an unconditional, periodic cash payment that the government makes to everyone. It is not based on means-testing, which means that a hedge fund manager and a homeless person receive the same amount.

There are no strings attached with a UBI, so there are no requirements to work, attend school, register for military service, etc. It is not paid in kind—housing, food—or in vouchers. Instead, it is a floor below which no one's cash income can fall.

History of Universal Basic Income (UBI)

In a strict sense, the intellectual history of UBI is roughly half a century old. But the idea that the government should somehow prop up everyone's earnings has cropped up repeatedly over the past two centuries as a:

• Citizen's dividend
• Social credit
• National dividend
• Demogrant (a grant based on a population's demographics)
• Negative income tax
• Mincome (also called guaranteed minimum income)

Few of these proposals fit the usual definition of a basic income, and they differ from one another significantly. But they share a common thread.

The Erosion of Income Security

For much of human history, it was assumed that society would provide a basic standard of living for those who could not provide for themselves. Hunter-gatherer societies (the only kind around for nine-tenths of Homo sapiens' existence) were bound together not just by kinship networks, but by overlapping systems that followed the same logic. This was evident in cultures, such as !Kung, who are a group of San people living in parts of Southern Africa, and Inuit or northern First Peoples, who live in Greenland, Canada, and Alaska.

Agriculture and urbanization whittled such networks down to the nuclear family or even the individual. The larger institutions that took their place (church, state) left gaps. These shifts occurred over centuries, so few noticed, except when cultures on either side of the change collided. Take, for example, Charles Eastman, who was born Ohiyesa to the hunter-gatherer Sioux in 1858 and was horrified by the deprivation he saw in Victorian Boston: 

"...we knew well what it is to endure physical hardship, but our poor lost nothing of their self-respect and dignity. Our great men not only divided their last kettle of food with a neighbor, but if great grief should come to them, such as the death of child or wife, they would voluntarily give away their few possessions and begin life over again in token of their sorrow. We could not conceive of the extremes of luxury and misery existing thus side by side..."

Thomas Paine and Henry George

Encounters between egalitarian societies and complex, unequal ones led people in the latter to consider a basic income more than once. Thomas Paine, an intellectual architect of the American Revolution, proposed that a "ground rent" of £15 be paid to every individual upon turning 21, followed by £10 every year after turning 50. He argued that "every person, rich or poor," should receive the payments "to prevent invidious distinctions." Napoleon Bonaparte was sympathetic to the idea but never implemented it. 

A century later, Henry George, an American economist active after the Civil War, called for "no taxes and a pension for everybody" via a public land fund. He was influenced by Paine and cited Sioux chiefs' astonishment at visiting East Coast cities to witness "little children at work."

The Past 100 Years

The basic income cause was taken up by the left in the 20th century. Huey Long, a populist senator from Louisiana, proposed a minimum income of $2,000 in 1934 (as well as a maximum income of 300 times the average). G.D.H. Cole, a political economist at Oxford, advocated for a social dividend as part of a planned economy. He became the first to use the phrase basic income in 1953.

In the 1960s, the idea of a guaranteed minimum income entered the political mainstream. Martin Luther King endorsed it.

Experiments were run in New Jersey, Iowa, North Carolina, Indiana, Seattle, Denver, and Manitoba. Nixon pushed to make it federal law, though he insisted that his "basic federal minimum" included work incentives, making it different from the $1,000 annual demogrant George McGovern would have given to every citizen.

The political winds shifted and the idea of a basic income hunkered down on the far left during the Reagan-Thatcher era. The occasional proponent from elsewhere on the political spectrum cropped up, including the self-described "Old Whig" Friedrich Hayek.

Imagining a 21st Century Basic Income

The idea of a basic income is part of the mainstream again. Unsurprisingly, given its scattered lineage, proponents make different arguments from diverse ideological vantage points. Broadly speaking, proponents on the left see it as an antidote to poverty and inequality. On the right, its appeal has more to do with increasing the efficiency of the welfare state.

Another distinction, which cross-cuts left and right, is between reformers who want to rationalize policy in light of current issues and futurists who aim to radically overhaul society or save it from radical overhaul due to automation. In practice, any basic income proponent is likely to employ several of these arguments, without regard for political taxonomies.

