On the (big) conditions for a BIG

This week, EconTalk featured a podcast between Russ Roberts and Michael Munger (he of the famous Munger-proviso which I live by) discussed the Basic Income Guarantee (BIG). In the discussion, there is little I ended up disagreeing with (I would have probably said some things differently though). However, I was disappointed about a point (which I made here in the past) which economists often ignore when discussing a BIG: labor demand.

In all discussions of the BIG, the debates always revolve around the issue of labor supply assuming that it will induce some leftward shift of the supply curve. While this is true, it is irrelevant in my opinion because there is a more important effect: the rightward shift of the labor demand curve.

To make this argument, I must underline the conditions of a BIG for this to happen. The first thing to say is that a) the social welfare net must be inefficient relative to the alternative of simply giving money to people (shifting to a BIG must be Pareto-efficient); b) the shift mean that – for a fixed level of utility we wish to insure – the government needs to spend less and; c) the lower level of expenditures allows for a reduction in taxation.  With these three conditions, the labor demand curve could shift rightward. As I said when I initially made this point back in January 2016:

Yet, the case is relatively straightforward: current transfers are inefficient, basic income is more efficient at obtaining each unit of poverty reduction, basic income requires lower taxes, basic income means lower marginal tax rates, lower marginal tax rates mean more demand for investment and labor and thus more long-term growth and a counter-balance to any supply-side effect.

As I pointed out back then, the Canadian experiment (in Manitoba) with a minimum income led to substantial improvements in health outcomes which meant lower expenditures for healthcare. As a result, b) is satisfied and (by definition) so is a). If, during a shift to a BIG, condition c) is met, the entire discussion regarding the supply effects becomes a mere empirical issue.

I mean, equilibrium effects are best analyzed when we consider both demand and supply…

P.S. I am not necessarily a fan, in practice, of BIG. Theoretically, the case is sound. However, I can easily foresee policy drifts where politicians expand the BIG beyond a sound level for electoral reasons (or even tweak the details in order to add features that go against the spirit of the proposal). The debate between Kevin Vallier (arguing that this public choice reasoning is not relevant) and Phil Magness (who argues the reverse) on this issue is pretty favorable to Magness (in my opinion). UPDATE: Jason Clemens over at the Fraser Institute pointed to a study they made regarding the implementation of a BIG in Canada. The practical challenges the study points too build upon the Magness argument as applied in a Canadian perspective. 

BC’s weekend reads

  1. The ABC’s of really bad news
  2. Most ideologies have no use for distinguishing between prophet and politician
  3. The conservative split over Donald Trump
  4. Will we proceed with campaign slogans, or with reflection and hard work? A must read
  5. Healing through decentralization

Around the Web

  1. The Egyptian Coup and Political Islam: Daniel Larison takes neoconservative David Brooks to task for supporting the coup and explains why the coup will only empower Islamism. Highly recommended.
  2. In which countries is ‘crude libertarianism’ most and least true? Tyler Cowen dared to ask the question, but it is his ‘comments’ section (which I am extremely jealous of) that is truly worth reading through. Grab a cup of coffee.
  3. This is why I love Murray Rothbard.
  4. Lies, Slander and Corey Robin. Philosopher Kevin Vallier explains, in depth, the Leftist penchant for dishonesty. Imagine if an associate professor (a young professor without tenure) with a libertarian or a conservative bent wrote something about Rawls or Keynes that was as fact-free and fallacious as the piece Robin wrote about Hayek. Don’t condemn. Don’t get angry. Just imagine.
  5. I’ve been listening to a lot of Sonic Youth lately (you can Google ’em yourself!).

Around the Web: ObamaCare Edition (Part 2)

There is a lot of great stuff out there on the recent ruling. Here are a few I found interesting:

I think I’m done blogging about this whole mess…phlegh!