Could universal basic income work in the US? Economists look to a test case — in Alaska

Thanks to its UBI-esque permanent fund dividend, Alaska has "a much lower poverty rate," one economist says

By Matthew Rozsa

Staff Writer

Published August 23, 2020 10:00AM (EDT)

Inuit Eskimo Village in Alaska (Getty Images/Jim Simmen)
Inuit Eskimo Village in Alaska (Getty Images/Jim Simmen)

The pandemic raises the specter of millions of Americans struggling with unemployment for years to come, a process that automation had already started years ago. That could expedite the longstanding call from activists, business leaders and politicians like Andrew Yang to enact a universal basic income (or UBI) — a widely-beloved proposal for a universal social program that has boosters all over the political spectrum. 

The premise of UBI is logical enough, perhaps more sensible in this political moment: Why should one's livelihood be jeopardized due to economic factors or disasters beyond their control? If something like a pandemic or a Wall Street meltdown can destroy innocent lives, shouldn't the government install a program that will protect them? And even if we didn't have cyclical economic crises, shouldn't people who lose their livelihoods because of technological progress like automation receive something better than a future of poverty?

With a universal basic income, the government would provide a certain amount of money each year to every citizen so that no one would fall below the poverty line. The amount entailed in a UBI varies depending on the proposal — for example, entrepreneur Andrew Yang based his presidential campaign this year on a so-called "freedom dividend" of $1,000 a month — but the underlying concept is always the same: To protect people from the vagaries of our economy, and guarantee a financial cushion.

Universal basic income is not without precedent. Other countries have experimented with the idea, including Canada. But even here in the US, one state, Alaska, has a small-scale version of UBI. It's known as the Alaska Permanent Fund.

Looking to our northern example

"The Alaska Permanent Fund was set up in 1976 to invest a portion of oil revenues for future generations," Stephen Nuñez, a lead researcher on guaranteed income at the Jain Family Institute, told Salon by email. "In 1982 they began to pay out the Alaska Permanent Fund Dividend yearly to all permanent residents of Alaska (including children)."

He said that while the divided varies year-to-year, a payment of $1000 to $1250 is "typical." 

Counterarguments to UBI include claims that they might prevent people from working. Yet Ioana Marinescu, of the University of Pennsylvania, referred Salon to a paper she co-authored in 2018 with Damon Jones of the University of Chicago, which showed that the Alaska Permanent Fund "has no effect on employment."

As the paper detailed, the fund was created for a number of reasons, among them "to ensure that current revenue was in part preserved for future residents." It is managed by the Alaska Permanent Fund Corporation, which as of November was valued at $65.8 billion. Since 1982, the fund has been distributed to Alaskans "in the form of the Alaska Permanent Fund Dividend," which consists of "approximately 10 percent of the average returns to the fund during the last 5 years, spread out evenly among the current year's applicants." Its nominal value fluctuates from as low as $331 in 1984 to as high as $2,072 in 2015. It has consistently exceeded $1,000 since 1996.

To qualify as a beneficiary, a person must have resided in Alaska for at least one full year and have not been incarcerated for a felony during the previous year.

"A representative survey of Alaskans conducted in March and April of 2017 shows that the dividends are popular and significant to Alaskan residents," Marinescu and Jones write. "For example, 40 percent of respondents say the yearly dividends have made a great deal or quite a bit of difference in their lives over the past five years, while only 20 percent say it has made no difference. Interestingly, Alaskans were also asked about how the dividend affects work incentives and willingness to work: 55 percent report no effect, 21 percent a positive effect, and 16 percent a negative effect. Thus, the majority of Alaskans report that the dividend has little to no effect on work."

Karl Widerquist, a professor of philosophy at Georgetown University–Qatar who has doctorates in political theory and economics, confirmed to Salon that the fund has been successful.

"If an impoverished family of four receives $8,000, that's not enough to live on for a year, but it's enough to make an enormous difference," Widerquist explained to Salon by email. "In the first 20 or 30 years of the program, Alaska was one of the most economically equal states and the growing [Permanent Fund Dividend] was probably one of the reasons. It's helped Alaska maintain a much lower poverty rate and poverty gap than it would otherwise have."

Mouhcine Guettabi, a professor at the University of Alaska Anchorage, explained to Salon that "the PFD impacts Alaskans in a variety of ways many of which we don't yet understand. We know from the research that it has reduced poverty, does not cause crime to go up, is responsible for lower childhood obesity, and that the distribution has not caused people to exit the labor force."

Guettabi notes that the program has struggled as tax revenues dipped the past few years. "In the last few years, rather than use the historical formula, payments have been set by the legislature at a lower amount in order to balance the budget," he added. 

Guettabi's views were echoed by Alaska State Rep. Jonathan Kreiss-Tomkins, a Democrat, who told Salon by email that "the creation of the Permanent Fund has been one of Alaska's most foresightful decisions. The Permanent Fund effectively converts one-time oil wealth into renewable financial wealth. As Jay Hammond [the governor who oversaw the creation of the fund] put it (I'm paraphrasing), instead of an oil well that eventually pumps dry, the Permanent Fund is a money well that will pump forever."

Kreiss-Tomkins added, "Unfortunately, as Alaska has struggled with massive budget deficits, the PFD — how big or how small — has become the nexus of debate. And as people on different sides of the PFD debate fail to find compromise, the principal of the Permanent Fund itself may be spent down. Effectively, the Permanent Fund may become collateral damage as the debate over Alaska's budget and PFD grinds on."

