Why Don’t We Start Giving People Free Money?

Like BR1M or Prihatin, but for everyone, regardless of wealth, race, gender, religion, etc. Every. Single. Person. Gets. Money. For. Free.

This is what commonly known as Universal Basic Income, or UBI for short. Such is a concept that I’ve just learned after reading a book by Annie Lowrey, an American journalist who writes on politics and economic policy – “Give People Money: The Simple Idea to Solve Inequality and Revolutionise Our Lives“.

As you know, Figuringgitout is all about me figuring out the world, especially the financial world. So whilst this UBI idea is not new, it’s a foreign concept for me and I’m intrigued by this whole idea. If you’re like me and wish to understand this concept, I’ll share what I learned from this book and my subsequent research on UBI. But I’ll stay on my lane and share my view from a commoner’s perspective who lacks the sophisticated understanding of the working of our economy and the impact of UBI on the nation’s economy because well, I’m no pro.

WHAT IS UNIVERSAL BASIC INCOME?

I like that the book explains this concept like I’m 5 and so I would like to reproduce the exerpt here:

Imagine that a check showed up in your mailbox or your bank account every month.

The money would be enough to live on, but just barely. It might cover a room in a share apartment, food, and bus fare. It would save you from destitituion if you had just gotten out of prison, needed to leave an abusive partner, or could not find work. But it would not be enough to live particularly well on. Let’s say that you could do anything you wanted with teh money. It would come with no strings attached. You could use it to pay your bills. You could use it to go to college, or save it up for a down payment on a house. You could spend it on cigarettes and booze, or finance a life spent playing Candy Crush in your mom’s basement and noodling around on teh Internet. Or you could use it to quit your job and make art, devote yourself to charitable works, or care for a sick child. Let’s also say that you did not have to do anything to get the money. It would just show up every month, month after month, for as long as you lived. You would not have to be a specific age, have a child, own a home, or maintain a clean criminal record to get it. you just would, as would evey other person in your community.

This simple, radical, and elegant proposal is called a universal basic income, or UBI. It is universal, in the sense that every resident of a given community or country receives it. It is basic, in that is is just enough to live on and not more. And it is income.

There you have it – Universal Basic Income, i.e. everyone gets money.

WHY DO WE NEED UNIVERSAL BASIC INCOME?

Some of the arguments in support of UBI are:

• In a UBI paradigm, society would ensure that every person’s basic needs were met, no longer leaving health coverage, housing, and food to the markets. With those needs met, individuals would be liberated to do what they wanted, whether it was tackling hard work for low pay, starting a business, caring for a child, or doing something artistic.
• The prospect that our jobs will be taken over by robots and technological advancement. When that happens, many will lose their jobs. Hence, a UBI would be necessary to keep the masses afloat.
• A UBI would act as straightforward income support for families outside of the top 20%, e.g. M40 and B40 in Malaysia.
• To solve the income stagnation that the middle class is currently facing. A UBI would radically improve the bargaining power of workers, forcing employers to increase wages, add benefits, and improve conditions to retain talent.
• A UBI could be a powerful tool to eliminate deprivation / extreme poverty.
• Just giving everyone money regardless of their circumstance could reduce the complexity of government and beaurocracy of the welfare system.

For the sake of understanding this concept in the most direct and simplistic way, I would just write on how UBI help people in extreme poverty, based on this book.

WHAT WOULD PEOPLE DO WITH THE MONEY?

Passing out cash to the poor this way raises a few obvious questions such as:

• Wouldn’t it make people lazy, in effect paying them to stop working?
• Wouldn’t people waste the money? What if they squandered it all on alcohol, drugs, and cigarettes, thus reducing its intended antipoverty effect?

This question is one of the many questions that lead many to oppose the implementation of the UBI system.

Amongst other concerns are:

• After receiving a monthly basic income, people would drop out of the labor force, leaving the country to rely on a smaller pool of workers for taxable income to be distributed to a bigger pool of people who are no longer working.
• With a UBI, the country would lose the productivity of its people, hence affecting the economy.
• By implementing UBI, the country would have to spend a lot of money, hundreds of billions, each and every year, in order to give out money to everyone, which would require taxes to be increased. This might slow the economy down, and cause rich people and big corporations to flee offshore.

