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. 

Leaving the Left: Three Dangerous Features I Left Behind

The blatant hypocrisy, the obstinate ignorance and the penchant for authoritarianism within the American Left today are the three reasons why I left the Left in the first place. Riffing off of my recent post on Leftist thought and its major deficiencies, I thought I’d point out a few more recent examples.

Remember, Leftists by and large don’t realize that what they are doing is a) hypocritical, b) ignorant, and c) authoritarian. It is, as Brian Gothberg pointed out, more of a cognitive block than anything. However, there is really no excuse for this cognitive dissonance once it has been explained. Perhaps I need to work on doing a better job of this, but I suspect, as does Dr. Delacroix, that most of it is simply obstinate ignorance and a failure by Leftists to actually read what their opponents are writing.

Writing over at EconLog, David Henderson points out the blatant hypocrisy of the Left in regards to freedom of speech. He draws readers to the attention of calls for solidarity by Leftist academics blogging at Crooked Timber (it’s to the right, on our blog roll, and has been for quite some time) for one of their own after he was targeted by Right-wing groups for his vile thoughts on the NRA’s CEO (a Mr. Wayne LaPierre). Henderson writes: Continue reading