Yeah, I feel like you've kind of outlined for us in a way how these debates evolve I and what can actually move the needle if we choose to let it and if we buy it, really, because it maybe doesn't matter if everyone in the debate has a PhD, because they all have a PhD, but it matters who you're most convinced by in some sort of way. But also, I mean it doesn't make it useless, I think is kind of the difficult thing in the middle of this, right? Because you say you have changed your mind on this front, which, a.) makes you the perfect person to talk to about this. But b.), it just shows why continuing to pursue that stuff, that stuff being, I don't know, not just knowledge itself, but knowing the values aspect of it, what should be done, the therefore, and everything that leads up to the therefore, which when you first started talking, I was like, what is the point of my job? Why would I be an economist if truly these conversations will continue before me and happen for so long well after me and then continued for so much time before me? Where does that kind of leave us before we move into the beginning of where UBI even came from as an idea?

How do you kind of roll with this process of everyone is weighed in on this to wait and everyone will continue to, but I might contribute or is it just for you?

Well, economics at its best is it's a.) training in logic. You learn to be very careful about what, well, if you accept the training, and sadly, many people misuse advanced training, including many economists, and that disturbs me as much as anything. B.) So the clarity of thinking it's supposed to provide is often used as a weapon to dismiss everyone's concerns when they disagree with you because you say, I'm an economist and I figured this out, and the underlying parameter is this and therefore it can't be blah, blah, blah. For some things you can say that at its best, the logic and the training of economics can help you rule out other people's statements or recommendations that literally violate the economic equivalent of the laws of physics. There are some, and again, prices matter, right? Prices matter. Prices matter. Prices matter. I have not lost faith in that macro what to do about monetary policy in Spain. Macro[economics] is voodoo and micro[economics] isn't, and everyone sort of, I mean economists know this. So it's but's training in history, training in any discipline that has rigor allows you to separate things that are logically impossible from things that are logically on the table. After that, then the judgment comes in. And again, good instructors and good teachers help students. It's a buzzword to think critically.

Yeah, what you were saying is very critical thinking coded,

But sadly, most, a lot of what goes on now in policy is just arguing. It's just kind of a bad SNL skit watching these hearings for the nominees, for the Trump administration, for the cabinet posse, it's not an exercise in running a good seminar, let's put it that way.

There's a reason they're not in university.

Well, again, universities at their best can avoid all this stuff at their worst. Sometimes in the social sciences, at least they can become cheerleaders with a political agenda. And that isn't critical. That doesn't help students think critically.

I would point to incentives, but maybe that's just the economist in me, but it's a tool. Right? Alright, so let's get started. So this idea is very old. The problem that tries to solve poverty is super old and arguably, I mean especially these people who are aware of and think about living standards and economic growth, as much as macro is voodoo, the graph of living standards is hard to argue with. There is less poverty than there has been. So I don't know, kind of characterize poverty for us a little bit. I mean, obviously poverty is not good. We do not wish it upon other people, but we don't have as much poverty as we did then. And so I almost think to begin talking about something, an idea, a policy, idea, solution that has been around for so long to address a problem that's been around for so long, but it has changed. We kind of have to understand where we are and where we've been.

So the technical, I mean the buzzwords one would get in a class are relative versus absolute poverty. So absolute poverty is literally trying to use a measure of inflation and then saying what the consumption bundle of someone today looks like relative to consumption bundles of people in the past. And a favorite anecdote is if you've ever been to London and go to the Tower of London and look in the chamber of the king in the Tower of London, and you're thinking, or at least I thought as an economist, this was the richest guy in the world circa, fill in the blank. Was it 1200, 1300, whatever. I forget the time. 

I’m not going to pretend to know

The Tower of London we're viewing the living in environs of a very rich person seven 800 years ago. Wow. It doesn't look very amazing, does it? Right? No. Okay, so that's absolute, right. So conservatives often point out that the living standards of core Americans are now much better than the living standards of poor Americans some time ago. And that's true. The question is what do poor people think of that argument? And the answer is probably not much because they compare their living standard to everyone around them. So in some sense, poverty policy discussion is always about relative poverty and not absolute, except for some conservatives who argue against the concept of relative poverty and say, poor people. I mean, I have data that I've shared with you, which is it even stun me that they're housing quality indices and there's a finding that people in the bottom housing quality now have housing that's equal to the median quality house. In 1985, I said, wow, okay, so if you're a conservative, you say, see, we don't need to do that much.