Of course, the Alaska fund is not necessarily a perfect equivalent to a UBI that could work on a national level. Even at its most generous, it doesn't offer residents nearly enough money to support themselves entirely on its own. The underlying concept of a true UBI is that it would do more than merely supplement existing incomes; it would be enough for every recipient to support themselves even if they are unemployed, both to spare them from poverty and to allow innovative minds to realize their potential without being held back by the need to waste most of their lives simply trying to survive.

A "permanent fund" for the whole nation

Alaska's example proves that giving money to citizens from tax revenues — largely oil taxes, in their case — is more than feasible. So could a more robust version of Alaska's model be enacted nationwide? Critics say that a UBI might prompt businesses to raise their prices, disincentivize work or be insufficient to eradicate poverty.

"That's a good question," Nuñez told Salon when asked about the possibility that prices would go up as more people had money. "One version of that that you probably often hear is the landlords are just going to screw it all up. I don't think it's reasonable. When people implemented social security, poverty actually went down for old people — their landlords didn't all raise their rent by the exact amount of the social security."

When asked if UBI would disincentivize people from working, Widerquist argued that the exact opposite would happen: It would free people up to decide what kind of work is best for them. This distinguishes UBI from other welfare programs: Unemployment insurance requires you to be unemployed. Social Security requires you to be retired. Social Security Disability Insurance requires you to be disabled.

"In all these ways, the existing system disincentivizes work, because you have to stay out of work or keep your income low to get it," Widerquist explained. "Basic income has no work disincentivization because it's a lump sum. You get it, whether you're rich or poor. Now taxes might discourage work. That might more work slightly less attractive, but the basic income itself does not."

Instead, he pointed out that "it gives you the freedom and power to reject work. If working conditions are terrible and wages are really poor, that does disincentivize work. If they give you a good job and a good wage, does basic income discourage you from taking it?"

By his analysis, Widerquist felt that people who argue UBI would disincentivize work really argue that they want people "in the lower and the middle class to have no other choice but to work, and to have to take any wage and to take any job, no matter what the wages and working conditions are. I believe that the labor market should be a free market, where you enter as a free person and you can reject the market if you don't want it."

He added, "We shouldn't be forcing people by saying you can't have any access to the resources you need to survive to get them, to force them to take any job and any working conditions. So that's how I address this one to say that it disincentivizes this work. It doesn't really disincentivize to work at all."

At this point one can also turn to Yang, who framed his proposed "freedom dividend" as a tool to allow talented people who might otherwise waste their lives merely trying to survive to unlock their potential. As he wrote on his campaign website, UBI "increases entrepreneurship because it provides for basic needs in the early lean days of a company and acts as a safety net if the business fails. It also gives you more consumers to sell to because everyone has more disposable income. The Roosevelt Institute found that a UBI would create 4.6 million jobs and grow the economy by 12 percent continuously. UBI would be the greatest catalyst for new jobs, entrepreneurship, and creativity we have ever seen."

He added that it also "increases art production, nonprofit work and caring for loved ones because it provides a supplementary income for those interested in labor that isn't supported by the market."

Finally there are concerns about how to make sure that a UBI provides enough money to actually allow people to survive off of it. For thoughts on this, Salon turned to Richard D. Wolff, professor emeritus of economics at the University of Massachusetts Amherst. He explained that the political and economic viability of any UBI would relate to how much money it disbursed.

Wolff told Salon, "One of my disinclinations for the universal basic income is my deep suspicion that the social forces that have always made a 'living on welfare' a disaster in terms of quality of life" would wreak havoc on its benefits so that it would not really help the poor that much. 

"I'm one of those people for whom questions of wealth and poverty are always relative, never absolute," Wolff explained. "So I don't understand the notion 'enough money.' Enough means what? Is your child going to imagine a life in which the highest rung they can reach is to be a truck driver, or if you're really lucky a school teacher, versus somebody else who imagines traveling around the world, doing interesting things?" Wolff said when the government sets the amount of UBI, "you are shaping the lives of people from beginning, probably the innocence of the children. And so for me, the question of what is enough is highly contestable."

Wolff also noted that UBI would not rectify the underlying social inequalities of American capitalism — specifically, that "a corporation . . .  should not distribute income in the radically unequal way that it does, with hundreds of millions of dollars to three of the top officials, huge portions of that revenue spent out to a handful of major shareholders" and workers receiving much less. Wolff said that by not solving the "bigger problem" — of "having a society that puts some people in the position of living off the taxes paid by others" — UBI just creates "a recipe for endless conflict."

He proposed an alternative: "Give everybody a job. Why aren't we talking about universal basic employment? Give every person a job. Stop defining jobs in the capitalist way, as something that makes a profit. Having making a profit the bottom line is a dumb idea. It's dumb mathematically, it's dumb economically, and it's really dumb as social policy."

Wolff's words recall President Franklin D. Roosevelt, who in 1944 proposed an economic bill of rights that would have included: "The right to a useful and remunerative job in the industries or shops or farms or mines of the nation," and "the right to earn enough to provide adequate food and clothing and recreation," along with a good education, a home and the right to medical care.

In that address, Roosevelt laid the basis for the modern welfare state as we know it. Seventy-six years later, Roosevelt's vision is a shell of its former self, and what little is left of America's welfare state has failed to save us from a pandemic-induced recession. Now, the question is not whether our economic sickness can be cured, but rather whether universal basic income is the right medicine.

By Matthew Rozsa

Matthew Rozsa is a staff writer at Salon. He received a Master's Degree in History from Rutgers-Newark in 2012 and was awarded a science journalism fellowship from the Metcalf Institute in 2022.

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