Here's how these ideas play out across the spectrum.

Reformers' Ideas of Basic Income

One group of basic income supporters is mostly concerned with addressing problems with the status quo. That is mending a broken welfare system, reducing the stigma associated with public benefits, and cutting back on bureaucratic inefficiency.

Fix Welfare's Incentives

The existing welfare model is often criticized for creating incentives that encourage recipients to act in ways that the programs' designers never intended.

In their book, "Basic Income", Philippe van Parijs and Yannick Vanderborght pick up this critique, arguing that welfare ensnares beneficiaries through means testing and work requirements and needs to change.

The employment trap keeps recipients from leaving a job, whatever treatment they receive, for fear of losing benefits. Bad employers receive a subsidy in the form of a guaranteed labor pool with no leeway to negotiate for better pay or conditions.

Ironically, welfare also produces an unemployment trap. Some programs tax welfare recipients' additional earnings at a 100% marginal rate so if they earn a dollar from work, they lose a dollar in benefits. The rate can even exceed 100% (a welfare cliff) making work a glaringly irrational choice.

In December 2018, Finland concluded a two-year basic income experiment that attempted to counteract the unemployment trap. The country's welfare office sent €560 ($635) per month to 2,000 randomly selected working-age unemployed people. They didn't lose the benefit if they started working, nor did the experiment affect their eligibility to receive unemployment insurance in excess of the basic income. Results from the first year found that recipients were happier and healthier than they were on unemployment, but that the basic income had little impact on their unemployment status.

Provide Dignity for All

Some argue that welfare's current design undermines recipients' dignity, because means-testing can be invasive. Van Parijs and Vanderborght mention the Belgian government's monitoring of gas and water bills in 2015 in an effort to root out cohabitating beneficiaries pretending to live alone, which would entitle them to higher benefits.

The payment of in-kind benefits, as opposed to cash, may imply that recipients do not know what they need and cannot be trusted to spend money rationally. Secondary markets allow beneficiaries to sell non-cash handouts where the margin on such transactions represents wasted taxpayer money. Cash payments can also be subject to paternalistic conditions. For instance, a 2015 Kansas law bars recipients of Temporary Assistance for Needy Families—a federal cash grant—from using the benefits to buy tattoos, movie tickets, manicures, or lingerie.

Universal benefits are also perceived as more politically durable. "There's an old saying that benefits for the poor tend to be poor benefits," BIEN's Karl Widerquist says, adding that Social Security "has remained strong while other parts of the U.S. system that are supposed to be for the needy—whoever we determine to be needy, they somehow vilify them and then cut the program." Even universal benefits can be vulnerable. In 2016, Alaska's governor cut the state's oil-funded dividend in half.

The Federal Welfare System: An Illustration

Milton Friedman, a conservative libertarian, argued that a negative income tax would remove welfare's incentives against work. While his proposal was not implemented, the earned income credit (EIC) is based on that idea.

Reduce Waste and Corruption

The bureaucrats at India's Finance Ministry who would like to introduce a basic income want to reduce the government's role in distributing benefits because, in India, these tend not to reach their intended recipients.

A 2011 lawsuit accusing government employees in Uttar Pradesh of welfare theft made international headlines. For years, the suit alleged, officials had siphoned off fuel and food intended for low-income Indians and sold it on the open market; the plaintiff told the BBC that offenders had made perhaps $42.6 billion in the prior decade. The head of a local NGO told Mint in 2013, "about 35% of the state's 44 million ration cards are held by ineligible people who bribe crooked bureaucrats."

In many developed countries, higher-income people receive more benefits than lower-income people, though this is sometimes by design rather than a result of corruption. The highest-earning 20% receive a greater share of the average transfer than the lowest-earning 20% in South Korea, Hungary, Japan, Austria, Latvia, Luxembourg, Chile, Poland, Spain, Portugal, Italy, and Greece, according to a 2017 Organisation for Economic Co-operation and Development (OECD) policy brief.

Source: OECD.

Futurists' Ideas of Basic Income

Reformers support a basic income in light of society's needs and problems as they stand. A second group, the futurists, looks farther down the line. Some feel that current concerns pale in comparison to the threat of technological unemployment and offer basic income as a solution. Others welcome such societal overhaul and see a basic income as a cornerstone of an eventual utopia.

