Wednesday, 25 September 2019

Killer Arguments Against Citizen's Income, Not (23)

Summary of thread started by James Medlock on Twitter.

JM: One of the most underrated parts of a universal welfare state is the income-smoothing effect. Even if you pay in just as much as you take out, there’s an efficiency gain in redistributing from yourself at peak earning years to yourself when you’re sick, old, young, or unemployed.

Steven Hart (first half of KCN): Only if you suppose the utility of income is relatively flat across an individual's lifetime, which is a massive assumption.

Me (with my Citizen's Basic Income Trust hat on): Is marginal utility the same across a lifetime? For most yes, for some they'd prefer it earlier, others later, it all averages out. It's safe to assume that the marginal value of income is highest when your fixed costs take up most of our income. So smoothing income, assuming fixed costs are fixed, must increase overall utility.

SH: In theory perhaps, but in practice absolutely not. For example, the marginal value of income increases significantly when you have a family. This is not merely an issue of discounting.

JM: The whole point of a comprehensive welfare state is to redistribute to you during periods where marginal value of income increases. So you have a Child Allowance to increase your income at that point, paid during your childless years.

SH: But there is no way of determining the marginal value of income. In such a system, a bureaucrat decides for you*. Such a system *may* benefit citizens, but it is by no means a guarantee, even under a great number of simplifying assumptions.

JM: It's a safe bet that marginal value increases when you're a parent. You just said so yourself. And peak earning years don't match up with peak child rearing years. A child allowance is clearly beneficial here.

* I didn't respond to this, which is clearly nonsense. Marginal value of income just is whatever it is. No bureaucrat decides it. Any income smoothing must, by definition, increase overall marginal utility of spending.
SH (second half of KCN): The less taxation, the more an individual has the ability to distribute income according to his or her own preferences.

Me: Citizens income is a tax rebate. It's negative taxation, not taxation. Total income the same, as the original tweet said.

SH: That's irrelevant to the critique. If it helps you, replace "taxation" with "incoming smoothing" in my Tweet. I'm saying that the same income redistributed equally throughout a lifetime is not necessarily superior to non-redistributed, even absent any consideration of incentives.

That's not a practical example. There is no thought experiment you can run to prove or disprove this. It's a simple fact that people can cope very well with sudden large increases in income (or falls in fixed costs) but can't cope so well with sudden falls in income (or increases in fixed costs).

A welfare state shouldn't flatten income too much because that would be a disincentive to working (and that would be bad for society/the economy), but just leaving people to their fates and allowing massive and increasing inequality is bad for society/the economy as well. Pitch it somewhere in the middle and you won't be far wrong.
Anyway, it's a good argument FOR a Citizen's Income, I'll expand on this in future posts.


Bayard said...

"A welfare state shouldn't flatten income too much because that would be a disincentive to working"


Mark Wadsworth said...

B, if people know that they the same, or nearly the same, amount of money whether they work or not, why would they bother? I wouldn't.