Basic Income Grant

Today, we met with a person from the Basic Income Grant Coalition for Namibia. (http://www.bignam.org/index.html). Namibia has among the highest levels of wealth inequality in the world, with a Gini Coefficient of about .68 (see http://en.wikipedia.org/wiki/Gini_coefficient). The Basic Income Grant is one proposal for trying to address this problem. The plan would be that every person in the country would get 100 Namibian dollars (about 14 US dollars) every month from the government, to be paid for most likely with increased income taxes on the rich. EVERYONE would get the grant, regardless of their existing wealth or income (but wealthy people would end up paying back the grant plus some extra in increased taxes).

The idea is that since many people in the country struggle to pay for food, school fees, medical expenses, etc. on an ongoing basis, this money would allow them to pay for the basics (with the added benefits of less crime--stealing things to pay for food, and more education--since school fees will get paid, etc.). Additionally, there will be much higher demand for various goods (since people can actually afford to pay for things). People can use the money to start small shops and businesses (which would be able to sell things to the people who now actually have some money that they are able to spend), and in the process the new businesses would create an additional source of income for the people running them (and possibly hire additional employees).....who will then have additional income that they can spend elsewhere, etc.

The group advocating for this proposal ran a pilot study for two years in one village, which was extremely successful (over the two years, the town greatly improved its malnutrition rates, crime rates, school attendance rates, etc.). The link above has lots more information about this. I think the Basic Income Grant is a really cool idea, but I'm not yet convinced that it would necessarily work if rolled out on a national level (but it's possible that there is not any additional useful research that could be done short of actually just implementing nationally and seeing if it will work).

My first concern is that this creates huge inflationary pressures on prices for things that people would likely want to try to buy particularly in small shops in various towns that can easily adjust their prices. If you were to draw a circle around most neighborhoods, towns, and villages, there will be a significant net influx of money into the areas (excluding only the few rich neighborhoods). Since there is suddenly lots more money in those areas, prices could rise pretty quickly. Ideally, the added demand would allow new shops to open up and eventually bring down prices, but I'm not sure how long it would take for people to save enough money to start new business (particularly if the cost of doing business is higher because the increase in prices becomes fairly widespread). The worst-case scenario would be that this inflation does end up occurring, and then the government gets politically pressured into pegging the dollar value of the grant to the (now somewhat higher) cost of living, which could cause prices to increase even more, and further increase the cost of living, leading to a vicious cycle of inflation. The argument that the value of the monthly grants should be increased to match the cost of living does actually seem pretty fair (and would certainly be popular), which makes that scenario kind of scary. I haven't studied enough economics to know how likely such a scenario is, but it doesn't seem impossible.

Also, one thing that was observed in the town doing the pilot study was that people from other places moved to the town once the grants started to be distributed (the newcomers weren't eligible for grants themselves, but being in the town was apparently financially desirable anyway....although its not clear if this was just due to the fact that family relatives who did get the grants were sharing with the newcomers or also whether the town economy was strengthened enough to make it worthwhile to move there simply due to more jobs and opportunities being available due to the presence of the grants). It seems that most of these people moved from nearby towns and rural areas into the particular town. If the basic income grant is rolled out nationally, people wouldn't have any reason to move from town to town to benefit from the grant....however, I can guess that people from other countries (relatives of Namibians, or not) would likely try to move into the country. I don't know whether there would a plan to address this...

Overall, I think it is a really cool idea, and I hope it can be successful. I'm not sure it is possible to know exactly what will happen if it is rolled out nationally without simply just trying to roll it out nationally and seeing what happens. There seems to be a growing consensus that a government-run national basic income grant is inevitable (first of all, many people think it seems like a really good idea...and second of all, getting an extra N$100 every month is, understandably, something that most people will probably support!). I'm curious to see what happens with this....