Bridgewater's Dalio Offers Primer On Universal Basic Income & 'Bad Incentives'

Authored by Ray Dalio via,

Universal Basic Income is one of several ideas floating around for dealing with the income/opportunity gap. Since you seem to be interested, I’m passing to you a briefing paper that my research team prepared for me and that I tweaked based on my Q&A with them. I won’t give you my conclusions because I don’t want to bias you. I’d rather you form your own opinion after you are informed. 

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UBI Research Paper

What is Universal Basic Income (UBI)? In general, UBI is a type of cash transfer that is: 

  • Universal: every citizen receives the transfer regardless of employment status or income.

  • Unconditional: recipients have no restrictions on how they can spend the cash.

  • Basic: the amount will cover “basic needs” and will constitute a “living wage.” 

  • Long-Term: the cash transfers will last for the long term, e.g. entirety of the receipt’s life.

UBI isn’t an especially new idea; even Thomas Paine was an advocate. The idea gained traction and elicited debate in late 1960s (especially during the Nixon administration), but never really gained a foothold.

Where is UBI Receiving Policy Interest? Cities in Canada, Finland, the Netherlands, and the US have announced pilot schemes to test the effects of the policy (generally, these are in very early stages). Governments in Germany, France, New Zealand, India, Scotland and Namibia have also expressed interest. GiveDirectly (a charity that distributes cash to the poor) has launched a comprehensive study on unconditional cash transfers in Kenya.  Most notably, Switzerland held a referendum on UBI in 2016, proposing each citizen receive a monthly income of about $2700. The proposal was defeated (77% of voters opposed it).

Who are Prominent Supporters? Prominent supporters include Mark Zuckerberg, Elon Musk and Nobel winning economist Angus Deaton. [vi] Warren Buffet supports a related program, the negative income tax, originally popularized by Milton Friedman.

What are the Chief Points of Contention? 

Proponents argue that UBI will reduce inequality, direct money to where it is needed most because the person with the need is the best decision maker, avoid the bad incentives created by traditional welfare programs, distribute more money because the administrative overhead costs are less, encourage dynamism and risk taking in the economy, and offer an additional safety net for those who are seeing downward wage pressure from automation/globalization.

Critics claim that any meaningful basic income scheme will be prohibitively expensive, reduce incentives to work, redistribute money away from those who need it most to those who already have jobs, and/or redistribute it away from providing it where it is most needed (e.g. food stamps, social services) to bad or less good usage (e.g. “they will drink it away”) because of bad choices. (More Detail Below)

What Does the Evidence Suggest?

As UBI has never been implemented (unless you count the extremely generous payments Gulf States make to their citizens), we do not have a true case study to stress test the arguments for and against it. The pilot schemes that are/will be tried in Canada, the United States, Finland, Scotland, Kenya, and the Netherlands will take years to report their findings. 

We do, however, have the results from numerous experiments looking at the impact of unconditional direct cash transfers to poor households (i.e. no-strings transfers to cover basic needs for a period, but that weren’t universal or long term)both in the developed and developing world. These include five experiments in the US and Canada conducted in the 1970s, as well as over 50 experiments in the developing world.  Findings from these studies are regularly employed in debates on UBI. 

These studies show an improvement in recipient economic conditions and wellbeing, a modest decrease in work effort, and a tendency for recipients to spend the transfers productively. However, the usefulness of most of these studies is limited by the fact that the transfers ended after a short time period (2-3 years) and were only awarded to very poor households (not universal) – the studies were structured this way because they were more focused on testing unconditional cash transfers, rather than something closer to UBI. And the richest data comes from the developing world, so it is not clear how much can be extrapolated from the behavior of transfer recipients previously earning less than $1.5 a day with citizens living in more prosperous economies.  

Previous studies conducted on unconditional cash transfers and their differences to an ideal universal basic income experiment:

To further flesh out what the studies found:

Developed World Studies

  • Positive effects on economic and general wellbeing. Treated households enjoyed better physical and mental health, educational performance, and homeownership rates. 

  • A modest reduction in work effort. Primary earners worked about 5-10% less and were unemployed for longer stretches of time. The reduction in working hours was much larger for secondary and tertiary earners (15-30%), who devoted more time to child care and education. 