Techno-Pessimists: Save the Future

Fears of machine-induced mass unemployment are as old as the power loom. The Luddites, whose name survives as an insult for the tech-averse, spent the 1810s smashing them, and David Ricardo fretted over "the substitution of machinery for human labour" in 1821. A century later, playwright Karel Capek applied the Czech word for corvée labor (robota) to a caste of artificial quasi-humans who decreased the cost of industrial production by 80%, then exterminated humanity. 

However, so far, technology has enhanced human productivity, not replaced it. Until recently, nearly everyone farmed. Now, fewer than 1% of Americans do, but they keep busy and the U.S. produces a food surplus.

Some of Silicon Valley's leaders back a basic income to counteract the automation their sector is creating, including Elon Musk, who has called artificial intelligence an "existential risk." In 2016, Sam Altman, CEO of OpenAI, announced an ambitious study on the effects of a basic income in Oakland, California. However, a pilot program was beset with recruitment problems and red tape and the larger study has been delayed.

UBI got a boost during the 2020 presidential campaign from Democratic candidate Andrew Yang, whose "Freedom Dividend" would pay $1,000 a month to every American over 18. His reason for proposing a UBI: "...the smartest people in the world now predict that a third of all working Americans will lose their job to automation in the next 12 years. Our current policies are not equipped to handle this crisis."

A March 2017 study by Daron Acemoglu of MIT and Pascual Restrepo of Boston University found that each robot reduces local employment by 6.2 workers. Automation has been put forward as an explanation for the persistent gap between economic growth and wage growth in the U.S. since the 1970s.

And that trend is expected to continue. The World Economic Forum predicts major changes to the workforce in terms of increased automation by 2025, thanks to the COVID-19 pandemic. This includes white-collar professions as well as those requiring skilled workers. According to its study:

• 43% of businesses said changes in technology would reduce their workforce
• 41% of businesses said increased technology would lead them to use contractors for specialized jobs
• 34% of businesses said technology would lead to an expansion in their workforce

Utopians

Other futurists look at the prospect of mass unemployment and wonder what all the fuss is about. When robots shuttle dinner from kitchen to table or travelers from airport to hotel, are they yanking waiters' and cab drivers' livelihoods away or are they liberating them from tedium? Arguably the latter, if they receive a basic income sizable enough to live comfortably, and especially if they use their newfound free time in creative and socially beneficial ways.

In 1930, John Maynard Keynes articulated a utopian vision of "technological unemployment." He argued that we would leave behind "the struggle for subsistence" and that work would cease to be a necessity, though for "many ages to come the old Adam will be so strong in us that everybody will need to do some work"—perhaps 15 hours a week—"if he is to be contented." Labor's obsolescence would not just free up time and energy, he said, but be morally uplifting.

Keynes did not mention a basic income, assuming instead that standards of living would rise inexorably until, around 2030 or so, his utopia would materialize. There is still time, but some proponents believe a basic income could hurry the process along. They see creative people, freed from the need to take jobs they don't want, contributing artistic, entrepreneurial, and spiritual vitality to society.

In his 2017 Harvard commencement speech, Mark Zuckerberg said, "we should explore ideas like universal basic income to make sure that everyone has a cushion to try new ideas," stressing that if he hadn't been "lucky" enough to enjoy free time and financial wiggle room, he couldn't have founded Meta (META), formerly Facebook.

Basic income proponents also see a recognition—even if only implicit—of women's largely unpaid work. Van Parijs and Vanderborght, borrowing a phrase from Rousseau, sum up the utopian view of a basic income: It is "the instrument of freedom," of "real freedom for all and not just the rich."

Could a Basic Income Work?​

Not everyone is sold. According to Bill Gates, "Even the US isn't rich enough to allow people not to work. Some day we will be but, until then, things like the earned income tax credit will help increase the demand for labor."

His remark sums up the two main criticisms of a universal basic income—that it would be ruinously expensive, and that it would reduce or eliminate incentives to work. Proponents challenge both of these assumptions, but a lack of empirical evidence for a basic income's effects means the debate is mostly speculative.

Could We Afford a Basic Income?

