Forget UBI, America Already Has Universal Basic Consumption

 

Recently, there has been much talk about having a Universal Basic Income (UBI) for everyone in the US. On the Left, one presumes this would be in addition to the rest of the welfare state. On the right one hopes it’s proposed to replace most of the welfare state.

I already oppose the UBI (even as a replacement for welfare) for sound economic and political reasons, but that’s not what this post is about. Rather, it’s about how our focus on income has ceded much of America’s public discourse about poverty to the Left. We can (and should) do better than that.

It’s easy to see how we’ve gotten here. The data on income is readily available, so it’s simple to pull charts and graphs and to test theories. And since income is the major source of tax revenue, it’s natural to focus on income when contemplating changes to government policy. The problem is when we use income as a proxy for quality of life, which is presumably what the debate about poverty is really about. If we’re interested in how people live — we do call it “welfare” — we should be looking at net consumption rather than net income. You can’t eat money and, unless you’re Scrooge McDuck, you don’t derive nearly as much enjoyment from having physical money as you do from spending it. Money is only worth what we can buy with it. How much Americans live on tells us far more than their tax return.

Fortunately, someone has done the hard work. In 2014 the Brookings Institute published a study titled How Poor are America’s Poorest? U.S. $2 a Day Poverty in a Global Context. It shows how the income metric is deeply flawed since many people report little or no income in the US but live off of a considerable amount. This could be someone’s savings, borrowing, or welfare.  But going by reported income alone, something like 4% of all American citizens live off less than $2 a day. This doesn’t seem to pass the laugh test.

What happens if we look at consumption, instead? The paper displays this helpful graph that smooths out the data for consumption vs. income in the US. The blue line represents spending as much as one takes in (I would have named it “parity” rather than “equality”). The orange line shows average actual US consumption as a function of reported income.

As you can see, at the low end of the income spectrum, the US consumption numbers flatten out to about $26/day or just under $10,000 per year. So the “poorest” Americans consume 2/3 of (a tax free) minimum wage. Now there’s a lot of spread in this data, but there’s also reason to believe much of that is due to difficulties in measurement rather than there really being people who make $40, $60, $100/day while consuming less than $10/day. Additionally, if we compare these numbers to welfare spending per person who collects, we see it comes out to $25/day, further arguing for a very generous quality of life floor simply as a consequence of being born in the right country.

So next time someone tries to drag you into a conversation about “income inequality” or the “poverty epidemic” in a country where living below $10,000/year (the GDP/capita of Mexico) means you either can’t or won’t work and don’t bother (or are too virtuous) to sign up for welfare. In other words, if you’re one of the 0.07% of people who still lives on under $2/day using their metric of consumption (a number that would still be too large, if true), it is typically a conscious choice.

All of this is to say, if we shift the conversation from income to consumption, we shine a light on how successful America is at keeping people out of true poverty and it gives us a powerful argument against an ever expanding welfare state.


This post was inspired by @CliffTOP’s post What Happened to the Poverty Line?

Published in Economics
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  1. Mendel Inactive
    Mendel
    @Mendel

    I think your point about the futility of comparing reported income being folly is well-taken. I recall a few years back, when the whole “income inequality” craze was hitting the nation, that several economists pointed out that the gap between rich and poor is much less when in-kind government benefits are taken into account (which isn’t exactly great news, but makes a similar point).

    In the end, what we should be concerned about is not income, but standard of living. Income is a means to achieve a higher standard of living and a proxy for standard of living, but the two are still very distinct entities (just like “health insurance” and “being healthy” are very distinct concepts).

    The only piece of information I think is lacking is purchasing power. How much standard of living do those $26/day actually buy one? If the answer is “very little”, that might still be a sign of inequality – but one which should be remedied not by artificially propping up incomes, but removing the artificial inflation of consumer prices.

    • #1
  2. Mike H Inactive
    Mike H
    @MikeH

    Mendel (View Comment):
    The only piece of information I think is lacking is purchasing power. How much standard of living do those $26/day actually buy one? If the answer is “very little”, that might still be a sign of inequality – but one which should be remedied not by artificially propping up incomes, but removing the artificial inflation of consumer prices.

    Can you expand on this? What do you mean by “artificial inflation?”

    • #2
  3. Mendel Inactive
    Mendel
    @Mendel

    Just things like rent control or zoning laws limiting housing stock and artificially driving up housing costs for the urban poor.

    In other words, the types of supposedly well-meaning policies that subtly raise costs for everyone, but naturally hit those with the least money the hardest.