Developing World Studies

  • No decline, or an increase, in hours worked, greater employment participation, and improved employment outcomes. In the cases where hours worked declined, the attribution showed the reduction to be mainly in the elderly and dependents.

  • An increase in savings and investment, with recipient households investing a portion of the proceeds in income generating goods (livestock, agricultural productive assets etc.). Some studies also found that incomes after the transfers had ceased were higher than when they began. 

  • No noticeable increase, and frequently a decline, in consumption towards “temptation goods” (e.g. alcohol, tobacco).

  • A generalimprovement in health, education, and female empowerment indicators, as well as a notable decline in child labor.

What would UBI cost if implemented in the US?

Below we take a rough cut at estimating how much it would cost to implement UBI in the United States. We first look at what it would cost to pay every American citizen the current poverty threshold ($12,000 a year– an amount less than half what the Swiss proposed implementing in 2016). This would end up costing ~ $3.8 trillion (or 21% of GDP and 78% of all tax revenues and contributions for government social insurance). 

We next look at how much of this expenditure could be funded through scrapping existing social programs and replacing them with a UBI (as some proponents argue). We first imagine the highly unlikely scenario in which all social spending (excluding infrastructure spending and education, but includes almost all other government transfers to households including healthcare) is scrapped. This would free up about ~ 92% of the funds needed to implement UBI. We subsequently imagine that only income support programs (disability, retirement & social security, welfare, and unemployment benefits) are axed. This would yield ~ 37% of the required funding. Finally, excluding social security, retirement and disability from the list of replaceable programs leaves only 11% of the costs for a UBI of $12,000 covered through replacing existing components of the welfare state. 

Finally, we imagine two scenarios in which the payouts of UBI are reduced depending on the income level of the receipt. For instance, in the first scenario, every $ of income earned will reduce UBI by 10 cents, meaning that if you make $120,000 you will not receive a basic income, and if you make $60,000 you will receive only half (i.e. $6000). While this is technically not a Universal Basic Income, it may offer a compromise solution between securing the underlying goals of UBI and the constraints/concerns surrounding financing it. As you can see below, this reduces the cost of implementing UBI significantly. However, even using a steep slope, existing income support programs will fall short of fully financing UBI - and additional revenues will likely need to be raised.

As perspective, the chart below shows OECD estimates for how much money would be made available per person if developed economies replaced all social spending ex-health care with a Universal Basic Income (purchasing power adjusted). Even the most generous welfare states would struggle to cover the cost of a poverty-line basic income. Not to say it isn’t possible – just that incremental change in our social/taxation systems wouldn’t get you there. 

More Details on the Pros and Cons for UBI

Other than to provide every citizen in an economy with an income to meet basic needs, and a buffer against sharp personal financial downturns, supporters argue that UBI will help in:

  • Reducing Inequality: UBI is seen as a means to reduce inequality, which has risen in developed countries. Proponents argue that it will help compensate for 3 decades of low wage growth, increase the bargaining power of labor relative to capital, and act as a non-intrusive, and potentially less politically toxic, form of redistribution.  

  • Directing Money to Where it is Needed Most: Traditional welfare transfers typically come with restrictions as to how the money can be spent (e.g. foods stamps). This means that administrators and policy makers end up having to make choices for individuals as to where income support would be most impactful in their lives and apply such direction across the board, with limited ability to tailor to individual circumstances. In contrast, UBI empowers the individual to decide how best to use the income transfer given their particular circumstances and needs. 

  • Minimizing Bad Incentives: UBI offers better incentives than more traditional welfare policies. Unlike unemployment benefits or income support, there is no disincentive against seeking better paying employment (as UBI will not be cut off as income rises – see appendix 1 for an illustration). Unlike the minimum wage, UBI should not make a set of workers prohibitively expensive for employers.

  • Supporting Economic Dynamism: UBI could support economic dynamism and innovation through encouraging people to take more risks, lowering the entry costs for entrepreneurship/accessing productivity enhancing skills, and encouraging workers to take the time to seek work better suited to their interests, aptitudes, and sense of fulfillment. 

  • Distribute More Money By Reducing Administrative & Overhead Costs: UBI is also seen as a means to reduce/replace the large, bureaucratic, and inefficient welfare state with a simpler, more efficient, and less politically controversial safety net. This will reduce administrative and overhead costs, meaning that more money is actually distributed to those who need it as a percent of the welfare budget. 

