Universal Basic Income Hype: A ballyhooed study proves much less than advertised

WSJ editorial.

"Perhaps you’ve heard that a universal basic income is an idea whose time has come. Liberals are hyping the supposed success of UBI from a small experiment in Stockton, Calif. On closer scrutiny, it looks like a case study in politics influencing academic research.

The idea behind UBI is to provide a base level of unconditional cash to everyone. Milton Friedman once suggested that a quasi-UBI in the form of a negative income tax would be a more efficient way to alleviate poverty than the social welfare bureaucracy.

Yet now liberals want a UBI not to replace welfare programs, but to supplement them. Congress’s pandemic checks and potpourri of refundable tax credits, including $3,600 for each child under age 6, are essentially a UBI. Democrats want to make these handouts permanent, and in support they’re touting a recent study of a small privately funded experiment in Stockton. “Study: Employment rose among those in free money experiment,” an AP headline declared.

Not quite. The study randomly selected 125 Stockton residents from low-income neighborhoods and gave them $500 a month on a prepaid debit card. Another 200 residents served as the control group. Asian/Pacific Islanders and homeowners comprised a larger share of the debit-card recipients than of the control group , which could have biased the results.

The study’s small sample and reliance on self-reported outcomes are bigger problems. It’s difficult to assess a statistically significant effect on employment among such a small group over a one-year period—from Feb. 2019 to Feb. 2020—especially given high labor-market turnover among lower earners.

Full-time employment rose in both groups but was slightly lower among the free-cash recipients at the beginning and slightly higher at the end. Hence the study cagily concludes: “Unconditional cash enabled recipients to find full-time employment” (our emphasis)—not that it actually increased employment. Most media ignored this nuance.

Students of incentives might also point out that people receiving free cash might be more likely to claim they are working even if they’re not. In any case, the unconditional Stockton cash grants are temporary, and there’s a graver risk that recipients would drop out of the labor force if the grants were made permanent.

The study says free-cash recipients were virtuous, and “less than 1% of tracked purchases were for tobacco and alcohol.” But about 40% of the money loaded onto their prepaid debit cards was either transferred to a pre-existing bank account or withdrawn as cash. Researchers don’t know how this money was spent.

The researchers were promoting UBI on their Twitter feeds less than halfway through the experiment. One claimed “it’s embarrassingly straightforward, without #guaranteedincome, you get a guaranteed recession.” Their progressive bias is transparent.

They conclude that even UBI is “not nearly enough,” and they also want a higher minimum wage, universal child care, and rental assistance, among other income transfers. The left wants to obliterate Congress’s 1996 bipartisan reform that linked welfare to work, and they’re well on their way."