    • #3
  4. I Walton Member
    I Walton
    @IWalton

    Good and thanks.   The good news is that we can show all kinds of data and charts that make mince meat of liberal arguments, including the fact that the super rich support democrats and democrat tax policy because it favors them.  The bad news is that most Democrats that might be open to these arguments are enumerate.

    • #4
  5. Kate Braestrup Member
    Kate Braestrup
    @GrannyDude

    @MikeH and @Mendel: how about if we just cut checks directly to people and skip the bureaucracy? We could make it somewhat more difficult to qualify for, say, disability but, once qualified, you get your $661.00/month with no strings attached. When you’re no longer disabled, you can let the government know and/or the extra income will eventually be recaptured through your taxes? I ask, because among the many flaws of the welfare system is the pass-through rate, which is embarrassingly bad. (As I recall—too lazy to look it up—it costs taxpayers 60k to get 20k into the hands of a poor person).

     

    • #5
  6. Larry Koler Inactive
    Larry Koler
    @LarryKoler

    Kate Braestrup (View Comment):
    @MikeH and @Mendel: how about if we just cut checks directly to people and skip the bureaucracy? We could make it somewhat more difficult to qualify for, say, disability but, once qualified, you get your $661.00/month with no strings attached. When you’re no longer disabled, you can let the government know and/or the extra income will eventually be recaptured through your taxes? I ask, because among the many flaws of the welfare system is the pass-through rate, which is embarrassingly bad. (As I recall—too lazy to look it up—it costs taxpayers 60k to get 20k into the hands of a poor person).

    Arthur Brooks insists that it’s earned income that is the most important to have a positive effect on the country and the poor.

    • #6
  7. MarciN Member
    MarciN
    @MarciN

    I have found MIT’s Living Wage Calculator useful and accurate, at least in my experience with family and friends. It computes the cost of providing for oneself and dependent family members. It takes into consideration housing, health insurance, transportation, and food.

    In a tightly woven society in which jobs are specialized and geared to narrow skill sets–something we have worked to achieve–it’s more realistic than other measures I’ve seen in terms of evaluating financial self-sufficiency, especially as that is affected by taxes and the regulators’ endless fees (car insurance, driver’s license, and so on).

    We don’t live in a society where someone can survive very long “off the grid” living on some land somewhere that no one owns. Especially if we have dependents because the state is watching us all the time and evaluating how well we provide materially for those dependents.

     

    • #7
  8. Mike H Inactive
    Mike H
    @MikeH

    Kate Braestrup (View Comment):
    @MikeH and @Mendel: how about if we just cut checks directly to people and skip the bureaucracy? We could make it somewhat more difficult to qualify for, say, disability but, once qualified, you get your $661.00/month with no strings attached.

    Yes, that would be better, as long as we were diligent about ensuring people only people who were actually disabled get it and only for as long as they need it.

    When you’re no longer disabled, you can let the government know and/or the extra income will eventually be recaptured through your taxes?

    Whoa… you have a far higher opinion of the general population’s honesty than I think is warranted by the data, otherwise, extra taxation could be an excellent way to recoup costs, but would be an additional incentive to stay on disability as long as possible.

    I ask, because among the many flaws of the welfare system is the pass-through rate, which is embarrassingly bad. (As I recall—too lazy to look it up—it costs taxpayers 60k to get 20k into the hands of a poor person).

    I’d have to see the data for myself. Even I’d be surprised if government inefficiency was this bad. On the other hand, many of those costs might be due to what you said earlier in the comment “We could make it somewhat more difficult to qualify…” Since means-testing and verification is probably where a lot of those “pass-through” costs come from, and those costs might be worth it if the alternative is paying out to a bunch more people who don’t deserve it, costing even more.

    • #8
  9. Mike H Inactive
    Mike H
    @MikeH

    Larry Koler (View Comment):

    Kate Braestrup (View Comment):
    @MikeH and @Mendel: how about if we just cut checks directly to people and skip the bureaucracy? We could make it somewhat more difficult to qualify for, say, disability but, once qualified, you get your $661.00/month with no strings attached. When you’re no longer disabled, you can let the government know and/or the extra income will eventually be recaptured through your taxes? I ask, because among the many flaws of the welfare system is the pass-through rate, which is embarrassingly bad. (As I recall—too lazy to look it up—it costs taxpayers 60k to get 20k into the hands of a poor person).

    Arthur Brooks insists that it’s earned income that is the most important to have a positive effect on the country and the poor.

