Milton Friedman

Milton Friedman

Who wouldn’t want a nice, big, fat check similar to a PFD payment every month with no obligations? Sound farfetched? Not as much as you might think. And by the way, I am not experimenting with drugs in my garage. This idea is about as mainstream as you can get – nationally and internationally. It goes by various names such as “guaranteed minimum income,” “basic income,” even “negative income tax,” but the concept is the same.

And before you blame Europeans and Communists for the wacky and subversive idea of giving away free money, the idea has American history and street cred. In the late 1700s Thomas Paine proposed inheritance taxes to pay every man and women 21 years of age and over about 65% of the then-average agricultural laborer wage, no strings attached.

In the early 1960s Milton Friedman, conservative icon of the free market, proposed that all families with low incomes receive an unrestricted grant from the government, and tax incentives to encourage work in addition to the free money. He thought this would be more efficient than welfare. This idea was known as a “guaranteed annual income.” In 1968 1,200 economists signed a document calling for the US Congress to introduce a system of income guarantees and supplements. Even President Richard Nixon got into the guaranteed income groove. In 1969 he proposed a "Family Assistance Program" which resembled a guaranteed income because benefits were not reduced with additional earnings by the beneficiaries.

From 1968 to 1982 the US government conducted a total of five “negative income tax experiments.” These involved thousands of families in New Jersey, Pennsylvania, Iowa, North Carolina, Indiana, Colorado, and Washington. They were given cash with no strings attached to bring them up to the threshold of the federal poverty limit. The question was, “If you gave free money to people, would they stop working and become lounge lizards?” That is not an exact quote, but you get the idea. The researchers found that generally people continued to work, but they tended to work fewer hours – the equivalent of 2-4 weeks per year less.

And then, the longest running negative income tax experiment of them all, the Alaska Permanent Dividend Fund, started in 1982 and has been running for 38 years. According to UAA researcher Guettabi, cited below, “Through 2017, almost $22 billion has been paid out in annual amounts ranging from about $300 to $2100 per Alaskan.” Our Alaska program has been studied by researchers across the United States and around the world who are interested in a guaranteed minimum income program, by whatever name.

Just last year, 2019, one such report was released by Mouhcine Guettabi at the Institute of Social and Economic Research, University of Alaska Anchorage. “What do we know about the effects of the Alaska Permanent Fund Dividend?” reviewed various research findings which revealed that,

“The findings across [a number of studies] show that the PFD has not had a negative influence on the labor market.” In other words, when people got their PFD checks they did not quit work and party instead.

“Alaskans spend significantly more on non-durables [such as food, fuel, clothing, and footwear] and services in the month when they receive the dividend payment, and this excess consumption persists over the first quarter after the dividend payment.”

“The evidence indicates that the PFD has a positive, but modest effect on birth weight. This effect is particularly pronounced for [babies born to] low income mothers.”

“For three-year-olds, there is strong evidence that the PFD reduces obesity.”

“The PFD has resulted in substantial poverty reductions for rural Alaska Natives. These effects have been particularly pronounced for the elderly.”

There were also some more equivocal findings. Most researchers “...argued that the PFD reduces income inequality because it represents a larger share of income for lower income households.” However, a couple of other researchers recently argued that “If the PFD is spent on non-durable goods by the lowest income groups but is saved or invested by the higher income, then it may gradually result in increasing disparities between the groups.” I suspect both are true. In addition, “In the weeks following the PFD distribution, substance abuse related incidents increase while property crime related events decrease.”

Ioana Marinescu, a researcher at the National Bureau of Economic Research, published a paper in 2018 entitled, “No Strings Attached: The Behavioral Effects of U.S. Unconditional Cash Transfer Programs.” She reported that “The evidence shows that an unconditional cash transfer can improve health and educational outcomes, and decrease criminality and drug and alcohol use, especially among the most disadvantaged youths.” In a second study that same year Marinescu et. al. demonstrated that “the dividend had no effect on employment.” Once again Alaskans, like other recipients of no-obligations cash, did not quit work and go partying when free money came down the tubes.

So, free money works well here in Alaska and increasingly around the world. Now what? The idea seems to be more popular and more mainstream than ever. The 2020 Democratic presidential campaign of Andrew Yang featured the "Freedom Dividend," a $1,000-per-month universal basic income to all US citizens age 18 or older, regardless of employment status. Yang proposed funding the dividend—estimated to cost $2.8 trillion a year—through a wide variety of new taxes, by removing the wage cap on Social Security payroll tax, by savings on welfare programs which would then be unnecessary, and by growing the economy.

The Emergency Money for the People Act, introduced by Reps. Tim Ryan and Ro Khanna, would give $2,000 a month to Americans over the age of 16 who make less than $130,000 a year. Referring to the recent CARES Act direct payments to most Americans, "A one-time, $1,200 check isn't going to cut it," Khanna said. The payments would continue for at least six months and presumably would last until unemployment falls to pre-coronavirus levels. In my view once people get hold of that cash, especially in a bad economy, it will be extremely difficult for legislators to stop the flow. To wit, the PFD.

What do you think? Free money for all? The best precedent is right here in Alaska.

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