Is that the case though? I love this one real-life example given by the author – a test-case in Kenya by GiveDirectly, which shows the impact of the UBI program on the recipients.

REAL-LIFE IMPLEMENTATION OF UNIVERSAL BASIC INCOME

GiveDirectly is an NGO that initiated a UBI program in this one rural village, which is very poor that eating in public is considered rude. So what GiveDirectly does is giving every person in the village 2,280 shillings (equivalent to RM83+/-) every month for 12 years.

The results were life-changing for many, and the risks are found to be minimal.

In the village, the idea of waste – as well as the idea of not trusting people with cash – seemed absurd. It was not just that the villagers seemed uninterested in wasting the money, or stopping working, or spending it on frivolous things. It was that their ingenuity with and excitement for the capital far outstripped anything I imagined. They were not charity cases. They were businesses waiting to start, individuals striving to prosper, families searching for a better life. The main thing they lacked was cash.

The author observed the impact of the basic income on the villagers, and it’s very heartwarming. Some of the real-life examples:

• A man with a drinking problem who had been working giving taxi rides using another man’s motorbike used the GiveDirectly money to buy his own motorbike and started his own small business. His income has gone up and he has also stopped drinking so much.
• Another man started saving the GiveDirectly money for fishing nets so that he could catch tilapia in the lake. When was asked why he had not saved money for nets before, he simply said, “I could not”.
• A grandmother who took care of her family of eight was happy with the GiveDirectly money because she could afford more and better food for her family.

It is apparent that these villagers use their GiveDirectly money in the best way they see fit, according to their own circumstances. That’s why it’s argued that giving cash is often the efficient option to help those in extreme poverty.

… cash is more valuable to its recipients than in-kind gifts, such as food or bed nets or sports equipment. If you’re hungry, you cannot eat a bed net. If your village is suffering from endemic diarrhea, soccer balls won’t be worth much to you. “Once you’ve been there, it’s hard to imagine doing anything but cash,” Michael Faye, the group’s cofounder, told me. “It’s so deeply uncomfortable to ask someone if they want cash or something else. They look at you like it’s a trick question.”

Of course they want the cash.

So that’s the simplified version of the concept and mechanism of the UBI system, especially in a destitute society.

IMPLEMENTING UNIVERSAL BASIC INCOME IN MALAYSIA?

In the Malaysian context, it has been pointed out that the many different forms of government relief assistance, such as Prihatin cash aid, Penjana, and 2021 Budget stimulus packages in Malaysia, could well be the start of a full-fledged UBI system in the future. Of course, it’s not UBI in its purest form as the assistance is targeted, as compared to UBI which is supposed to be giving cash to everyone with no condition.

Here are two interesting articles on the plausibility of the implementation of UBI in Malaysia:

• An article from 2018 by a Malaysian economist, Azri A. – Malaysia, it is time to talk about Universal Basic Income where the author showed his calculation of basic income that every Malaysian would get if we’re to implement the UBI system (RM480 by the way), but he’s of the view that the nation is not ready for the full-fledged implementation of UBI system just yet.
• An article from 2020 by a former MP, Dr Jeyakumar Deveraj – Implement a modified universal basic income scheme urgently where he suggested implementing a modified universal basic income scheme or UBI, which would pay RM1,000 monthly to the households listed in the Bantuan Prihatin Negara scheme.

I guess in the meantime we can run a study to see what’s the impact of the many relief assistance to the rakyat? What do we do with the assistance they receive? Do we waste the money unnecessarily, e.g. spending RM1,080 of i-Sinar money (his own EPF money btw) to put up speed bumps on road? Or do we put the money to good use, e.g. paying rent, utilities, and buying food?

Universal Basic Income is indeed a simple idea but its feasibility is still uncertain and debatable. On a personal level (without looking at the larger scale), I would love to receive a monthly basic income because it would mean having my basic necessities covered every month which would give me the space to focus on my work while exploring other ventures in life that I won’t do otherwise.

What say you?