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November 2010
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2010-11-21 »

Canada and the Guaranteed Annual Income idea

The Globe and Mail recently published an article titled To end poverty, guarantee everyone in Canada $20,000 a year. (Note: I think the $20,000 is a made-up number but I'll keep using it here for illustrative purposes.) It was then picked up in the comments at YCombinator news.

Unfortunately, both the article and the comments seem to misrepresent the actual proposal. A better reference is Income Security for All Canadians (pdf) that explains in more detail.1

But you don't necessarily need more detail to understand why this idea is a good one. It's simple: the proposal doesn't change anything except the administrative overhead.

In Canada, true homelessness - sleeping on the street involuntarily - equals death. It simply gets too cold here. If you don't want people to die, you provide social services, whether through private organizations or through the government. And so we do, in a complex combination of both.

Whether or not you agree with this idea - keeping people alive and healthy and, to some extent, comfortable even if they can't earn a living - can be debated, and it often is. Every country does it differently, and the rules and amounts are constantly changing.

But in any case, in Canada, the overall outcome of our complex set of rules is clear: there is a minimum guaranteed annual income. If you're not earning it, some government agency or another is willing to give it to you, if you jump through the required hoops.

The "guaranted annual income" proposal, then, is not a proposal to start guaranteeing a minimum annual income. We already have that. It's just a renaming and simplification of what we already have. Instead of a network of complicated government agencies to guarantee your annual income, and a bunch of complicated proof requirements, we just have one agency and the only proof required is that you're a Canadian.

Where does the money come from? That's easy: it comes from where it already came from. It's the same money as before, going to the same people.

What if people abuse the system? That's easy: the same thing that already happens. It's the same money and the same people as before.

Won't it cause inflation? No, because it's the same money as before.

Won't it make people lazy and not bother to get a job? Maybe, but so will the current system. And the income we're talking about is really not a comfortable income; it's just barely enough to survive. People complain regularly, and probably quite accurately, that the current welfare situation in Canada still leaves many people below the poverty line. That won't change.

Won't people just take the money and spend it all on drugs and alcohol? Probably, yes. But they would do that anyway. Such problems can't be solved with money alone.

Why do we give it to every citizen, instead of just the citizens who need it? Good question. The answer is: because the math works better that way. Here's why:

Right now, if you're taking unemployment insurance or welfare or receive a disability pension, the short version of a complex story is that every $1 you earn - by taking a job - reduces your free government income by about $1. At a really basic level, that sounds fair; we guaranteed you would get a survival income, so if you're earning money yourself, we'll supplement it, but only up to the survival amount. Why shouldn't we give more charity to someone with no job than someone with a job?

Thinking about it more deeply, though, the answer becomes clear: because if you take away money from people when they earn money, they have no incentive to earn money.2 A 20 hour a week job and $20k/year is worse than no job and $20k/year. Sure, maybe with a 40 hour a week job, you could earn $40k/year, which is more than the basic welfare amount; but to get there, you have to get started. A lot of the people who need welfare couldn't just go get a job that, on day 1, would pay more than $20k/year. They have to gain experience, get promoted, and so on. Sure, in the long term it might pay off, but if everyone was good at long term planning, we wouldn't be in this mess.

What about the rich? Are we going to give them $20k/year too? Technically yes. But just as technically, we'd obviously raise the higher tax brackets so that their effective income would be the same as before. Progressive taxation makes sense; if you earn $1, the government takes away $0.40 or whatever, but you still have $0.60 more than if you didn't earn that $1. So you still have an incentive to work more.

In summary, the main advantages of the guaranteed annual income proposal are:

  • it doesn't actually cost money;
  • it massively simplifies administration (at least in theory);
  • it reduces the dehumanization of proving you're needy before we'll help you (note to Ayn Rand lovers: her main complaint about welfare was this part - "to each according to their needs" - not the part where we keep people from starving);
  • it means that people who are too far gone (drugs, etc) to currently file for welfare could potentially get the help they're entitled to because accessing it becomes easier;
  • it "sounds fairer" than just giving a lot of rich people's money to poor people; we're giving money equally to everyone, rich or poor;
  • it combines the advantages of socialism (less starving dying homeless people means rich people can be happier and guilt-free) with the advantages of capitalism (more work leads to more income, as it should).

I am not aware of any major disadvantages of such a plan. Let me know if you think of any realistic ones and I can add them here.

It's very interesting to me that it's the conservatively-minded politicians in both Canada and the United States that seem to be working on this idea; I would have expected it to be a more liberal suggestion. Perhaps the reduced administrative overhead ("smaller government") is appealing.

A government that managed to pass such an overhaul would certainly be remembered forever in Canadian history. Um, in a good way. I think.

Footnotes

1 If you really want a lot of detail, I recommend A Fair Country, by John Ralston Saul. It's a really good book if you want to understand where Canadian culture comes from. (Spoiler: it comes largely from our aboriginal population. Bet you didn't see that coming. Neither did I. But he convinced me. Quiz question: which of our supposed primary influences, the British or the French, is the reason we're so polite? So accepting of other cultures? So biased toward peacekeeping instead of empire-building? Answer: neither of them, obviously.) That book was where I first heard of the guaranteed annual income proposal in a well-presented way.

2 To be honest, I'm a little shocked and/or disbelieving that it works this way, because it's so obviously stupid. But I've talked to people on the receiving ends of these programmes, and more than once I've heard that there's no point for them to get a job, because if they did, they'd be cheating themselves out of free money. A rather obvious halfway implementation of the guaranteed annual income scheme would be to simply deduct only a fraction of your earnings from your government supplements; it's not as elegant as the whole deal, but at least you aren't outright discouraging people from getting a job. (If that's already what happens and I'm misinformed, well, maybe that's why this GAI idea is necessary; because it's so complicated that even the people receiving these services don't understand them. I admit to never having collected welfare, disability, or unemployment insurance, so I have no real experience here.)

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