Conflating Poverty Alleviation with Income Inequality Reduction

I’ve often found that writers— even those trained in economics— conflate alleviating poverty with trying to make the societal income distribution more equal. The most recent example of this that I’ve encountered was within Rutger Bregman’s acclaimed book Utopia for Realists.

Praise for Utopia for Realists

I enjoyed the majority of the book, which advocated a universal basic income (UBI), a 15-hour workweek, and open borders. In this post, I’ll discuss the basic income section and some issues I had with it.

Bregman does a phenomenal job of explaining what basic income is, why it makes sense, and how we might implement it. For the uninitiated, UBI is achieved when:

 “The government provides every citizen with a set amount of money on a regular basis, enough to lift them above the poverty line. This cash income would be universal and unconditional, meaning that every citizen would receive it no matter what — no work requirements, no means-testing and no restrictions on how the money is used.”

Source: Christine Emba – The Washington Post

Bregman explains that many societies have tried basic income experiments to great success and that the US almost implemented it during the Nixon era (during which time it was actually hamstrung by Democrats). As part of this discussion of UBI, Bregman acknowledges that the poor make many bad decisions:

The poor borrow more, save less, smoke more, exercise less, drink more, and eat less healthfully. Offer money management training and the poor are the last to sign up. When responding to job ads, the poor often write the worst applications and show up at interviews in the least professional attire.

Source: Rutger Bregman – Utopia for Realists, p. 100

He posits that this suboptimal decision-making stems from the constant drain on “mental bandwidth” that comes with a high-stress subsistence lifestyle. He states that, if society simply gives the poor cash, research shows that they make better decisions, eat better, work harder, etc. This behavioral uplift is due to the fact that, on UBI, poor folks no longer need to worry about their daily struggle for survival and, as such, their mental bandwidth is no longer drained so grievously.

I agree with most, if not all, of that argumentation. I acknowledge the psychological causes of suboptimal decision-making and that UBI would alleviate the problems of the poor (and do so better and more cheaply than current welfare programs). The part of Bregman’s argument that gives me pause is that he jumps from poverty alleviation to income inequality reduction without any intermediate reasoning.

However, money in itself is not enough; it’s also about the distribution.
“Scarcity is a relative concept,” says Shafir. “It can be
based on a lack of income, but equally on excessive expectations.”
It’s simple really: If you’d like to have more money, time, friends,
or food, you’re more likely to experience a sense of scarcity. And
the things you want are determined to a large extent by what people
around you have. As Shafir says, “The growing inequality in the
Western world is a major obstacle in this respect.” If lots of people
are buying the latest smartphone, then you want one, too. As long
as inequality continues to rise, the gross domestic mental bandwidth
will continue to contract. (Ibid., p. 106)

This strikes me as an exceptionally weak argument. I don’t think it’s within the rights of citizens to be protected from the harms caused by their own expectations. If I expect to make $1 million this year and then I don’t and that makes me sad, society doesn’t need to make me feel better by decreasing inequality between me and millionaires. 

I fully believe in UBI and that we should alleviate poverty (which some studies indicate will only take $4500 / year per capita). But I don’t think that income inequality is necessarily part of that equation, especially not if the sole reason to reduce it is to reduce the “Keeping Up With The Joneses” mentality.

I’ve heard other arguments about income inequality stating that the vast wealth of some folks derives from their exploitation of shady tax loopholes. While I could rebut that such practices are legal, I know that’s weak. Instead I’d point out that incremental tax revenue would come nowhere close to making a dent in welfare (which is > $2 trillion per year (source)).

If we wanted to turn billionaires’ wealth into UBI payouts, I’d argue taxation wouldn’t be the right way to do it. Given that the government would need to create a bureaucracy to do tracking and disbursement, returns to taxed wealth would be sublinear. However, setting up something like GiveDirectly (a charity that provides UBI grants), potentially using blockchain smart contracts (to ensure fraud prevention and increase automation), strikes me as a more effective solution. 

In any case, I’m eager to hear thoughts and reactions. My personal hope is that we get to UBI in our society sooner rather than later, but do it through a reformation of our welfare system, instead of through increased taxes.

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