Should Canada Provide A Guaranteed Income?

My friend Larry recently bragged about a term paper he had written. His thesis was that the government should guarantee a good income to every adult, whether or not they work. If a citizen wanted to have more money than this minimum, he could decide to work. Larry said he got an A+ on his paper.
 
“Larry,” I said, “that system would bankrupt the nation.” 

 

“Oh no,” he argued. “Canada is a rich country. A rich country.”

 

In Larry’s scheme, the government would give each citizen lots of money. Modern money shouldn’t be understood as wealth itself but as a claim on the nation’s wealth. All the money in the world would be worth nothing if there were no goods or services (real wealth) to purchase. Where does this real wealth come from? Labour.

 

Larry’s proposal would give each Canadian about $35,000 a year. That’s enough for most people to live on, especially if they are living together, so millions of people would quickly quit their jobs or just work part time. To fund the GAI program, the government could: 1) sharply increase taxes, 2) continually borrow huge amounts of money, 3) or continually inflate the money supply. Any one of these approaches or combinations would soon undermine the economy.

 

Larry’s GAI would provide people with lots of money, but would not directly increase the Gross National Product (total goods and services) of the nation. With so much extra money chasing approximately the same amount of goods and services, businesses would demand higher prices. Those who continued to work would probably also demand higher salaries (to pay for higher taxes and to compensate for inflation), driving prices up even further. 

 

Because of this high inflation, the initial GAI of $35,000 would soon not be enough to meet the basic needs of people dependant upon it. The government could respond by providing an ever-higher GAI, which would result in the same inflationary cycle, and, most likely, higher taxes and, certainly, higher debt. The predictable result would be economic disaster.

 

To be fair, most GAI proposals are much more modest than Larry’s. On paper, they may sound reasonable, but they tend to overlook a key aspect of human nature: Too many people would rather get paid for doing nothing than work, and they see nothing wrong with taking advantage of government programs whenever possible. 

 

In the early 1970s, the American government undertook a huge demonstration project in Denver and Seattle to assess the impact of guaranteed incomes on work effort. Unsurprisingly, paid work effort did significantly decline. The surprise finding was that marriage breakdown jumped by 60 percent over control groups. Obviously, many women, receiving a generous guaranteed income, no longer needed a husband to help support them and their children. These single parent families would probably remain permanently dependent on a GAI. 

 

To my knowledge, no nation has implemented a permanent, across-the-board GAI, and for good reason. Economic necessity is the “whip” that keeps most people working. A generous GAI largely takes that whip away. 

 

A GAI is really a universal welfare scheme. Since Roosevelt’s New Deal in the 1930s, we have seen the steady growth of the welfare state in affluent nations. Governments, however, tend to keep welfare benefits at a bare minimum so that most people still have an incentive to work and provide the wealth that nations require.

 

In an ideal world, everyone would be honest and unselfish. They would work hard, not simply to support themselves, but for the greater good. In that kind of world, Larry’s system could succeed. This was the utopia envisioned by Communist theorists. However, in practice, most Communist countries provided cradle-to-grave security but forced people to work. All power was monopolized by the state and people had little freedom.

 

I’m certainly not saying that society shouldn’t care for its weaker or poorer members, but a universal GAI is not the answer. Since at least Vatican II, the Catholic Church seems to have been a fairly consistent supporter of State sponsored welfare. However, the Church has also emphasized the responsibility each capable person to work. This teaching goes back to the ancient apostles:

 

“For even when we were with you, we used to give you this order: if anyone is not willing to work, then he is not to eat, either” (2 Thessalonians 3:10).