    Yes, earned income is extremely important. My side job is in disruptive technology. It’s possible I’ll eventually make it big and be beyond the need to work someday. Though I am trying to make that happen, I’m a little concerned what kind of an effect it will have on my happiness if I don’t have to do anything.

    • #9
  10. Mike H Inactive
    Mike H
    @MikeH

    MarciN (View Comment):
    I have found MIT’s Living Wage Calculator useful and accurate, at least my experience with family and friends. It computes the cost of providing for oneself and dependent family members. It takes into consideration housing, health insurance, transportation, and food.

    That’s interesting, I’ll have to take a look at it, but this touches on what @mendel said regarding zoning laws. The reason it costs so much to live in Silicon Valley is because they won’t allow things like high-density, low cost apartment complexes to be built. Can’t let the riff-raff that cleans your toilets and mows your lawn move in next door.

    • #10
  11. Z in MT Member
    Z in MT
    @ZinMT

    The problem with the Left’s utopian desires is that their view of equality doesn’t square with nature and the nature of the human species. Humans like any social animal inevitably develop a hierarchy. Humans will compete for the attention of the other sex and sexual decisions are driven at a very instinctual level. To attain the Left’s desired end state, individuals could not be allowed to freely choose their partners.

    If economic success were not part of the dominance hierarchy, something else would emerge like colorful plumage on birds that would drive the hierarchy and the Left would be all worried about “equality” of plumage.

     

    • #11
  12. Z in MT Member
    Z in MT
    @ZinMT

    Back to the main point, I am constantly amazed by the level of consumption that everyday Americans have achieved. Even lower middle class Americans have a much higher standard of living now than upper middle class Americans did 40 years ago. It is all not just technology either. We eat out more, pursue leisure activities more, etc. In the great expanse of rural and micropolitan (cities < 100,000 people) America it is not unusual for your normal family to own multiple cars, boats, RV’s, motorcycles, for recreation. For urban Americans they consume their leisure activities in air travel, socializing at restaurants and nightclubs, and/or on cultural activities.

    • #12
  13. Mike H Inactive
    Mike H
    @MikeH

    Z in MT (View Comment):
    Back to the main point, I am constantly amazed by the level of consumption that everyday Americans have achieved. Even lower middle class Americans have a much higher standard of living now than upper middle class Americans did 40 years ago. It is all not just technology either. We eat out more, pursue leisure activities more, etc. In the great expanse of rural and micropolitan (cities < 100,000 people) America it is not unusual for your normal family to own multiple cars, boats, RV’s, motorcycles, for recreation. For urban Americans they consume their leisure activities in air travel, socializing at restaurants and nightclubs, and/or on cultural activities.

    I don’t know how people do it. The amount of people who seem to live at a far higher level than my family and can’t be making as much money seems unreal.

    (Well, I do now how people do it, they don’t save money, or worse go into debt, and many don’t have kids, I just can’t understand how they think that’s a good idea.)

    • #13
  14. Hypatia Member
    Hypatia
    @

    Income inequality just. Doesn’t. Matter–

    as long as everybody has enough.

    Additionally, we all have the potential to increase our income.

    These truths are so simple that we aren’t allowed to say them any more.

    Americans used to really “get” this.  Back when McGovern was running, he proposed a cap on inheritance, of the then-astronomical number of $250,000. That was all you could leave your heirs, that was more  than enough for anybody;  everything else would escheat to the government.

    That was a lot more than most Americans would probably die possessed of, at the time.  But everybody resented it.  “I might  become rich, who knows!  And if I do, I damn well want to be able to leave it to my kids! ” was our attitude.   McGovern lost in a rout to the not-very-beloved Nixon.

    • #14
  15. Taras Coolidge
    Taras
    @Taras

    There is a great deal of unreported cash income at the lower end of the scale.  As a result, the poor spend something like twice what the government thinks they make. (I’m not sure of the exact ratio.)

    Some years back, a couple of progressive sociologists at Rutgers did an in-depth survey of 214 welfare mothers. They found that 213 were cheating. (The one “honest” one was probably too smart for them!)

    • #15
  16. Ekosj Member
    Ekosj
    @Ekosj

    Great post!    And @mendel has hit it right on the nose.     The Left started harping on ‘income inequality’ instead of  ‘the poverty line’ when discussions about ‘the poverty line’ revealed that after accounting for benefits received from government programs virtually no one was “living below the poverty line”.   No one.   This revelation caused some consternation.     Why hadn’t the Left declared victory in the War on Poverty?    Since, after government programs, no one lives below the poverty line any longer, it sure seems like they’d want to trumpet their success!     But no.   They were still asking for more and more resources for what was a non-problem.    The cognitive dissonance was discomforting.    So the Left shifted gears to ‘income inequality’ and UBI.    But it’s still the same result.    After taking into account government programs, there is a minimum below which one should have difficulty falling below.

