Will new Mexico prove a universal basic income can work?

Americans are talking again about the possibility of some form of universal basic income. In the past, talk has died down with little action, but this time the idea might have legs. Individual states make a perfect laboratory for experimenting with basic income — and New Mexico could lead the way.

New Mexico's government is considering giving everyone in the state a so-called "stability stipend." The amount hasn't been decided, but $400 is a number being thrown around, since that's the amount that some Santa Fe, New Mexico, residents are getting in a pilot program in that city. The price tag for the whole state would be $800 million — about 11% of New Mexico's current annual budget. If the state goes forward with the plan, it will be a landmark experiment that could eventually lead to the transformation of the entire U.S. welfare system.

The idea of a guaranteed basic income has a long history, but different people have supported it for different reasons. Some, like pamphleteer Thomas Paine, saw it as a recognition of social equality. Others, like Martin Luther King Jr., Richard Nixon and George McGovern, saw it as a way to alleviate poverty. In recent years, some figures from the technology industry and elsewhere have suggested cash payments to citizens as an insurance policy against the possibility of mass unemployment due to automation.

This multiplicity of justifications might have made a universal basic income seem like a solution in search of a problem. Without a clear idea of why it should exist, it was more difficult to justify the inevitably large price tag — and some conceptions of a basic income would carry a very large price indeed. If a basic income was designed as a full substitute for a job, it would have to be budget-bustingly enormous. Also, if the payments were substantial enough to replace a low-wage job, it seems likely that many people would stop working, lowering national productivity.

Recently, supporters have been converging on a more modest goal for a basic income — not as a replacement for a job, but as a way of providing a bit of extra money to help ease all the bumps and risks of our financial lives. For poor people, the ability to make car repairs, pay parking tickets or cover an emergency medical expense can be a lifesaver, but even for the middle class, having a few hundred extra dollars a month can make life a lot easier.

Basic income experiments like the one in Stockton, California (on which Santa Fe's experiment is modeled) have achieved promising results with modest monthly sums. Most encouragingly, recipients worked more rather than less, consistent with the idea that a modest stipend represents a hand up instead of just a handout; extra monthly cash gave them the time and mental space to focus on long-term self-betterment.

A few hundred extra dollars a month is also unlikely to hurt labor supply; something that's borne out by economic evidence. And while still somewhat expensive, it's at least within the realm of fiscal possibility.

States are the perfect place to try out this new, scaled-down basic income. Unlike cities, they have the money to carry out these experiments at a truly universal level; Stockton or Santa Fe can hand out money to a few people, with the help of private foundations, but states have far deeper pockets.

On the other hand, states generally have balanced budget amendments that prevent them from funding the programs with debt. That's important, because essentially everyone believes that a federal basic income would have to be funded by taxes in the long run. States are good political laboratories for testing the public's tolerance for paying the taxes that would be needed to sustain a cash benefit over a period of years.

Crucially, carrying out such stipend experiments at the state level will allow researchers to get a better feel for any downsides. Opponents are going to worry that even a small basic income will reduce work participation or productivity. But by comparing counties within states that offer a stipend with similar nearby counties in non-stipend states, economists will be able to get a very good idea of the program's impact on local labor markets.

If New Mexico ultimately decides not to go through with the plan, other states should try it. Then, if a universal basic income is shown to have unambiguously positive results at the state level, it can more easily be scaled up to a national program. This is too important of an idea to leave it untested yet again.  

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.

Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.