Researching basic income

By now you’ve heard that YC wants to learn all about it. I’m completely unqualified as an economic experimenter, but I have a few thoughts about the curious premise.

Very obviously any affordable study can only observe the individual rather than structural benefits of a basic income. There are genuine nonlinearities in the progression towards a world where (1) everyone has meaningful purchasing power, (2) where inefficiently-administered government welfare systems don’t create needless problems, and (3) where (1) and (2) are taken for granted.

But it’s also very likely that the move towards basic income will probably start with annual awards on the order of $1,000 to $5,000 in concert with a host of other legacy welfare technology rather than a complete revolution. Especially in the United States.

Therefore the reach of Sam’s fundamental question – “do people, without the fear of not being able to eat, accomplish far more and benefit society far more” – probably exceeds its grasp. But we can study the latter, something I’ll get to soon.

It’s also worthwhile being mindful of creating an observer effect. It certainly seems like a bad idea telling a young family with a newborn that it has a good fortune of a basic income, and don’t worry economists and sociologists will only study its developments every month. This effect would be particularly acute if the basic income is anything meaningful. Call this the “be careful not to create a lottery” bias.

If compelled I’d propose the following.

  1. Scrap the 5 year limit. It dramatically constrains the economic scope of a basic income and is unlikely to yield an interesting result. Individuals smooth income over a large period of time, and this is likely to suffer from a “lottery bias” as a result.
  2. Opportunity is one of the most important themes in American socioeconomic discourse, and opportunity is most elastic during childhood. Find a way to have a substantive answer to the question “how does basic income level the playing field for poor children”.
  3. Avoid the observer effect by finding ways to give people a basic income without their knowledge: though this is tricky for reasons I’ll outline below.
  4. Attempt to maintain general best practices for experiments (randomization, large sample for high statistical power, etc.)

The best way to satisfy (1), (2), and (4) might be something like an annual award on the order of $3,000 to $10,000 for couples that have just had a child for randomly selected people in randomly selected cities (ensuring some diversity in both type of people and type of city) for 20 years.

500 families in 10 cities at $5,000 would cost $25 million a year. That sounds doable for the Silicon Valley elite. Though there are plenty of ways to reduce this and still learn a lot. We can start with a single city. We can cut the study period to 10 years (and divide the group into early and late childhood – to see where the effect is strongly felt). I imagine the project should start in a single city – the administrative cost of studying 10 over 20 years isn’t negligible.

Though $5,000 isn’t a basic income, it is a little under what the average family spends on food. $10,000 to $15,000 is affordable, especially if we have only a single city. But at this order we sacrifice statistical power and also tempt strong observer effects.

For one, $10,000 to $15,000 awards will create envy. In neighborhoods where this program is most useful, this figure eclipses 100% of disposable income. The point of a basic income isn’t to create a table of special kids eating avocados amidst an inner city cafeteria serving mass frozen pizza. It would also be impossible to provide such awards without alerting the recipients.

Indeed doing so in general is hard. Working with employers is one option, though as economists know telling an employer you’re giving employee X an extra $5,000 means it can spend less to keep that employee than it would have to otherwise.

  1. It would be good to work with corporate echelons of a distributed employer that would randomly increase the salary without the knowledge of more immediately located hiring managers.
  2. Working with the IRS to randomly increase tax refunds to selected families could also work though this would need someone willing to work with the IRS.

The ability to precisely study beneficiaries is diminished if one is vigilant about a non-observable experiment. That’s a tradeoff YC will have to make. But the guilt, envy, awe, shock, and puzzle of receiving a lot of money will have large effects.

As a guiding principle, it may be cheapest to start an experiment that researchers can most quickly learn from and modify as needed (sequential hypothesis testing is valuable here). Building an apparatus where making modifications and adjusting the experiment doesn’t void the statistical validity of results already obtained is valuable.

Maybe the simplest advice is spend a lot of money by giving reasonable chunks of cash to a lot of people over a long period of time. Once collected data is made public the academic value of this data will be unbeatable. This is a landmark study if done correctly. It would directly challenge the government as both a provider of welfare, but philosophically demonstrate the capacity of Valley billionaires to produce meaningful research answering the hardest questions in social science.

Advertisements
3 comments
  1. Andrew Carroll said:

    In response to Sam’s first question, as posed by you, Henry George states — on a different impetus, but similar result:

    “I shall not deny this may lessen the intensity with which wealth is pursued. It seems to me that in a society where no one fears poverty, no one would struggle and strain for great wealth, as people do now. Certainly the spectacle of people slaving away for the sake of dying rich is unnatural and absurd. In a society where fear of want had been removed, we would view those who acquire more than they can use as we now look on someone who wears a dozen hats.

    Though we may lose this incentive, we can surely spare it. Whatever its function may have been in an earlier stage of development, it is not needed now. The dangers threatening our civilization do not come from weakness in production. They come from the unequal distribution of wealth.”

    To me, this is not a way of “avoiding the question”, but of asking the General why he is still preparing for the previous war. The war before us is quite different.

    Also, is there a way to contact you privately? I enjoy your blog and would like to discuss the LVT with you.

    Cheers, mate!

    – Andrew

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s