This is What Happens When You Give Free Money to Poor People

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By DRAKE BAER, Science of Us | 12:11 pm, January 4, 2017

Finland, the country that gave the world the sauna, is now experimenting with another act of radical generosity. On January 1, it became the first European country to give unemployed citizens a “basic income” — a no-strings-attached monthly payment meant to cover the basic costs of living.

The Guardian reports that it will be a two-year trial of 2,000 Finns randomly selected that are currently receiving unemployment benefits. These 25- to 58-year-olds will receive the equivalent of $587 a month, replacing their previously in place social benefits and paid out if they gain employment. Ideally, these funds will help recipients sidestep the so-called “welfare cliff,” where recipients avoid taking on higher-income jobs for fear of losing public support, a danger that’s present not just in Finland but (very much) in the U.S.

It’s the latest in what’s becoming a worldwide trend. The Dutch city of Utrecht has a pilot coming this year, as does the Canadian province of Ontario. Switzerland voted down a basic-income referendum last June, though you can read that loss as a product of the country’s referenda-happy governance structure rather than the worthiness of basic income. Programs in the spirit of basic income have shown tremendous promise in the U.S., like ones that have shown that giving homes to the homeless is the cheapest way to reduce homelessness, or that paying high-risk people a stipend not to be involved in gun violence is a staggeringly effective method for reducing a city’s murder rate. Meanwhile, the nonprofit GiveDirectly has now raised over $22 million toward launching a 6,000-person pilot in Kenya, slated to start in its first village in October.

Lots of historical forces are combining to make basic income look attractive. Consider the case of the United States, where economic inequality is on a 40-year climb, stoking alcoholism, depression, and other diseases of desperation. Tech types are big on basic income as a way to offset “technological unemployment,” or the social shift that will happen when robots and algorithms take all our jobs. (YCombinator, the Harvard of Silicon Valley start-up incubators, is launching basic-income program in Oakland.)

It’s not just Silicon Valley quackery: The White House published a report last year saying that automation puts 62 percent of American jobs at risk, with everything from customer-service roles to Wall Street analysts getting gobbled up by software.

The history of universal basic income, or UBI, is long: The Spanish humanist Juan Luis Vives advocated for unconditional welfare in 1526. Thomas Paine argued for “a national fund” in his 1797 pamphlet “Agrarian Justice.” Martin Luther King argued for a basic income in his final book, 1967’s Where Do We Go From Here: Chaos or Community?

To King, basic income was a way to accomplish what market growth couldn’t:

We have come a long way in our understanding of human motivation and of the blind operation of our economic system. Now we realize that dislocations in the market operation of our economy and the prevalence of discrimination thrust people into idleness and bind them in constant or frequent unemployment against their will. The poor are less often dismissed from our conscience today by being branded as inferior and incompetent. We also know that no matter how dynamically the economy develops and expands it does not eliminate all poverty.

As all that history implies, basic income serves as a Rorschach test for your account of human nature. If given the chance, will people be as lazy as possible? Will they abandon work? Or will having security enable them to contribute, rather than take, from social resources? Are the poor impoverished because of their lack of effort and competence or because of systemic, even unconscious disadvantage? The problem is that large-scale, long-term, methodologically rigorous studies of basic income are yet to be done.

Still, the evidence that’s already out there looks good.

For the biggest study on basic income, University of Manitoba economist Evelyn Forget quite literally plucked data from the dustbin of history for her 2011 paper, “The Town With No Poverty.”

The origin story goes like this: From 1974 to 1979, national and provincial governments partnered to provide a minimum income to every eligible family in Dauphin, a prairie town with a present-day population of 8,000. The program’s name was MINCOME, as in minimum income. But halfway through the program, the party in power changed, funding dried up, and as Andrew Flowers noted in a deep dive on FiveThirtyEight, some 1,800 cardboard boxes of data were left to sit in Canada’s national archives until they could be later analyzed. Forget unearthed them, digitized the results, and compared them with records from Canada’s national health insurance, yielding a quasi-experimental, controlled design. The results: MINCOME participants had lower hospitalizations due to injuries and accidents compared to the control, and they also had fewer physician contacts for mental-health diagnoses. “These results would seem to suggest that a Guaranteed Annual Income, implemented broadly in society, may improve health and social outcomes at the community level,” Forget wrote in her conclusion.

The U.S. flirted with a sibling of basic income in the 1970s and 1980s, in the form of “negative income tax,” where people below a certain income threshold get money from the government instead of paying taxes. (Free-market evangelist Milton Friedman was a fan, Flowers reminds us.) Control studies ran from 1968 to 1980, ranging from rural studies in Iowa and North Carolina to urban ones in Seattle and Denver, which ran nine years and reached 4,800 people. Primary earners scaled back their hours by up to 7 percent, research indicated, while elementary schoolers did better on tests, and babies were less frequently born with low birth weights. Home ownership and healthy eating went up too. Then, in what became a cautionary tale for science writers everywhere, a statistical error led to a report that participating in the program led to a higher rate of divorce, and a media firestorm followed. The policy was quickly cast aside.

Unsurprisingly, lots of the clearest indications of the power of giving people money come from interventions in the developing world. Research on South Africa finds that when households can expect pension money, they’re more likely to send kids to school. In Sri Lanka, one-time grants of $100 to $200 dollars lead to higher profits and survival rates for small businesses five years later. Cash transfers in rural Mexico show increases in living standards that remain after half a decade. On average, the global poor don’t “waste” money given to them on booze and cigarettes, a 2014 World Bank analysis found; it’s used on household goods, costs associated with schooling, and health care. While Bloomberg View columnist Leonid Bershidsky contends that “few people in the developed world will be convinced by an experiment in Kenya” because of the differences in social structures, the data does indicate that giving the poor money durably changes their lives for the better.

What the long arguments on either side of UBI point to is that this is a topic, like so many others, that could benefit more from rigorous study rather than vigorous debate. It could fall under what Harvard linguist-historian Steven Pinker calls “evidence-based interventions,” moves toward human welfare that rely on grounded empirical findings rather than political views, like that bed nets in Africa reduce child deaths by up to 20 percent.

This is where the difficulty and the promise of UBI lies. The studies will ideally be long-term, randomized control trials: Ideally, you’re talking about thousands of people receiving hundreds to thousands of dollars annually over a decade or longer; otherwise findings could just be statistical noise. That’s a ton of time and money, and it will require the cooperation of academics, governments, and nonprofits. If done well, the research could show that basic income is the economic equivalent of mosquito nets: relatively low cost, empirically validated, and life enabling.

This article was written by Drake Baer from Science of Us and was legally licensed through the NewsCred publisher network.