Free Money in Finland: A Failure in the Making

In Finland, researchers have just offered preliminary results on their two-year experiment on universal basic income (UBI).

If you’re not familiar with UBI, it’s a radical economic idea that consists of sending citizens large cheques each month to cover basic expenses…and has no strings attached.

Prime Minister of New Zealand? You get a cheque.

Unemployed and living in your mother’s attic? You get the same amount.

Proponents suggest that this sort of strategy could alleviate most problems associated with poverty…and could eventually improve the standard of living for everyone. Folks could move in and out of jobs easily and focus their attention on things they like doing.

Well, in theory, at least…

The most obvious problem with the idea is incentives. What’s the point of working hard when your extra income just gets taken and disbursed to others?

And if you’re getting a nice cheque in the mail each month — enough to cover the basics — then what’s the rush in trying to find a job and be productive?

Finland’s experiment simply confirmed that concern.

After a year of giving a group of 2,000 unemployed Finns a monthly income of €560 per month, researchers found that participants weren’t any more productive or employed than they were at the beginning of the experiment.

On the other hand, they were slightly happier…at least during the time they were getting ‘free’ money.

From the Finnish Ministry of Social Affairs official report (Emphasis is mine):

Basic income recipients were no better or worse at finding employment than those in the control group during the first year of the experiment, and in this respect there are no statistically significant differences between the groups.

And on the flip side:

According to the analysis of the survey data, the wellbeing of the basic income recipients was clearly better than that of the control group. Those in the test group (basic income recipients) experienced significantly fewer problems related to health, stress and ability to concentrate than those in the control group. According to the results, those in the test group were also considerably more confident in their own future and their ability to influence societal issues than the control group. As regards generalised trust, i.e. trust in other people, there was a similar, but smaller, difference. Whereas there was only a small difference between the groups as regards trust in different institutions, such as the court system and the police, the basic income recipients trusted politicians considerably more than the control group did.

Ha! Who’s surprised that the folks getting ‘free’ money from the government trusted politicians more? Of course they did! They’re being bought, in a sense.

And, sure, with a nice wad of cash in their pocket, they feel more confident…and have less stress. Anyone who’s ever had to work for a living could have told you as much.

To summarise the results — people who got ‘free’ money were a tad happier, but not more productive.

Thus the question becomes: ‘Should the goal of basic income be happiness or productivity/employment?’

The mainstream — who have recently backed this UBI idea full force — now claim that happiness should be the goal…and that this Finnish experiment is a success!

The outcome is not what Finland hoped it would be. But it’s arguably a success anyway.’

Vox

But in some advanced societies, more happiness also could be judged a desirable enough result to justify an increase in the tax burden.’

Bloomberg

The Finnish government’s project — too limited, halfhearted, ideologically skewed — can only yield inconclusive data. To do U.B.I. right, we need to think big and try harder.

New York Times

Think big and try harder?

To me, that’s a sugarcoated way of saying ‘more money and more time’…which is exactly what one of the experts leading the trial is calling for. The Guardian relays:

Two years is too short a period to be able to draw extensive conclusions from such a big experiment. We should have had extra time and more money to achieve reliable results.

Unfortunately, the Finnish government doesn’t see it the same way. Once this test concludes next January, it will be terminated.

Thank goodness.

We tried it, we gave it a go…and it didn’t work. Case closed.

Frankly, I’m tired of hearing about UBI. I’m tired of my economist peers and millennial friends pushing the idea…without understanding why it could never work. They’re more interested in getting paid to do nothing productive.

It’s a doomed theory because it fails to consider that incentives matter. In fact, it’s the central pillar to all of economics. When you remove incentives from the algebra, the foundation falls out…and you’re quickly left with a bunch of parasites and leeches sucking the rich dry.

You might get a bunch of dreamers following their hearts — weaving baskets, surfing waves, catching kingfish — but you won’t find your factory workers, your rubbish collectors, or your bus drivers.

For that, you need incentives.

Sorry, UBI fanboys — there’s still no such thing as a free lunch.

Best,

Taylor Kee
Editor, Money Morning New Zealand


Taylor Kee is the lead Editor at Money Morning NZ. With a background in the financial publishing industry, Taylor knows how simple, yet difficult investing can be. He has worked with a range of assets classes, and with some of the world’s most thought-provoking financial writers, including Bill Bonner, Dan Denning, Doug Casey, and more. But he’s found his niche in macroeconomics and the excitement of technology investments. And Taylor is looking forward to the opportunity to share his thoughts on where New Zealand’s economy is going next and the opportunities it presents. Taylor shares these ideas with Money Morning NZ readers each day.


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