    • #16
  17. Midget Faded Rattlesnake Member
    Midget Faded Rattlesnake
    @Midge

    Taras (View Comment):
    There is a great deal of unreported cash income at the lower end of the scale.

    Which isn’t just about cheating the welfare gatekeepers, but also about avoiding outrageously burdensome regulatory requirements. Off the Books: The Underground Economy of the Urban Poor documents both. Purportedly an economic field study, quantitative analysis is surprisingly lacking, but as a series of qualitative case histories, it’s quite good.

    • #17
  18. Mike H Inactive
    Mike H
    @MikeH

    Midget Faded Rattlesnake (View Comment):

    Taras (View Comment):
    There is a great deal of unreported cash income at the lower end of the scale.

    Which isn’t just about cheating the welfare gatekeepers, but also about avoiding outrageously burdensome regulatory requirements. Off the Books: The Underground Economy of the Urban Poor documents both. Purportedly an economic field study, quantitative analysis is surprisingly lacking, but as a series of qualitative case histories, it’s quite good.

    Got to get around the fact that the government makes it illegal for some people to work if their agreed upon wage is too low.

    • #18
  19. Z in MT Member
    Z in MT
    @ZinMT

    Midget Faded Rattlesnake (View Comment):

    Taras (View Comment):
    There is a great deal of unreported cash income at the lower end of the scale.

    Which isn’t just about cheating the welfare gatekeepers, but also about avoiding outrageously burdensome regulatory requirements. Off the Books: The Underground Economy of the Urban Poor documents both. Purportedly an economic field study, quantitative analysis is surprisingly lacking, but as a series of qualitative case histories, it’s quite good.

    Even the not so poor often get temporary small side jobs moonlighting that are paid in cash. My father a carpenter often did this doing things like building a deck for our dentist. If you are paid in cash why would you ever report it to the IRS?

    • #19
  20. RufusRJones Member
    RufusRJones
    @RufusRJones

    Mendel (View Comment):
    Just things like rent control or zoning laws limiting housing stock and artificially driving up housing costs for the urban poor.

    In other words, the types of supposedly well-meaning policies that subtly raise costs for everyone, but naturally hit those with the least money the hardest.

    There is all kinds of bad government and Fed policy that drives up the cost of shelter, health care, and education. THAT is the problem. We can’t keep doing this in the face of robots and globalized labor markets.

    MN lefties are making a great big deal out of Target’s promise of a $15 minimum wage. If you replace a third of your help with robots, drones, and kiosks it will be EASY.

    • #20
  21. RufusRJones Member
    RufusRJones
    @RufusRJones

    MarciN (View Comment):
    I have found MIT’s Living Wage Calculator useful and accurate, at least in my experience with family and friends. It computes the cost of providing for oneself and dependent family members. It takes into consideration housing, health insurance, transportation, and food.

    In a tightly woven society in which jobs are specialized and geared to narrow skill sets–something we have worked to achieve–it’s more realistic than other measures I’ve seen in terms of evaluating financial self-sufficiency, especially as that is affected by taxes and the regulators’ endless fees (car insurance, driver’s license, and so on).

    We don’t live in a society where someone can survive very long “off the grid” living on some land somewhere that no one owns. Especially if we have dependents because the state is watching us all the time and evaluating how well we provide materially for those dependents.

    The Boskin Commission CPI is bogus.

    • #21
  22. Joe P Member
    Joe P
    @JoeP

    Mike H (View Comment):

    When you’re no longer disabled, you can let the government know and/or the extra income will eventually be recaptured through your taxes?

    Whoa… you have a far higher opinion of the general population’s honesty than I think is warranted by the data, otherwise, extra taxation could be an excellent way to recoup costs, but would be an additional incentive to stay on disability as long as possible.

    You guys know that it’s basically illegal to get off of disability due to the way it works, right?

    If you’re able to work, you’re not “disabled.” To get disability, you have to sign a piece of paper that says you’ll never be able to work again. So if you come back later and say you are able to work again, you clearly perjured yourself when applying for disability and are a welfare cheat, just according to the logic you accepted when applying for disability. Hence why we have an entire class of people permanently dependent on the government, or de facto cheating welfare because the alternative is de jure cheating welfare.

    • #22
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