  • Protecting against Technological and Economic Disruption: UBI can assure many people a living wage as automation, artificial intelligence, and globalization puts downward pressure on wages. UBI would also provide greater economic freedom for dislocated workers, allowing them to invest in building new skills, rather than having to seek immediate (and likely lower paying) employment. Relatedly…

  • Combatting the Rise of Anti-Establishment and Populist Politics: The threat of anti-establishment politics has led some to advocate for UBI as a means of updating capitalism and sharing its spoils more equitably. 

  • Compensating for Unpaid Work:Many socially valuable roles are not formally compensated in a market economy (e.g. raising a child)and are predominantly performed by women. UBI is seen as a means to begin to recognize, in monetary form, such roles, and rectify resulting imbalances in power, especially in the third world.  

  • Providing More Effective International Aid: Currently 700 million people live below the global poverty line ($1.9/day). Calculations from the World Bank and Brookings Institute approximate that it would take $80 billion in direct cash transfers to life these individuals above the global poverty line. This is almost half of what we currently spend on international aid (OECD’s budget alone is over $130 billion, not including private donations).

Aside from philosophical arguments opposing redistribution or contesting any inherent right to a fixed income, opponents argue that UBI will hurt in: 

  • Being Prohibitively Expensive: Opponents argue that implementing any meaningful universal basic income will be prohibitively expensive and unsustainable. For instance, the Swiss proposal of awarding each citizen about $2700 a month would cost about 25% of GDP. Critics further argue that the tax hikes necessary to adequately fund UBI will likely be a significant drag on growth. We go through some numbers for the US above.

  • Reducing Work Ethic: Conservative critics argue that UBI will significantly reduce incentives to work and encourage people to work fewer hours and have longer stints in unemployment. 

  • Redistributing Money Away From Those Who Need It Most: Depending on how it’s done, UBI might act as a net transfer away from people currently on welfare receipts to those who already have jobs. While raising taxes to pay for UBI will likely lead to a net transfer away from the wealthiest, it might simultaneously reduce support to those who need it most. 

  • Redistributing Money Away from Providing What is Most Needed to Bad or Less Good Usage: Unconditional cash transfers would mean that policy makers cannot try to ensure that the money provided is spent towards providing essentials (e.g. food stamps, social spending) versus less impactful or even harmful uses (e.g. people spending the transfers on “temptation goods” such as alcohol and tobacco).  

  • Distracting From Improving The Existing Welfare State: Some liberal critics have argued that UBI is a distraction from the more pressing issue of improving the existing welfare state. Critics are concerned that UBI might undermine funding and support for improving tried and tested programs that took decades to set up. 

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Appendix 1: An Illustration of Bad Incentives in Existing Income Support Programs

The chart below shows the effective after tax and transfer income of Americans earning up to 70k.

There are several ‘cliffs’: points at which earning a bit more actually hurts you because you lose eligibility for a social program.

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Further Readings

Economist - Sighing for paradise to come

FiveThirtyEight - What Would Happen If We Just Gave People Money?

Economist - Basically unaffordable

GiveDirectly - Research on Cash Transfers

The Journal of Socio-Economics - A failure to communicate: what (if anything) can we learn from the negative income tax experiments?

Overseas Development Institute - Understanding the impact of cash transfers: the evidence

Massachusetts Institute of Technology - Household Response to Income Changes: Evidence from an Unconditional Cash Transfer Program in Kenya


Buckaroo Banzai Thu, 07/12/2018 - 20:10 Permalink

Given that virtually every single black and brown person who can qualify for welfare dollars is already receiving them (and has been for a very long time), it's clear that UBI will benefit whites disproportionately by a massive amount. And, given that the USA is already 100% bankrupt, UBI won't make it any more bankrupt. In fact if UBI helps to crash this fucking pig even faster, that's a feature, not a bug.

To summarize: UBI benefits whites, and crashes the Federal government, both of which are unambiguously good things.

In conclusion: the sooner we can implement UBI, the better.

brushhog PrintCash Thu, 07/12/2018 - 20:56 Permalink

People miss the point of UBI entirely, and this article is no exception. The whole point is to maintain a consumer base for the global elite who are growing concerned about the obvious effects of outsourcing jobs away from first world consumer nations. Thats why this stuff is coming out of Davos and builderberg meetings. They are finally asking "who will buy our products now that we've shipped all the jobs out of the developed world?".

