Switzerland has overwhelmingly rejected a national referendum on a universal basic income (UBI). The proposal was for a monthly stipend of $2,550 for every adult regardless of income or state of employment, plus $640 for every child. The initiative failed, garnering only 23% of the vote versus 77% against. It was also opposed by every major political party in Switzerland. If it had passed, disaster would have loomed for Switzerland’s economy and could have fast spread through the rest of Europe.

The UBI was initially proposed back in the 1960s by Chicago School economist Milton Friedman. Friedman is generally known as a laissez-faire free market economist who opposed what are now commonly accepted government interventions in the economy like minimum wage and professional licensure, but for some reason came out in support of what he called a negative income tax. Advocates of the policy often argue that it is a laissez-faire policy because it was envisioned by a so-called leading free market economist, but regardless of who thought it up, it is still a bad idea. Here’s why.

This may seem trivial, but there are two things to do in an economy: produce and consume. When someone consumes more than produces, that depletes the supply of goods and services either on an individual or national level, raising prices and making everyone that much poorer. The reason people generally want to see economic growth in the world is because they want their standards of living increased. It’s not the gross domestic product (GDP) numbers that matter, but the quality of life they predict. The only way to increase living standards is to produce more than is consumed. The only way to produce is to work, as manna no longer falls from heaven these days.

If everyone gets a basic income for doing nothing, fewer people produce and more people consume, raising the cost of living and lowering the supply of goods and services. As the cost of living rises, there would be a demand for an even higher basic income to meet cost-of-living increases, and so on and so forth until poverty would spread inexorably from the ground up.

Given that similar initiatives are gaining traction in Finland and the Netherlands, a yes vote would have been especially problematic for the entire region.

Back in 1970, economist Murray Rothbard had this critique of Friedman’s negative income tax idea, which would have only applied to the unemployed in its form. Slightly different from the European UBI idea and with 1970 numbers, but similar consequences:

If the floor is $3,000 [a year] I contend that everyone below $3,000 will quit pretty quickly. If they don’t quit they’re pretty screwy. A person getting $3,000 will quit. What about the people earning above $3,000? They’re going to quit too because if you’re earning $3,500 a year you’re working 40 hours a week in order to get $500 a year. That’s not very much. So I think people will quit en masse up to at least $4,000, maybe $5,000 a year. … As they quit this means you have enormous amounts of people flooding onto the dole. … The person who pays for it is the taxpayer, which means taxes have to increase very sharply on the guys who are still working above $5,000 a year. As taxes increase on them, their after-tax income goes down maybe to $4,000 a year or $3,000, so they start quitting. This floods the roles some more and they have to increase the taxes on those continuing to work, maybe those above $6,000 and they start quitting. So I envision with a guaranteed income a vicious spiral downward until we wind up with everyone on the dole and nobody working. Just total disaster if this thing comes into effect.

Get Our Free Investment Newsletter

I have read, and agree to the Terms of Use

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.