When Free Money Fails
Guaranteed Income Study Shows Poor Results
Greetings Prosperous Souls,
Universal basic income (UBI) is a popular idea. The concept? Give people a set amount of money—typically each month—in an effort to reduce poverty. Sounds great, right? Only problem is it doesn’t work.
Don’t believe me? Check out this recent study where several non-profits, over the course of three years, gave low-income individuals guaranteed sums of $1,000 a month. Here’s what happened:
… the transfer… generated significant reductions in individual and household market earnings… The spillovers onto other household members–who also reduced their labor supply in response to the transfer–implies the total amount of work withdrawn from the market is fairly substantial.
Translation? People worked less when they knew free money was coming. Interestingly, household partners also pulled back from work. The study continues:
The transfer [of guaranteed income] caused total individual income to fall by about $1,500/year... The program resulted in a 2.0 percentage point decrease in labor market participation for participants and a 1.3-1.4 hour per week reduction in labor hours, with participants’ partners reducing their hours worked by a comparable amount.
So, instead of alleviating poverty, these non-profits subsidized it. Families stuck in low-income situations remained at the same level or fell further.
Now, don’t get me wrong. There’s nothing evil about giving away money. Jesus commands us to share with those who are less fortunate. But if the goal is to lift people out of Financial Disease, there has to be a plan. Donating without encouraging growth or responsibility is like throwing cash in a fire.
But, What’s the Catch?
What struck me with this study is that participants could use their cash however they wanted. The only requirement was that researchers had to track each dollar they spent.
While there were some participants who spent their newly freed time pursuing education, the study admits: “We observe no significant effects on investments in human capital, though younger participants may pursue more formal education.”
At this point, we have to ask—was the study worth it? Well, the researchers did find: “… participants showed more interest in entrepreneurial activities and willingness to take risks due to the transfers, which could improve future earnings and lead to additional economic benefits over time…”
A handful of people started businesses. But to see if these decisions pay off, the researchers request more data: “… future work would improve our understanding of the long- term impacts of income on employment.”
Supporters of UBI argue that they need more studies. But how much data do they need? This study we’ve referenced lasted for three years. What happens when a trial goes on for five, ten, or fifteen? How will it affect children born into families subsidized by guaranteed income?
I’m all for helping low-income families, but this guaranteed income idea feels like a dead end.
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God bless your Prosperous Soul,
Stephen K. De Silva
About: Stephen K. De Silva is an author, speaker, and financial coach. From 1995 until 2017, he served as the CFO of Bethel Church, and a member of the senior leadership team. Stephen’s blend of experience, training, and gifting make him a pioneer in the subject of money. You can reach Stephen at hello@prosperoussoul.com