The answer is one that benefits them and costs them nothing. The government will provide a UBI, which will be paid for mostly through debt, and some token tax increases which mostly fall back upon the consumer. This way, they can safely cut you out of the labor force while continuing to sell you their goods.

In reply to by PrintCash

Stuck on Zero cheka Thu, 07/12/2018 - 21:56 Permalink

One study showed that only 17 cents of every dollar spent on poverty programs makes it to the needy. The rest went to fat bureaucrats and administrators. In that sense the UBI would seem reasonable.  Considering that in places where there is a UBI (Indian reservations in the U.S.) the result is massive alcoholism, medical calamities, broken families, and social destruction everywhere you'd need more social services rather than less.

In reply to by cheka

SeaMonkeys brushhog Thu, 07/12/2018 - 22:49 Permalink

Absolutely correct. The circular flow of income and spending stopped, starting in the late 60's. The end of Bretton Woods created the (national and household) debt machine of the United States and its siamese twin, the trade deficit.

In order to keep the artificial economy of growth and consumption humming along, we now have to manufacture demand. What a waste. The solution is to have money represent real work and real economic activity. The cost of living is so high, as well as the cost of doing business. UBI is one way to insure that this stays that way.

The remedy, apart from monetary reform, would also have to include healthcare reform that either makes all pricing transparent and competitive, or makes it a fundamental human right, without the insurance middle man. Either way works.

If people had real healthcare reform, then they could ditch the bullshit jobs, move to rural wherever, and set up shop.

The absolute best reform on top of these 2 mentioned would be to have a wall to wall land value tax, a la Henry George. With land value speculation eliminated, the cost of land would go down, bank lending would have to meet the real demand of small businesses, and commerce would more closely match social needs.

In reply to by brushhog

Beam Me Up Scotty superyankee Thu, 07/12/2018 - 20:26 Permalink

" Universal: every citizen receives the transfer regardless of employment status or income "

Ya bullshit.  The people who are working will just have their taxes raised that much higher to take away their "universal transfer".  This already is happening in this country.  Working people are paying anywhere from 50-70% or more in taxes on their income.  When you factor in income taxes (federal, state and local), property taxes, sales taxes, gas taxes, taxes on your phone bill, your tv bill, your internet bill, liquor taxes, etc etc etc.....and all of the myriad of fees you pay.......even the so called people in the "low" tax brackets are paying 50% of their income in taxes.  Oh and don't forget about the Social Security and Medicare taxes you are paying on TOP of all of the above!!!

So for every 10 days you work, you are giving 5 of those days to someone else.  And if you happen to make a couple hundred thousand a year???  You are giving 7 of those 10 days worked to someone else.  Can you say SLAVERY???

In reply to by superyankee

NoDebt Thu, 07/12/2018 - 20:11 Permalink

If you don't change the tax structure I don't care how UBI is implemented it will ALL be eaten up through higher costs for basic necessities like food, rent, etc. and you will end up no better off than before.

The rentier class will see to that.



tmosley NoDebt Thu, 07/12/2018 - 21:39 Permalink

It really won't. As much as the people gain in purchasing power, the same amount of purchasing power will be removed from others (current welfare recipients, govt workers, etc). You only get inflation if you print money to inflate the money supply or cause the people to lose faith in the currency.

In reply to by NoDebt

Mariposa de Oro Thu, 07/12/2018 - 20:23 Permalink

Pretty sure that employers will use this as an opportunity to lower wages.  I can hear it now.  "You don't need higher pay because you have $XXXX amount of UBI which puts you well above the poverty level".

teslaberry Thu, 07/12/2018 - 20:25 Permalink

let's be fair. ubi already exists, it's called corporate welfare and it is diguised as you healthcare and general social insurance system, exclusive of social security which has been and continues to be stolen by governments away from people who paid in via fake inflation adjustments and soon to be cahnges to the age of how much you should work,

PrintCash Pigface Thu, 07/12/2018 - 21:00 Permalink

Wrong Oinker.  UBI is coming because the shine has worn off the old model of freebies and giveaways to sloths, and the newest generation of leftists want to promo the latest and greatest model.  All about throwing away our productively in exchange for votes for 24 year old bartender economic wizards.