The living standards of poor Americans are rising so that they're now equal to what I grew up in as a young person. And I remember that and it wasn't very pleasant. And so all that's true, but then liberals say, but they're still falling behind, blah, blah, blah, inequality, et cetera, et cetera. So that debate just goes on and on and on. We can talk about the data inside. I can tell you what the real consumption bundles look like, inflation adjusted, and you can then say, but therefore, of whether that's acceptable or not is not a scientific question. So then the question is, if the government does something about poverty and gives resources to those who have less, what are the economic consequences of that redistribution? And there's two things that are technical. One's called the substitution effect, and one is called the income effect, and the substitution effect is at what rate do we decrease the aid we give to poor people as their market incomes increase?

Imagine a graph and imagine the X axis is your market income and the Y axis is your government supplement, right? Your transfer, either be it appropriated or through the tax code. It doesn't really matter. Think of that graph, think of the lines on those graphs, and then think of the intercept. The intercept is the amount we give someone in the US who has zero market income. Liberals want it, high conservatives want it low. Then think of the x axis, which is as your market income increases, at what rate did the transfers decrease? Most US transfers, you go up to some level called the poverty level or 138% of the poverty level or 80% of the right. There's various programs that have different numbers, and you get money up until that point and then the money all goes away. If you go just slightly above that point, and the economists have said, wow, that's crazy. That creates incentives not to work because you lose a whole bunch of health or food stamps or other aid if suddenly your income goes up $10 a week. Well, that creates incentives to be what conservatives don't like, which is dependent.

So conservatives have long argued that well, and or economists have said, well, we should just give money to everyone and not condition it on your market income. And then there would be no substitution effect. You just get so much a month from the government, everyone does, and you're free to work or not work and all that. But the tax rate on additional income would not be great because we don't decrease your benefits as your income increases. There are various studies that show for the median poverty level family in the United States, the marginal tax rate they faced, the amount their benefits went down as their income increased was basically 50%. Well, that tax rate is higher than the tax on the most affluent Americans in the income tax. You see what I'm saying? So if we should just tax them more, right? Well, but that would have incentive, different discussion.

The same thing applies to poor people. So economists have long argued for something called universal, right? That UBI giving people money without strings attached and not reducing that amount as income increased, would eliminate the negative work incentives that I've described. And that would lead to a flourishing of work effort on the part of poor people in the United States relative to the programs we now have in place that severely tax their work effort. That ends the nerdy portion of this. Well, I mean that's the basic economic thinking about something called UBI is that UBI was superior to the programs we have in place because it reduced the tax on work effort for poor individuals that receive those benefits.

Everyone receives it regardless of work.

Well, this has a long history, and under President Nixon, it was called the family assistance plan. It's also called a demo grant, a grant based on your existence of demography. But this is pretty hard for most citizens to swallow that Wait, everyone gets a check. Even Donald Trump, everyone gets a check. And now in practice we can say no one above 200,000 a year, we have some sort of, not everyone has to get it.

There's going to be some sort of disincentive somewhere that looks like what?

What? So instead of getting rid of benefits, now at the federal poverty level, we get rid of transfers for anyone with family incomes above 80 or 90 or a hundred thousand or something like that, and everyone below gets the money, and maybe we decrease that a bit very slowly with income, right? Very subtle benefit reduction rate so that no one really notices. So if you're a zero, you get the full amount, and if you're a $99,010, you get $10 a year. We slowly decrease the amount with income much, much more slowly than we do now.

So even just looking at it theoretically though, wouldn't that still get rid of the incentive to work at the very lowest levels?

Or is it the substitute? Well, then you're asking what's the income effect? Remember I said there's two effects. So the substitution effect is what we've talked about already, which is the rate at which the benefit is taxed. That's the substitution of benefit for work. The income effect is suddenly you've got whatever the amount is, and we might as well get ahead of the story, which is these experiments that we're going to talk about gave people a thousand dollars a month, gave them $12,000 a year, two middle income and upper income Americans. That doesn't sound well. All right? A thousand a month. Yeah. Okay. If you're making $14, well, $12 an hour, $10 an hour, whatever. Wow, that's a big increase. So the question is, you asked correctly that scientific question is, is there an income effect? Does the mere fact of giving someone a big boost of income when they have little income, do they work less simply because of that effect?