Whether a country could afford to provide its citizens with a basic income depends on:

• The size of the payment
• The design of the program, such as whether it replaces or supplements other welfare programs
• The country's fiscal situation

Addressing the first issue, Widerquist points out that basic income is just that: "It's basic. It gets you a basic level, it doesn't get you great luxury." Some proponents—particularly those worried about mass unemployment—say that a basic income should be enough to live on, but others think it would be necessary to top it off with additional income, if only because states could not afford to pay a living wage to every citizen. 

Estimates of what governments could currently afford appear to indicate that a realistic basic income would be modest. The Economist calculated the amounts that 34 OECD countries could pay if they scrapped all non-health transfer payments.

The most generous hypothetical benefit comes from Luxembourg, which, with its $100,300 GDP per capita, could afford a $17,800 annual payout. Denmark, with its tax take of 49.6% of GDP, comes in second with a potential payout of $10,900. In a May 2017 report, the OECD concluded that funding a basic income at "meaningful levels" would require "further increasing tax-to-GDP ratios that are currently already at a record-high in the OECD area."

The U.S. could pay $6,300 at current tax rates. To afford a $12,000 payout ($60 short of the federal poverty level), it would have to increase its tax take by 10% of GDP. The Tax Foundation estimated that Yang's $1,000-a-month Freedom Dividend would cost $2.8 trillion a year, or roughly 60% of the federal government's pre-pandemic projected budget for 2020.

Switzerland held a referendum on a basic income proposal in June 2016, and it received just 23.1% support. Part of the reason the measure was voted down was its perceived unaffordability. The ballot did not specify an amount, but campaigners mentioned 30,000 Swiss francs, or $30,900. 

A Little Goes a Long Way

There is evidence that even small payments are beneficial. For instance:

• Brazil's Bolsa Família, a conditional cash transfer program, reduced poverty despite paying just 178 reais​ ($57) per family per month on average. Families with per-person incomes of less than 170 reais ($54) are eligible, and 13.6 million receive benefits. This program was replaced by Auxiliio Brasil, which runs until the end of 2022.
• Alaska's annual Permanent Fund Dividend, which is financed by oil revenues, topped out in nominal terms at $2,072 in 2015. That figure dipped to $992 in 2021. The 2024 amount is $1,702.

Basic income has been put forward as a way to smooth the earnings of the precariat, an emerging class of freelancers, temporary contract workers, interns, and other workers who have precarious relationships to the labor market. Standing argued in 2010, when Uber and TaskRabbit were in their seed rounds, that a basic income would be an "egalitarian way of reducing economic volatility" that could help avoid a "politics of inferno." 

Some proposals would sacrifice strict universality in the name of affordability. India is mulling a "quasi-universal" basic income of 7,620 rupees ($118) per month. The government estimates that it can only be paid to around 75% of the population to be workable. Proposals to limit uptake include means-testing based on ownership of assets such as cars and air conditioners.

Van Parijs and Vanderborght allow that a basic income would be expensive, but "there is cost and there is cost." Many households argue that higher taxes would come right back to them as basic income, with little net difference in their finances. For others, a basic income would raise or lower after-tax earnings significantly, but the authors argue that redistribution is different from spending on "real resources," since it "does not make the population as a whole either richer or poorer."

On the other hand, the OECD found that a large majority would see either significant gains or large losses in income if a revenue-neutral basic income were introduced.

Tax the Robots

The above considerations assume that society retains approximately its current form. But if mass technological unemployment does occur, Bill Gates and others have proposed taxing the robots.

Gates is skeptical of basic income and sees the tax as a way to "slow down the speed of that adoption somewhat to figure out, 'OK, what about the communities where this has a particularly big impact? Which transition programs have worked and what type of funding do those require?'"

However, the revenues could, in theory, fund a basic income, as Benoît Hamon, France's Socialist candidate for president in 2017, proposed. (He was eliminated in the first round of voting, with just 6.4% of the vote.)

​Would People Stop Working?

In a 2014 working paper weighing a basic income against traditional unemployment insurance, economists at the Federal Reserve Bank of St. Louis projected that voluntary unemployment would rise rapidly as a basic income's amount rose. Voluntary quitting would in turn raise the tax burden on workers needed to fund the payout, encouraging more people to drop out of the workforce: "The likelihood of quitting rises exponentially in response to increases in UBI [universal basic income] benefits." However, the authors argue, a basic income of $2,000 or so is "clearly sustainable."

