As I write this, Christmas is right around the corner again, and I think it's time I finally write this article that has been in my head for years now as an argument for the universal part of universal basic income. In short, the entire point of the gift-giving aspect of Christmas and birthdays and other occasions involving gifts would be entirely defeated using the logic people use against UBI. People often ask, "Why should we provide basic income only to tax it back from people?" The answer which I will explain here, is that there is importance in both the giving and receiving, even if not considered as efficient from an economist's perspective. There's ultimately something about the human tradition of gift-giving itself that I think says something about why universal basic income should be truly universal.
First, as I've written about previously, cash is like water in that it can take any shape. Because it can be anything, when it comes to gifts, it's very tough to beat, unless the intended gift recipient told you exactly what they want, or you know them well enough to give them something they may not even know they even wanted. Economists like to speak about this in terms of "utility" which is really just perceived usefulness.
An economist by the name of Joel Waldfogel formalized this decades ago in his paper "The Deadweight Loss of Christmas", concluding that Christmas presents had a deadweight loss of somewhere between 10% and 33%, meaning that so many people receive stuff they don't want, that up to a third of all Christmas gift-giving is essentially pointless. Basically, if you get a $100 sweater you never wear, whoever gave it to you basically just burned $100. Meanwhile someone else may have worn the hell out of that sweater, but they can't because it's sitting in your closet.
In the big picture sense, a lot of stuff being created that has zero utility can have negative macroeconomic implications. Imagine thousands of tons of cotton being used to make sweaters no one wants. That cotton could have been used for something else. The cotton farms could have produced a different crop. Economically speaking, creating stuff no one actually wants is a waste of time and resources. Thus, from an economist's perspective, gift-giving can reduce the potential capacity of the economy, and thus even increase inflation. If cotton is being grown and used needlessly, stuff that could have been made instead can cost more than it otherwise would have if the supply of the other stuff were greater.
If Americans spend $1 trillion on Christmas, which we did in 2019 pre-pandemic, then a conservative estimate of deadweight loss is $100 billion. That also happens to be the cost of 2021's enhanced child tax credit, which reduced child poverty by 40%. Child poverty costs our economy over $1 trillion a year, and allocating resources to reduce it by just getting money to parents to spend on what their families need has a massive return on investment of $10 per $1. So looking at it this way, if the money spent on stuff gift recipients don't want were instead just given to parents as cash to spend as they choose, this would be a much better allocation of resources that would otherwise have been a deadweight loss.
Now of course, there's more to gift giving than economic utility. That sweater you get that you'll never wear means something more than the money spent on it. It's a signal that the gift-giver was thinking about you. They spent time that is precious to them thinking about you, and trying to find or even make something that you would hopefully like or benefit from having. It's an act of love, friendship, or respect. The meaning of the thing can be far greater than the thing itself. When asked if "giving specific presents as holiday gifts is inefficient, because recipients could satisfy their preferences much better with cash," economist Austan Goolsbee replied "Instead of proposing to your wife w/diamond ring, you offer a gift card of equal value. Efficient — if you don’t count your hospital bills."
As the well-known saying goes, it's the thought that counts. Gift-giving has also been with us for a very long time, well before even the existence of money. As described so well by David Graeber in his book, Debt: The First 5,000 Years, gifting was what came first, not bartering. People didn't trade coats for carrots. They just gave people coats, and then that person felt a debt to the giver which at some point may have resulted in carrots being provided in return when it was carrot season. That's how humans originally interacted with each other - with gifts. If a person in the village was hungry, they were given food. They weren't told they needed to create some food or make something useful to exchange for food.
That's just kind of the truly natural way of humankind - giving to others without expectation, but in doing so creating a feeling of gratitude and indebtedness which was then met with a gift going the other direction, further strengthening that social bond. And in a society where people are giving to each other, there is social cohesion. It was a somewhat unnatural step taken to base exchanges on money and even bartering, where two people must exchange one thing for another. So the fact economists even exist to point out the negative utility of gift-giving is itself arguably unnatural, as is the existence of money.
However, we did create a monetary system, and we did create traditions like Christmas where many people are expected to give presents to each other, and it is true that a lot of presents are given that the recipients don't actually want and wouldn't have purchased themselves, and so the giving of cash enters the picture.
Giving cash gives the recipient the freedom to choose for themselves what they most want. Some may consider this to be lazy, or even offensive, while others may truly appreciate the money as being a great gift, and far more welcome than a sweater. Giving cash also opens the possibility of two people giving each other cash. This happens in my family quite regularly, where for example I send money to my sister and she sends money to me, but neither of us knows until Christmas.
An economist might look at such a thing as wasteful. If I send $100 to my sister and she sends $100 to me, why did either of us even bother? And if I send $100 to my sister and she sends $50 to me, why not just send her $50 and have her not send me anything? Economically speaking, that makes far more sense, right?