Many economists, including myself, thought the answer was no, no, that it wouldn't be a big deal, that the income effect was small, the substitution effect was large, therefore I said, we can't make the fours, but then therefore we should rearrange our income transfer programs to be more UBI like and less like the way they are. Now, we'd have a work explosion in effort at the bottom. Liberals and conservatives could have dinner parties and sing kumbaya. This would be social science answer. And I put that in quotes to a real problem in a dilemma. Well, so the left and the right have both funded, I mean your listeners probably may not be aware of this, but liberal and conservative, both private and public sector elites got into UBI like 10 years ago. It's the IT Girl of poverty policy, and there have been some trials, and that's what we're going to talk about, that there's a big UBI trial in Texas and the Chicago metropolitan areas.

And before we get into that really fast, I just calculated, if you work for $12 an hour, eight hours a day, five days a week for a year without considering taxes at all, you're only making $24,960 a year. Now the thing is, people who work for that amount of money might not even be working that consistently, right? There are all sorts of considerations. You might even have a side hustle, so maybe you make more than that, but an added 12,012, yeah, a thousand dollars a month, 12,000 is a lot a year. Correct?

That's almost a third of what your income would be. 

Yes! Ding, ding, ding, ding, ding. You have just thought about the income effect, right?

It's a huge change. So I guess as we get into what the experiments were and how they came out and how they did them and what we saw, just trying to place this, it's not, therefore this is the solution to the perennial problem of poverty. That will always be a thing. Rather, this is a better solution than past solutions. It still has disincentives, it still has problems, but it will be better before we've tested it. So now we're on to testing it. That was the thought. Correct?

What happens when you test it?

So let me look at my notes to make sure I get the data. So this was a trial done in Texas and the Chicago areas for three years. The participants were people, let me make sure I get this right here. Alright, so we have the population of people where ages 21 to 40, they had income less than 300% of the poverty level. Their average income was $29,900 a year. In 2019. They were people from 10 counties in the Dallas metropolitan area and nine counties in the Chicago metropolitan area, a thousand participants. And this is random assignment. So got people and they then were included in the trial, and then they were randomly assigned to the experimental treatment versus the control group. And I'll describe what that is. A thousand participants got a thousand dollars per month for three years. It was a 40% increase in their average household income. 2000 controls got $50 per month. And that was to incentivize them to not drop out and to answer the questions. In other words,

They're getting paid to follow a survey,

They're getting paid to be lab rats, right? And I'm using that in a positive way, mean we learn from trials. This is a very well-designed study.

And for field experiment, I mean especially one is expensive as that. A thousand participants, A lot, a lot of participants. That's some good data.

Yes. Yeah. This isn't 30 people. Yeah, no, a thousand.

Okay. And drum roll. So after three years, the paper was written this summer and I read it and I said, oh my f-ing God, why? So? Well, the UBI recipients worked less than the controls, the income effect that you alluded to just before I started describing the results. The income effect is real. The 40% increase in income that the participants received caused them to work less. Two percentage points of less employment. IE 74% in the controls, and 72% were employed in those that received the UBI. And they worked 1.5 fewer hours per week than the controls. So both what we call extensive and intensive effect, the employment rate went down and those who were employed, their work hours went down. Not only that, the work effort of those in their household went down, not just the participants, but the extra income was spread to others in the household. The estimate is that a dollar of UBI reduced household income by 21 cents, and individual income fell by at least 12 cents. Alright? So a 21% household income reduction,

Even including the UBI payment or just earned. Earned, okay, earned that work effort.

In other words, the household earned income decreased by 21%, and individual earned income fell by at least 12% in the classic social science. This is my favorite, right? Professors, when you're nodding off in class and you think you're being fed some BS, here it is. This is the sentence at the end of the paper. And I read it, I said, oh my God. And I'm quoting Now, well decrease labor market participation is generally characterized negatively. Policymakers should take into account the fact that recipients have demonstrated by their own choices that time away from work is something they prize highly. And I said, oh Lord, once this gets to the Senate or the in a hearing, right? Rand Paul is going to just go nuts with this.

His head might explode!

And I'll give you some. Megan McArdle is the Washington Post columnist, and she translates social science for the reader. She's very good. Well, she's trained in economics. She's very good at economically oriented policies and evaluating them. Here's her take on the paper I just quoted from, and this is Megan McArdle's quote in the post: “Everyone loves leisure. Yes, they do. But I doubt this can persuade taxpayers to fund other people's time off.”

Yeah. I mean, I think that's why it's so hard to swallow, right? You say that there's nothing new under the sun, especially in the social sciences. No idea, no question, no solution, unquote, that hasn't been thought of. And really what this seems to be validating is the gut instinct of I don't want to pay for people to do that.