The Manitoba Experiment

The closest approximation we have to data on the effects of a universal basic income comes from the "MINCOME" experiment, in which two groups of Manitoba residents received a guaranteed minimum income from 1974 to 1979.

One of these, the rural town of Dauphin, was a "saturation site": Everyone received the benefit. Politicians soured on the project and it wrapped up without producing a final report, but economists in the 1980s found that secondary earners worked less, while primary earners barely altered their behavior. 

In 2011, Evelyn Forget of the University of Manitoba compared these findings to health data to try to pinpoint why. She found that two groups in particular worked less: married women and young men. "Married women tended to prolong the period they were out of the workforce when they gave birth," Forget says, in effect "using the stipend from income to buy themselves longer parental leave." As for young men, "what we found was a pretty dramatic increase in high school completion rates in Dauphin during that period compared to the rest of rural Manitoba."

Breadwinners did not quit their jobs. Hospitalization rates fell 8.5% relative to the control group, led by accident injuries, which encompass "work accidents and farm accidents, car accidents, family violence," says Forget.

On the other hand, four roughly contemporary negative income tax experiments in the U.S. found that primary earners were responsible for one-third of a 13% reduction in working hours by families as a whole. These results contributed to the decline in political support for guaranteed minimum income schemes—a (spurious) reported increase in divorce rates among Black families did the rest.

Defining Work

Anthropologist David Graeber draws comparisons between a basic income and an existing institution that gives 2.2 million Americans the opportunity not to work:

"I always talk about prisons, where people are fed, clothed, they've got shelter; they could just sit around all day. But actually, they use work as a way of rewarding them. You know, if you don't behave yourself, we won't let you work in the prison laundry. I mean, people want to work. Nobody just wants to sit around, it's boring."

People may not always opt to work in the traditional sense of the word, however. Graeber gives the example of a poet-musician friend who became a corporate lawyer. With a basic income, he would not be idle, nor would he be working a traditional full-time job. Speaking to Freakonomics, Forget pointed out that "gentlemen of leisure" were responsible for many of the scientific breakthroughs of the 18th and 19th centuries.

Would a Basic Income Reduce Poverty?

It is not enough for a basic income to be harmless. Bureaucracy-busting arguments aside, it must also reduce poverty and inequality.

Brazil's Bolsa Família program has been encouraging in this regard. Beginning in 2004, the program made modest cash grants to low-income families. The country's poverty rate fell from 26.1% in 2003 to 14.1% in 2009. The extreme poverty rate fell from 10.0% to 4.8%. From 2007 to 2009, Bolsa Família led to an estimated 59% of the reduction in poverty and 140% of the reduction in extreme poverty. The Gini coefficient, a measure of inequality, fell from 0.580 to 0.538 from 2003 to 2009, in part due to Bolsa Família. However, the Brazilian government has been cutting those benefits.

The development sector has begun to favor direct cash transfers over aid in kind. Cash aid appears to work rather well.

For some goals, however, adding conditions helps. Adolescent girls' school attendance in Malawi rose with no-strings-attached cash grants but making school a mandatory condition for receiving payments had a much larger effect.

The OECD estimates that a revenue-neutral basic income would increase poverty. In countries such as Britain, those depending exclusively on transfer programs would see their benefits cut, whereas 2% of the U.K.'s population would move out of poverty due to a hypothetical basic income, 7% would fall into it. 

COVID-19 Pandemic

On April 27, 2020, U.S. Speaker of the House Nancy Pelosi said a guaranteed income for Americans struggling because of the pandemic is "worthy of attention." Spain decided to move ahead with one.

The Bottom Line

Should governments institute a basic income, even if it's for a short period of time, it may help answer questions about the effectiveness of such a program. Yet, until the results of more research become available, a universal basic income will remain an uncertain but tantalizing prospect. Could doing away with poverty, sweeping away bureaucracy, neutralizing the threat of mass unemployment, and increasing the value society places on worthwhile, but unprofitable, pursuits really be as simple as handing everyone cash?