In reply to by Pigface

Pigface PrintCash Thu, 07/12/2018 - 22:43 Permalink

PrintCash, it's not a matter of productivity.  Tell me how millions of unemployed people can be productive when there are no jobs because humans have been replaced by AI and robotics.  It's already beginning to happen and you may be in for quite the surprise at how many professions will disappear in the very near future.

In reply to by PrintCash

GoldmanSax Thu, 07/12/2018 - 21:01 Permalink

This has been the plan all along. Most Americans already rely on government spending. If you are a welfare mom, LEO, All Govt. workers, or MIC, you already getting it. Wal-Mart and Coca cola get most if the EBT payments, which puts them on the list too. 

HushHushSweet Thu, 07/12/2018 - 21:05 Permalink

The across-the-board price increases on EVERYTHING that would inevitably result from the introduction of UBI would not ultimately benefit UBI recipients (or anyone else living in a UBI zone). 

Who, then, would actually benefit from UBI?

  • Multinational (globalist) corporations like McDonald's, Walmart, KFC, Starbucks, etc.
  • Companies like Bain Capital, which owns major chains of dollar stores, cinemas, pizza joints, donut shops, toy shops, etc.
  • Companies like Blackstone, which owns a massive portion of the hotel industry and a good chunk of the rental housing
  • Central banks (who would be lending the countries the $$$ for the UBI payments) and other lending institutes

These are the businesses that will be on the receiving end of people's UBI payments. They would essentially be acting as money launderers for the central bankers who will be creating the money (as usual, out of thin air) to lend to countries to pay the UBI. UBI would be THE BIGGEST CASH COW EVER for the so-called elite. 

Meanwhile, on Main Street, UBI will cause massive inflation, demotivate people to work, normalize idleness, and leave people actually worse off than they were before due to double-digit percentage price increases.

The only winners are the same people who are winning now (globalists), only they'll be winning much much much more.

The central bankers will be winning most of all, as they'll be providing the magic fairy unicorn money for the UBI at no cost to themselves. 

It's no wonder that the usual suspect "elite" spokespeople (Zuckerberg, Buffet, Musk) are the ones pushing for UBI. They don't want it to improve the lives of the UBI recipients; they want it to enrich themselves and to exert even more control over the world's population.

UBI is a trap that will drop the recipients into an even deeper poverty hole and is also likely a back door to micro-chipping the population to prevent double-dipping in UBI coffers.

Once UBI is unleashed as a social economic policy, it will never be revoked.

We cannot go down this road.

UBI is the mother of all traps.


khakuda Thu, 07/12/2018 - 21:23 Permalink

I think the tendency to work less says it all in terms of whether it is a good idea.   Value and wealth is created in a society through work. Less work equals less value being created by everyone for everyone. 

Logonaut Thu, 07/12/2018 - 21:38 Permalink

Even if UBI is not implemented, a modified form of UBI or related distributional scheme should be. For instance, large lottery pay-outs could simply cease, with the same amount of money being distributed amongst more people. Or, everyone could automatically be enrolled in a UBI lottery of sorts which gives say 10% of the population UBI for a year in such a way -- with income weighting as referenced in the article -- so that all people are likely to get UBI not just once but multiple times in their lives. We WANT this: we want people to be able to capitalise starting-out ventures, and not to be afraid of taking some risk. After all, we give schooling to all even though we know that it will do relatively little beyond basic literacy and numeracy for most.

One of the aspects of the Social Credit ideology which has always appealed to me above and beyond the mechanics of its cash flow model is the concept of 'cultural capital'; yes, the Henry Fords of the world are responsible for much of their success. But without the technics and processes developed by countless people over time, the infrastructure whereby a Ford could apply their ideas would not exist. It's the standing-on-the-shoulders-of-giants thing, and no one -- not Ford, not Newton, certainly not us -- can claim that our success occurred in a vacuum.

Take, for instance, the very grammatical structures and words that I am presently using; think of the reasoning which I am using, whether it needs improvement or not. It did not occur in a vacuum but consists of my limited contribution to an ongoing accretion. And the efflorescence of technics is certainly useful, despite the fact that solutions often create their own problems; but look what preceded that efflorescence: a steady, upward curve of universal literacy and the concomitant increase in linguistic tools -- be they words or structures or still further literacies -- without which a team of engineers, say, could not even discuss the problem of gradient and material on a given plot of land.