If you ask ordinary people on the street about this long-winded discussion that I've had, they would say, dear professor, fancy pants, Van Doren, I can tell you, giving poor people more money and they'll just sit on their butts and won't do anything

Because I would too.

Which, well, it's the struggle over stereotypes of poor people and liberal concern about that. And conservatives say, we don't care about your feelings, blah, blah, blah. So here we have a very well-funded, expensive experiment that confirmed the sort of man on the street view of poverty and what we should do about it. And we're back to bupkis. And so

Yeah, I was going to ask about that last quote, but I think what McCardle said is, I mean gets to the heart of it, even if you acknowledge on a value judgment front, that leisure is valuable and we would like people to have access to more leisure in ways that higher income people do. You can't ask other people to pay for that. They just won't want to.

You can. Well, they won't want, they won't vote. They won't vote for you.

Yeah, you can ask, but you will not receive. And so I don't know, it's kind of what do we do with that? Will this affect at all the discussion? People will cite it. I don't know, and we'll talk about it,

But what happened so far, this paper came out last summer. I have been stunned by the silence in the chattering classes, both academic and not academic because even the earned income tax credit, other poverty policy

Policies about today, how did we go to hand out so much money through the income tax code to poor families that work? And the answer is, Republicans could go along with this, the direct transfers through appropriations. Now, I don't want to vote for that, but can I give more people through people who work? Can I give money through the tax code in the backdoor way that many voters won't realize exist? Republicans and Democrats have both gone for this and we now have very extensive funneling of money through this, the earned income tax credit as well as the child tax credit.

And I still think the disincentive effects in that. In other words, the rate at which those tax credits go down as you reach the 20,000, $25,000 a year income level, the rate at which those are withdrawn is still too high in my view. And it discourages work effort. But the notion that UBI gets rid of all those is the answer. Now I think there's silence because the chattering classes that all thought they'd found an answer are now don't know what the chatter about.

Yeah. Well, and I was going to ask about this, right? It is not about necessarily whether or not it absolutely fixes the problem. It's just about the relative. And so the silence kind of indicates that we buy that it's not better, but even relatively putting it in comparison with other sorts of welfare programs, how does it compare? Obviously harder to stomach on the values front putting, just appearing,

Hold on. My own view is- Economists are pretty united, and I think I can get your listeners to agree that the cliff effects, you get everything, and then if you have two more dollars a week income, you lose all your benefits. That's a weird, it's bad for incentives.

However, I get why it's a political equilibrium, which is, remember that diagram I talked about earlier, which is market income on the x axis transfers on the Y axis, what liberals and conservatives seem to agree on is will give lots of help to so-called the deserving poor, whoever they are. We can't figure that out probably, but we severely limit it at some number. We just tax it away very rapidly or cut it off altogether. And that's an equilibrium politically, even though I would like a much smoother benefit reduction, which would increase the budget for transfers to preserve incentive effects to work. So the way we've, but anyway, I don't think we're going to do that now. It would increase the budget for transfers and in some ways we're stuck where we are. I mean, the reason economists use the word equilibria is because stable. And so the design of transfer programs in the US is the way it is because of substitution effect. People care about less and the income effect, they care about more in policy terms. And we end up in this, give a whole bunch of aid to the very poor and then just cut it off really, really rapidly full.

Yeah. Thank you so much for taking the time to walk us through this, but also just to allow me to ramble and point questions about you, about the general discourse on any sort of idea and how we make, I don't know if I'd say progress, but how we trudge through time trying to make progress and perhaps not. It's been really helpful for me and I've learned a lot. I know my listeners will as well. I have one last question for you, and that is, what is one thing that you believed at one time in your life that you later changed your position on and why?

The answer is what we talked about today. I mean, UBI thought UBI would solve many, many more problems than it would create and I appear to be wrong. 

And when did you think that?

After I read this paper, I mean I just, wow. That's why I brought it up as a topic for discussion today. I knew about the questions you tend to ask and well, the minute I read this paper, I just said, oh wow. Wow. Game over. This is now there'll be more, I mean, maybe it's not over, but the fact that the authors of this paper had to scramble so hard at the end to write that sentence that I told you about means I think it's over. Because they had to squeeze so hard to get language that said, oh, poor people don't work when we give them more money. But economists like choices and they've made their choice.

Once again, I'd like to thank my guests for their time and insight. I'd also like to thank you for listening to The Great Antidote podcast means a lot. The Great Antidote is sound engineered by Rich Goyette. If you have any questions, any guests or topic recommendations, please feel free to reach out to me at great antidote@libertyfund.org. Thank you.