What is universal basic income? | CNBC Explains

Do you guys want

some free money? Excuse me, would you like

some free money? Free money? No, thank you. No? Free money? Free money! It's free! I'll take some for

my friend too. You can take some

for your friend. Okay, thank you. Would you like some free money sir?

Okay, wow, we've got a lot of takers here. Handing out free money sounds

like a pretty radical idea. But it’s actually an economic concept

gaining a lot of traction around the world. We're talking about

universal basic income. Universal basic income is pretty

much what the name suggests, an income for everyone in the form of

a cash transfer. No strings attached. Finland is among a handful of countries

experimenting with universal basic income as a way to address

unemployment in the country. Meet our fictional

character Leena. She works in a salmon

factory in Finland. Then an economic downturn hits. People can’t afford

to buy as much salmon, and Leena loses her job. Under the universal basic income scheme, Leena

would get around $650 a month from the government. She can use that $650 to cover living expenses

while she looks for a new job. But even once she gets a new job,

she would continue to receive the cash. A key feature of the universal basic income is

that you can spend the money however you like. So in the Finland example, you could take that $650 and spend it on about a third of month’s rent here in Helsinki. Or you could spend it on 100 cans of smoked

herring and 26 bottles of red mulled wine mix. We’ll take 26 of

these, please. The idea of handing out

cash to every citizen isn’t new. Philosopher Thomas Paine proposed the idea of

payments to every person all the way back in 1797. Martin Luther King Junior fought for

a guaranteed income in the 1960s. And even free-market champion Milton Friedman

endorsed the negative income tax, similar to basic income, as a way to

reduce welfare costs and bureaucracy. But lately tech titans in Silicon Valley,

like Elon Musk and Mark Zuckerberg, are some of the biggest

advocates of the idea. They argue a universal basic income could provide

a cushion to an estimated millions of people who could lose their jobs if they're

replaced by automation or by robots. Hello! It’s clear robots are already

changing the future of work. Some in Silicon Valley say universal

basic income could give workers an opportunity to retrain

for today’s workforce. Other advocates say a basic

income would alleviate poverty and help address growing income

inequality across the developed world. It could give people freedom to start their own

business, or flexibility to pursue creative interests. The idea has support across

the political spectrum, from libertarians who say it would

simplify the existing social welfare state, to socialists who want to redistribute wealth

toward the lower and middle class. Finland isn’t the only country experimenting

with universal basic income. Other trials are underway in the Netherlands,

Kenya, Canada and the United States. But not everyone is

crazy about the idea. Critics say universal basic income could

actually disincentivize people like Leena from getting another job if they know

they’re getting paid not to work. And of course there’s the big fat question

of how to pay for universal basic income. If every person here in Finland got that $650, it would cost the government more than $3.5 billion per month. That number would be in the trillions of

dollars per year in the United States, where the population

is much bigger. And labor economists argue basic income would need to be a lot more than $650 to have a meaningful impact. Research from the OECD shows that if the existing

system of social and unemployment benefits was eliminated or reduced to pay for a basic

income, poverty could actually increase. Other critics say there’s no reason

that people who are already well-off should be getting more

cash from the government. So it’s not looking like free money is going to

become the norm for everyone anytime soon. Hey everyone it’s Elizabeth.

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