Also, let us not forget that highly necessary tasks -- such as child-rearing, artistic creation, or cleaning house -- are demanding, productive, and comparatively uncompensated; it is an arrogant illusion to try to reduce people's utility to whether or not they can apply, say, an architectural algorithm -- in the limited time remaining, of course, before a computer does that -- while ignoring the fact that someone raised them, cleaned up after them, modelled polite behaviours for them, etc. UBI or a related scheme is a way of compensating those who -- according to the nature of their tasks -- cannot be or simply are not directly remunerated.

One hopes that the schemes being tried around the world are all different from one another so as to afford us more information about the consequences of UBI or its equivalent's implementation. One was very disappointed at Finland's recent decision, which was not going to just collapse the Finnish economy! And one would like to see such schemes going on for longer. Let us remember that this is not just some airy academic question that we are considering. One of the places I work is full of mainly forklift drivers: what are they going to do after the automated forklifts come in? Another of the places is full of mainly metal-workers, with by the way regular and obvious shipments of huge robots coming in: what are they going to do when those huge robots replace them?

Lastly, quite aside from whether UBI will make people more productive or less, there is something more important for us to consider: unemployed people NOT burning down your dream home paid for by a STEM degree is a productive activity! NOT burning down your central business district is a productive activity! NOT taking your children hostage just when they were about to take their first robotics repair courses is a productive activity! Let us not forget that the present situation is dangerous, and that more is at stake than privileging "looters" at the expense of "productives".

May we choose wisely, and not just think but also pray.

Charvo Thu, 07/12/2018 - 21:53 Permalink

UBI only works when most of the citizens of the country are productive people willing to work to make the country better.  It doesn't work when there are a ton of leeches.  Venezuela is an example of when freebies are demanded which forces the state to take the assets of the productive people who actually produce the wealth.  Imagine if Zuckerberg were forced to give 99% of his wealth away to fund UBI policies.  Would he be as enthusiastic about it?

Balance-Sheet Thu, 07/12/2018 - 21:54 Permalink

All current transfers to individuals are eliminated completely along with all charitable deductions and tax dodge foundations.

The IRS sends everyone about 35. to 40. a day through automated deposit and the borders must be closed to all but essential qualified immigrants.

A Welfare State as the US is now currently CANNOT have open borders and especially not after a openly announced UBI program. We have one now spread over hundreds of fed, state, and local programs plus private charities such that this is generating the migration tidal wave.


flyonmywall Thu, 07/12/2018 - 22:14 Permalink

Not even the communists in their wildest dreams would have attempted UBI. 

It's cheaper to kill people, than to pay them.

The fact that people are "seriously" talking about this should make everyone very concerned.

It's Mao's Great Leap Forward part 2.

Why would anybody pay the useless mouth breathers 12k a year?

It's a code for something else.

Vigilante Fri, 07/13/2018 - 01:07 Permalink

UBI will never be funded by taxes...simply there won't be enough taxpayers to make it affordable (robots/AI will see to that)

It will be digital money created out of thin air.

The downside is that they will shut down a good chunk of capitalism and introduce some kind of socialist regime.

A totally bogus currency won't be able to survive the onslaught of the markets.....hence the shutdown.

Needless to say, to qualify for UBI, you will have to get microchipped.

To fight fraud of course (lmao) and to make you compatible with Blockchain and what not 

Every human (xcept a few desperados) will become a little dot in the matrix and they will pull the digital plug in no time if you espouse reactionary/traditionalist/rightwing views.

Enemy of the state and all that.

tigerbean Fri, 07/13/2018 - 03:16 Permalink

It only works if the mountains (billionaires) are cut to fill the seas. Anything else especially more printed money and it's another exercise in futility for all the reasons already stated. In fact it will probably just make the mountaintops higher.  

Gerold Fri, 07/13/2018 - 11:20 Permalink

The problem with UBI is it’s not scaleable. It works on a small scale like a town or city where there’s outside money to fund it, but it doesn’t work on a large scale like an entire country because there’s no outside money to fund it.