Economist Milton Friedman and St. Paul Mayor Melvin Carter share an idea about how to make sure the poorest people in the community can collect a minimum income.
Friedman was a free-market champion who ended up collecting a Nobel Prize, advising world leaders and writing bestsellers. He was being recalled last week, more than a dozen years since his death at the age of 94, on the 50th anniversary of publication of his fiery essay in the New York Times magazine that made his case for leaving free-market participants alone.
His specific topic that day was the social responsibility of business, and he thought there was only one — to make money for the business owners while staying within the rules. That’s it.
The argument isn’t exactly settled, though, as this essay is still debated for the role it might have played in wealth and income inequality, middle-income job loss and other problems over the last half-century.
Carter, 41, lies a long way away on the ideological spectrum once occupied by Friedman. His election in 2017 came in a crowded, ranked-choice field that had a strong leftward tilt.
Among the ideas Carter has pushed is a form of guaranteed income for St. Paul residents: a program where low-income households could receive $500 per month for up to 18 months, with pretty much no strings attached. The City Council in St. Paul approved a pilot program last week.
Attacking poverty with cash wouldn’t have seemed like a new idea to Friedman, who often talked of the benefits of allowing people to choose for themselves. One of his free-market ideas that hung around for a while without quite getting fully implemented was called a negative income tax.
A negative income tax would mean that instead of programs for low income people like a housing subsidy, people who don’t earn a minimum amount of money could file a tax return and get money back from the Internal Revenue Service. They could spend it on rent, groceries or other stuff they required, without needing to file for benefits.
The term negative means it’s the reverse of a normal tax, paying people a percentage of the difference between a minimum income and what a person actually made. The negative income tax check would help out a family but not eliminate the incentive to earn income from working. It remains, decades later, a fascinating idea.
It’s far from the only idea that has been tried around the world to provide a minimum amount of income, of course, including a minimum wage. There’s also something called universal basic income, a little like what Friedman advocated, although “universal” suggests everybody would get money.
Carter calls the St. Paul initiative the People’s Prosperity Pilot and it’s a form of guaranteed income at the city level with nothing to do with federal income taxes, negative or otherwise.
Yet this idea and Friedman’s are far more alike than not.
The proposed St. Paul program wouldn’t be universal aid, only meant to provide no strings attached money for people who really need it. It’s up to them to decide how they spend the money.
It would be aimed at 150 households randomly selected from a larger pool in four St. Paul ZIP codes, neighborhoods that have a median household income of roughly $35,000. That’s about half the median household income for the metro area and well below the median income for St. Paul as a whole.
The city has called it unconditional aid, whether or not they have a job or are getting help from other safety-net programs.
But it does mean participants need to show how the COVID-19 pandemic has hurt them financially.
The plan calls for a benefit of $500 per month for up to 18 months. CARES Act money will cover a bit of the cost and the rest will be funded by philanthropists.
The St. Paul program is roughly in line with what’s being tried in other cities, part of the Mayors for a Guaranteed Income initiative with more than two-dozen mayors.
It would look a lot like a program underway in Stockton, Calif. It was scheduled to wind down this year just as the economic pain from the COVID-19 pandemic spiked. Instead, a philanthropist put in more money to help keep it going for a full two years.
Policy analysts are hoping to learn from the Stockton experiment and others like it how these benefits change the lives of participants, including any differences in their spending.
And a lot of the back and forth about guaranteed income focuses on the question of whether no strings money undermines the incentive to get a job.
The answer in Stockton, as of the last report, was maybe not. About 43% of recipients had a full- or part-time job, about the same proportion as the people in a comparison group who are getting the $500.
The participants not working were full-time students, unemployed job seekers, caregivers or retirees, yet what stands out is how one in five, in both the recipient group and the comparison group, were disabled.
The biggest category of spending in Stockton is groceries.
Recipients also reported catching up on utility bills or other necessities and just breathing a little easier.
Yet about half of the recipients in the latest survey reported “just managing” and one in five was still borrowing money to get by. And just 3% said they had enough money left over to be able to save anything.
There seems to be a better question than if guaranteed income undermines work incentives, and it’s this: What if $500 isn’t enough to make a real difference?