UBI vs MMT 1: What Do Words Mean?

Ellis Winningham recently wrote a ten-part blog series examining Universal Basic Income (UBI) through the lens of Modern Monetary Theory (MMT). Here, I will respond to the first post in the series, entitled “Terms Matter.”

Raining Money

Winningham writes in reaction to a purported UBI trial in England. He rightly points out that what’s being trialed is actually not UBI.

A ‘universal’ basic income is not being trialled in England, nor anywhere else in the world.

Winningham | Terms Matter

This is correct. A key feature of UBI is that it goes to everyone. If you’re only giving money to a small group of people, then that’s not a UBI. You’re just testing how people respond to having more money. You’re not testing what makes UBI special as a money distribution mechanism.

There is no such thing as a UBI trial. There is no such thing as a UBI pilot program. Instead, there are cash transfer experiments being branded as UBI.

The Basic Income Earth Network (BIEN) defines UBI—which they call Basic Income (BI)—as follows:

A Basic Income is a periodic cash payment unconditionally delivered to all on an individual basis, without means-test or work requirement.

Basic Income Earth Network

The “to all” part is critical. It doesn’t have to be literally everyone in the world. But UBI at least has to cover all the people who you’d normally expect to be consumers in your economy. Thirty people in a trial isn’t enough.

There is a bit of a language barrier between UBI supporters and MMT followers. Each group defines “Basic Income” differently. For UBI supporters, Basic Income and Universal Basic Income are synonyms. The BIEN definition reflects this. For MMT followers, there’s such a thing as “UBI without the U”—a non-universal Basic Income.

A universal basic income (UBI), and a basic income guarantee (BIG, or sometimes seen as, ‘BI’) are not the same thing.

Winningham | Terms Matter

To make matters even more complicated, UBI supporters have different definitions for Basic Income (BI) and Basic Income Guarantee (BIG). BI is just UBI, but BIG is a non-universal guaranteed income. Are you confused yet?

Far be it from me to tell people how to define their words. But we should at least know what each other means if we want to have a useful dialogue. If you’re a UBI supporter talking to an MMT follower, it might help avoid confusion to stick to Universal Basic Income rather than Basic Income. And if you’re an MMT follower, it helps to be aware that people outside the MMT sphere use the term “Basic Income” to refer to what you call UBI.

It’s also useful to remember that UBI is not a particular amount of money. It’s a way of distributing money.

Firstly, a universal basic income is, by definition, universal; everyone, both rich and poor, will receive £1,600 per month. A payment of £1,600 per month to 30 people is not universal; rather, it is a basic income payment targeted at a specific segment of the population.

Winningham | Terms Matter

The “basic” in Universal Basic Income can trip people up. “Basic” suggests that the UBI is intended to cover people’s basic needs or something like that. It is true that some people want to use UBI for this purpose, but there’s nothing about this in the BIEN definition. UBI is basic in the sense that it’s a basic thing that everyone receives. When it comes to UBI, “basic” just means “universal.” This is why some UBI supporters resist adding the “U.” They see it as redundant.

Personally, I sometimes worry that the presence of the “U” will cause people to read meaning into the word “basic” that isn’t there. It is problematic that the term “basic” doesn’t mean what most people probably assume it means. If I were to start from a clean slate and come up with a name for UBI, I might call it simply Universal Income, stripping out the redundant “basic.”

It is not unreasonable for MMT followers to want to use “Basic Income” to describe a non-universal income sufficient to cover people’s basic needs. That’s just not how the UBI community uses it. And it’s not how I use it.

So, there’s the question of what words mean, and then there’s also the question of what actually counts as UBI. Winningham argues that targeted taxes can compromise the universality of UBI.

Concerning the tax implications on a universal basic income, it is clear that the moment the central government taxes the payments of a specific group at one rate, and at a lesser rate (or not at all) of another group, the UBI ceases to be ‘universal’ by definition.

Winningham | Terms Matter

UBI can be paired with taxes, but it doesn’t have to be. If we pair UBI with a targeted tax, in particular, Winningham is right there’s a sense in which the UBI is no longer universal. But I think this framing misses an important point. That point is that the money distribution and the taxation can be two separate steps. If you want to discriminate who ultimately receives the cash transfers, it can often make more sense to do the targeting on the taxation side rather than the distribution side. Pairing a UBI with a targeted tax is not the same thing as a targeted cash transfer.

Ellis Winningham is right to insist that terms matter. I hope that UBI supporters and MMT followers will find more ways to talk to each other. We all ultimately want the same thing: an economy that works for the benefit of the people.