Would free money make us lazy or creative?

Researchers conducting studies on a universal basic income model are hoping to discover if it is an ideal policy tool to use during a pandemic-induced recession

A couple counting money. Universal basic income lets people bridge periods out of work or in bad jobs so they can invest in their own skills and re-enter the workforce at a higher level. Getty Images

To make good policy, you should have at least a vague notion of what you’re talking about. But when it comes to perhaps the biggest reform proposal around, we just don’t. I’m talking about a Universal Basic Income, a system of unconditional cash payments to everybody in a given jurisdiction.

The case for a UBI runs as follows: It would reduce poverty, make people healthier and give them more dignity. It would also ease the transition of workers who lose their jobs to robots or artificial intelligence, so they can retrain for different careers. In general, it lets people bridge periods out of work or in bad jobs so they can invest in their own skills and re-enter the workforce at a higher level.

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To get out of a dead-end job, say, they might take a “sabbatical” for adult education. Or they could temporarily contribute in other valuable ways, for instance by homeschooling their children or caring for elderly parents. Moreover, because a UBI would replace most or (as I would like) all legacy welfare systems, its cost needn’t be prohibitive.

Now the case against a UBI: It would devalue work as such and reward sloth. Without an existential need to work, why bother? A UBI would create a new and permanently dependent underclass, a lumpenproletariat of the Fourth Industrial Revolution. And to provide the nectar that feeds these UBI drones, all those diligent worker bees who still have jobs would have to pay unacceptably high taxes.

This clash between clichés is what the debate has deteriorated to. But how, in fact, would most human beings respond to “free” money? We haven’t the faintest idea.

Lots of people have tried to find out, of course. Starting with Canada in the 1970s, various local, regional and national governments around the world have run experiments. So far, however, these haven’t yielded much useful information. Sometimes a new government took office and halted a research project or changed its parameters beyond recognition. Or the study was designed poorly.

UBI geeks were particularly disappointed that a Finnish project that began in 2017 was first changed, then stopped after only two years. It, too, wasn’t very well thought out — 2,000 Finns who were initially unemployed received a modest €560 (Dh2,423) a month and were compared against another group who continued to receive means-tested unemployment benefits.

As usual in science, the results won't necessarily prove a positive – that a UBI turns us into entrepreneurs, for example

To see the macroeconomic effect of a UBI, of course, you want to test it on a representative slice of the whole population, not just the jobless. Nonetheless, as imperfect as the Finnish study was, it did debunk one assumption of UBI opponents. Getting unconditional payouts not only increased the well-being of the participating Finns but also made them slightly more likely to find jobs. In short, they got healthier but not lazier.

Now there’s excitement about another research project getting started in Germany. It might finally get the parameters right. Almost 2 million people from all walks of life have already applied to take part. Starting in November, social scientists will select two groups. One, consisting of 120 people, will get €1,200 a month, starting next spring and lasting three years. They’ll be compared against a control group of 1,380 who will be monitored but won’t get any cash.

The twist in this experiment is that the organisers will look for “statistical twins.” So if among the 120 there’s a 25-year-old pianist who lives in an urban metropolis, has five years of higher education and good health, she’ll have a doppelganger in the control group. So will the 40-year-old plumber from the countryside, the gig worker delivering Amazon packages, and so on.

By comparing these statistical twins over several years, says Juergen Schupp, the sociologist who leads the project, it should be possible to single out just the effects of the payments on people’s lives. Eventually, they’ll even compare hair samples for clues about stress hormones. As usual in science, the results won’t necessarily prove a positive – that a UBI turns us into entrepreneurs, for example. But they should be able to falsify bad arguments – that a UBI makes us lazy, perhaps.

Even this project, of course, won’t try to answer every question. Which existing welfare services would a UBI replace? Would it extend even to migrants and temporary residents? How would it be financed?

But it’s a step in the right direction, and a reminder that policymakers in poor and rich countries alike need to keep an open mind. We are indeed in the midst of a digital transformation that will destroy many old jobs and create many new ones, and we need structures that help people adapt.

And, as the year 2020 reminded us all, every now and then something like a pandemic-induced recession comes along, against which a UBI just might be an ideal policy tool. It would certainly help if we could answer some of the big questions.

• Bloomberg