50 years ago, President Kennedy called for a better measurement of objective well-being in economic policy, yet we are still prioritizing GDP growth today. In his speech at the University of Kansas, Kennedy distinguishes material poverty from “poverty of satisfaction,” and cites factors critical to human existence: purpose and well-being. GNP and other statistics that measure aggregate output “can tell us everything about America except why we are proud that we are Americans.”
The call for adjusting national priority to national well-being instead of key economic metrics does not undermine the importance of economic growth; it is enormously beneficial. Economic growth has evidently bettered human society. Entrepreneurial investment in human and physical capital has brought out smarter populations and technological advancements have created more superior goods and services. However, prioritizing economic growth and other metrics has led to unprecedented levels of income and wealth inequality.
The quantitative nature of GDP makes it difficult for economists to accurately include qualitative factors into calculation. Services done by homemakers that would be considered into GDP if done by someone for hire, how people value leisure, and impacts on the environment are notable factors that economists exclude when calculating GDP. They also quantify quality improvements of goods and services with a great degree of uncertainty. Quality improvements are usually documented as increases in product and service prices, but whether that equates to the true value of gained benefits is seriously unclear. If anything, service improvements and the recent rise of internet-based and electronic goods have been understated in value. However, the biggest issue of GDP is that the metric is generalized for the entire nation or per person, so it fails to capture the severity of poverty and income inequality.
In The Great Escape, Angus Deaton expands upon the issue of using the absolute poverty line in the United States. The poverty line used today has been set in 1963 by the Social Security Administration based on nutritional needs at that time and has been adjusted only for inflation. Implementing absolute poverty lines are more applicable to developing countries that legitimately face hunger and nutritional issues. However, as Deaton argues, the poverty line should be relative and placed at the minimum of which Americans can “participate fully in society.” The government’s lack of response to fixing this deprivation and sticking to an absolute poverty line has omitted people from poverty relief programs even though they need it, further pushing the lower class below the average. In times of skill-biased technological progress, the government must provide the lower class with means of acquiring the necessary education to live in accordance with continuously increasing living standards.
While the bottom continues to fall below society’s mainstream, emphasis on economic growth has allowed the top 1% from gluttonously devouring the wealth of the 99%. Throughout history, the rate of return on capital has always been greater than economic growth. Thomas Piketty’s study on the effect of rate of return on capital, r, compared to economic growth, g, on wealth inequality concludes that as r>g increases, wealth inequality increases at a greater rate. Piketty attributes this to globalization in conjunction with unequal access to education and skills in a skill-biased economy. Greater r>g values indicate that individuals can invest less for the same amount of return, further amplifying wealth inequality as the top 1% and other wealth holders take advantage of advanced investing instruments to grow their wealth at rates that the rest of the population cannot afford to utilize. For the past thirty years, the top 1% has experienced real wealth growth rates of 6.8%, whereas the average wealth growth rate has been 2.1% per year. In response to this issue, Piketty suggests implementing financial transparency and progressive wealth taxation.
A possible solution in tackling income inequality would be to implement a universal basic income, or UBI, to bolster the middle and lower class, truly raising national well-being across the 99%. Although undermined for their high costs and possibility of making society less productive, trials of basic income indicate that universal basic incomes surely have more benefits than drawbacks. In light of presidential candidate Andrew Yang’s recent run, his freedom dividend highlights the importance of Kennedy’s urge for national well-being more so than GDP growth. David K. Evans and colleagues’ Cash Transfers and Temptation Goods discovers the effect of cash transfers on alcohol, tobacco, and other “temptation good” spending. After a cross-analysis of 19 studies pertaining to this topic, Evans and colleagues conclude that implementing cash transfer programs, essentially increases in personal disposable income, did not proportionally increase temptation good expenditure. “On average, across all regions and program modalities and durations, [they] found that cash transfers actually decrease total expenditure on temptation goods.”
Universal Basic Income countries enjoy psychological and monetary benefits. They increase optimism and reduce stress in more difficult households through offering a financial cushion, giving individuals the ability to seek educational and occupational advancement. Others would see benefits in being able to pursue careers they aspire for, such as the arts, volunteer work, or entrepreneurship. Its implementation would, in fact, increase productivity through better overall education and real GDP through increases in personal disposable income, thus increasing consumption. Finland’s recent UBI experiment supports these conclusions, as basic income recipients had higher average days of employment (78 compared to 73 for those who did not receive payment), and were more financially and mentally satisfied with their lives. Because of the recipients’ improved well-being, the recipients “trusted other people and the institutions in a society to a larger extent and were more confident in their own future and their ability to influence things,” alluding to Deaton’s mentioning of guaranteeing full participation in society.
Most, if not all, experiments with UBIs were small in scale, which leads to the concern whether the data and conclusions brought to light by the aforementioned studies can be applied to larger scales like the United States. The reality that aggregate betterment upon implementing the UBI is not a certainty arguably detracts many from advocating such policy. They argue that the risk associated with enacting universal welfare, which would require foundational systemic changes, is too high. Keeping these payments affordable by making the basic income small would still necessitate a significant increase in taxes across the board. In addition, the financial safety net created by a UBI could decrease the supply of workers for “essential jobs” such as education and nursing. Although carrying out policy changes without a guaranteed beneficial outcome does indeed have risks, making surface level changes to the existing inefficient welfare or job training programs does not suffice.
Contrary to popular belief, the United States can comfortably finance a plan like Yang’s Freedom Dividend. Yang proposed to support the universal dividend by using the current Social Welfare budgets, income derived from carbon pricing, and a 10% Value Added Tax on businesses’ productions of goods and services. These means of payment would effectively finance the basic income and aid in the goal of improving objective and subjective well-being of the lower and middle class. Current spending on social welfare should be used since current recipients of welfare programs would have the option to choose between their current benefits or the basic income. By implementing a mode of carbon pricing, whether it be a tax or a cap-and-trade, the government fulfills duties on protecting the environment while earning revenue to fund the UBI. The Value Added Tax provides means of taxing income generated through technology-based goods and services such as AI and software, which will continue to grow through technological advancements.
Although the UBI studies that have been conducted thus far cannot ascertain that implementing UBIs would be a guaranteed success, it would certainly be a step in the right direction. It takes more than just economic policy changes to completely resolve income inequality. However, the actual passing of a universal basic income would probably indicate a greater feasibility in being able to fix foundational corruption in politics and “too big to fail” companies that would be able to reduce income inequality as much as possible within what democratic principles call for.