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Economic Series: What is Universal Basic Investment?
UBI is an acroynym for ‘Universal Basic Investment’ or ‘Universal Basic Income’. It is an economic policy alternative to welfare. Originally proposed by the conservative economist Milton Friedman UBI is a mechanism that, like welfare, creates a floor or safety net for those who are facing economic struggles. There are key differences though that differentiate it from a traditional welfare system.
The cornerstone difference between UBI and a traditional welfare system is that welfare is a means-based system, and UBI is not. A means-based system is viewed as a cheaper mechanism that provides a safety net only to those who can demonstrate the need for help, but it has several drawbacks that do not exist in a UBI system. First and foremost is that a means-based safety net that is only applied to those in need, upon its application, also creates a ceiling for those receiving it, effectively discouraging those who receive it to go do more.
Consider someone who is working at or around the federal minimum wage of $7.25. A 40 hour work week earns them $290 ($1,160 per month), before taxes. The Federal Povery Line (FPL) in 2022 is $13,590 for individuals, $18,310 for a family of 2, $23,030 for a family of 3, and $27,750 for a family of 4.
It’s hard to imagine any person of sound mind and judgement to prefer working full-time at some job that leaves them on the financial brink when it means giving up their assistance safety net. That is the environment created by a means-tested welfare assistance state. A UBI policy, on the other hand, does not discourage people from doing more. While exact numbers can be negotiated, my natural inclination is to set a Basic Investment level on or around 85% of FPL (~$1,000 per month). No longer does any citizen live a life in despair filled with anxiety; no longer does a person choose between doing more or remaining on a more reliable safety net of means-tested welfare.
Fundamentally, the needs-based welfare system provides government-approved assistance to provide housing, food, and education to those who can demonstrate need without means. The government is charged with the task of deciphering who gets what on both ends, those who receive aid and those who are compensated for providing aid. It allows for fraud and waste to those who know how to work the system — and discourages those in need (receiving assistance) from reaching a point where their assistance will be withdrawn. UBI does away with these negative consequences and big government mechanism and instead ensures all citizens have the capacity to feed, house, and educate themselves.
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Common Q&As about Universal Basic Investment.
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