Here's the thing: that logic is also the logic of a negative income tax, or a means-tested guaranteed income. A negative income tax is where someone with $0 receives the full amount of a cash grant, and then for each dollar their income increases, the amount of the cash grant decreases, until they get nothing. A guaranteed income is almost identical to a NIT, but with a phase-out that doesn't happen at the first dollar earned, and instead the phaseout starts later. Either way, both involve a calculation based on earnings. The logic of both says that I should ask my sister how much she's planning on giving me for Christmas, so that we can compare notes and save one or both of us the effort of sending money inefficiently.
Obviously, neither of us are ever going to do that. If we send each other money, so be it, and if it cancels each other out, so be it. It's the giving and the receiving that counts. When I send her money, it's because I love her and want her to pick out what she most wants, be it an object or an experience, and when she sends me money, it's for the same reason. And when I get money from her, I recognize that she wants me to have what I most want, be it an object or an experience, and she feels the same. The fact that we may give and receive the same thing doesn't make it pointless. What would be pointless is not giving anything at all. That we each may give each other the same amount of money is because we love each other and both want us to have what we most want or need.
That's also how unconditional basic income works. If I get $1,000 a month in UBI, but my taxes go up $12,000 a year, an economist may look at that as pointless because it balances out to $0, but that's because they're missing the point as economists frequently do. It may be economically equivalent for me to get $12,000 and be taxed $12,000 as it is for me to get $0 and be taxed $0, but it is not at all the same, even though it definitely costs the same.
UBI means a society of far greater social cohesion. Everyone is giving to the community and everyone is receiving from the community. The direction goes both ways. A negative income tax, or a guaranteed income, or typical welfare benefits, they all go one-way. Some people receive something and give nothing in return, and some give something and receive nothing in return. It's a sense of unfairness and lack of reciprocity that is behind so many people hating the existing targeted welfare system, and also why government benefits are so stigmatizing to the point people don't even want it who desperately need it.
UBI is different. UBI doesn't care about the perceived economic wastefulness of not balancing things out in advance. It doesn't care how much you earn or what work you do. It just cares about you. UBI is society saying that we all care about each other, and we all want each other to have what we most need, especially basic survival needs like food and housing. It's a return to where we started, and where we once naturally existed, where we gave each other what we needed to survive without expectation. It's a return to being more human.
UBI also recognizes the deadweight loss of giving people stuff instead of money. Benefits-in-kind operate on the presumption that government bureaucrats know who is in need, what they need, and what's best for them. It's a system that gives hungry people sweaters instead of trusting them with the freedom to determine for themselves what they truly do need. It's a system of distrust that erodes cohesion. It's also a system that in its targeting those in need, misses most of those in need.
The tradition of gift-giving at Christmastime is a beautiful tradition, and I think something that helps foster a more cohesive society. Every time it rolls around, many of us start thinking about what other people might want or need instead of what we ourselves might want or need. It's empathy-building, which is why Charles Dickens' A Christmas Carol is so beloved. Christmas strengthens social bonds as people are reminded of how much others care about them. I think it resonates with something deep inside us that really does value thinking more of others than ourselves. Positive psychology shows us that giving to others may just be the most effective road to finding happiness.
"There is scientific proof showing a link in the brain between giving and happiness. One study sought to find out if the prospect of giving could make participants happier. Half the group was told they were receiving money that they needed to spend on someone else. The other half was told they were required to spend the money on themselves. Both groups were told to imagine how they were going to spend the money when they received it. After conducting MRI tests and multiple other tests to rule out any other contributing factors, the researchers determined that generosity improved the level of happiness in participants, regardless of the recipient or the amount of money."
Studies of universal basic income have also shown increased social cohesion as one of its many impacts. Not only do people not start working less when they get UBI as so many people fear, and even often work more, they also feel more connected to each other and trust each other more. They get healthier and less depressed.
A healthy happy society is one where everyone is giving to each other. If every individual receives something from society with no expectation of return from the rest of society, that is a society where everyone knows they are valued, and also one where everyone wants to give back, perhaps not immediately in a transactional sense, but at some point in the future when they have discovered the best way for them personally to give back to the society that uplifted and protected them.
I'm also reminded of a quote by Benjamin Franklin who definitely agreed with this sentiment of a desire to give back when one has something to give back when he said, "As we enjoy great advantages from the inventions of others, we should be glad of an opportunity to serve others by any invention of ours, and this we should do freely and generously." Freely and generously, not coercively and selfishly; he didn't demand the protection of intellectual property from the public domain. He felt gratitude towards everything that others had created that he enjoyed, and wanted to create something new in return. That's a very human feeling, to want to give when one has already received without expectation. It is against our natural way of being to be forced to give because we had received, or to receive only on the condition that we first give. To give is human. To transact is artificial.
So that's my gift-giving argument for UBI. Just as we give to each other because of the happiness it provides the giver and the receiver, and just as we would never give each other nothing if the monetary value of what we intended to give each other canceled out, we should provide an unconditional survival income to everyone regardless of how much they earn or how much in taxes they pay, because sometimes utility-loving economists don't know what the hell they're talking about.
Sometimes something is just the right thing to do, and the reason behind doing it goes far beyond what's being given, and extends to why it's being given, and how it feels to receive without expectation to know you're valued - that you actually mean something to someone, or in the case of UBI - something to everyone.
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