In Good Economics for Hard Times, the Nobel Prize-winning wife-husband duo, Esther Duflo and Abhijit V. Banerjee, show us how economics, when done right, can help us solve the thorniest social and political problems of our day.
The duo’s previous book Poor Economics outlined how randomized controlled trials (experiments testing the effectiveness of specific policy interventions) can help developing countries improve everything from school enrolment to immunization rates. Their follow-up, Good Economics for Hard Times, is far broader in scope and tackles global issues, including the impact of immigration, the rise of nationalism and xenophobia, and universal basic income. Throughout the book, they try to synthesize evidence from recent, credible economic papers and give their take on what the data tells us.
While the book is very approachable even for readers with no background in economics, I’ve tried to simplify the content further. This post provides a summary/analysis of the key insights from the book, while bringing in additional perspectives from other literature.
- Trade and Free Markets
- Social Media
- Economic Growth
- Global Warming
- Tax and Inequality
- Universal Basic Income
Migration is one of the most influential political issues in our planet, from Donald Trump’s alligator moat to keep out his imaginary but enormously consequential hordes of Mexican migrants, the Brexit mess, the Rohingya crisis in Myanmar, and of course the citizenship bill in India, to name just a few. It’s not just populist leaders such as Trump and Modi who see migrants as a threat, it’s a sentiment shared even by liberal parties across the globe.
While some politicians are responsible for grossly inflating numbers and stoking voter fears, there is a general misconception that more low-skilled migrants will lead to lower jobs and wages. The idea has firmly taken root because of the simple concept of supply and demand. People want more money and therefore will all go wherever wages are highest (supply goes up). As the demand curve for labor slopes down, the rise in the labor supply will lower wages for everyone. The migrants may benefit, but the native workers will suffer. As the authors explain with the following arguments, backed with years of research, the seemingly self-evident logic is actually wrong.
- First, the influx of a new group of workers will typically shift the demand curve to the right. The newcomers spend money: they go to restaurants, they get haircuts, they go shopping. This creates jobs, and mostly jobs for other low-skilled people in the country.
- Another closely related point is that employers may want to reorganize production to make effective use of the new workers, which can create new roles for the native low-skilled population.
- Another way in which migrants complement rather than compete with native labor is they are willing to perform tasks natives are reluctant to carry out; they mow lawns, flip burgers, attend to the needs of babies or sick people. So, when there are more migrants, the price of those services tends to go down, which helps the native workers and frees them to take on other jobs. Highly skilled women, in particular, are more likely to be able to go out to work when there are many migrants around.
These arguments are in alignment with The Economist’s findings as well. According to a special report on migration (Edition: Nov 14th, 2019), 83% of native-born workers benefited materially from immigrants due to more or less the same reasons:
- When lots of low-skilled immigrants arrive and start doing manual jobs such as cooking, cleaning and building, the native-born often respond by moving into higher-status jobs, such as managing the migrant workers, partly due to their ability to speak the language fluently and navigate local institutions better.
- Migrants often do jobs that natives shun, such as picking fruit, dishing out parking tickets or caring for the elderly. This reduces what locals pay for fresh strawberries, orderly streets and nursing homes.
- Admitting an unskilled migrant can even increase the supply of skilled labor. Abundant foreign nannies and cleaners make it more likely that college-educated native-born women will go out to work full-time.
Another common misconception is the perceived number of immigrants in a country. The fraction of international migrants in the world population in 2017 was roughly what it was in 1960 or in 1990: 3%. From an Indian context, the number of Bangladeshis in the country actually fell from 3.1 million to 2.3 million, according to the latest census data. But, the government would have you believe there are a total of 20 million Bangladeshis (a fabricated number that was doing the rounds on social media).
People who migrate out of poor countries generally need to have a lot of grit in order to overcome a system that is typically loaded against them. For this reason, a lot of them bring exceptional talents—skills, ambition, and patience—that help them become job creators, or raise children who will be job creators. A report by the Center for American Entrepreneurship found that, in 2017, out of the Fortune 500 companies, 43% were founded or co-founded by immigrants or the children of immigrants. Henry Ford was the son of an Irish immigrant. Steve Jobs’ biological father was from Syria. Sergey Brin was born in Russia. Jeff Bezos takes his name from his stepfather, the Cuban immigrant Mike Bezos.
According to the authors, the best way to simultaneously help migrants while at the same time making locals more accepting, is probably to ease their integration. Offering housing assistance, pre-migration matching to a job, help with childcare arrangements, and so on would ensure that any newcomer quickly finds a place in society and starts contributing to the economy, rather than being unemployed and living on government handouts.
Being an IIM (Indian Institute of Management) graduate and a subscriber to The Economist, the idea that more trade is good is deeply engrained in me. This foundational concept of economics is questioned by the authors with some harrowing examples. Between 1991 and 2013, the United States was hit by the “China Shock.” China’s share of world manufacturing exports grew from 2.3 percent in 1991 to 18.8 percent in 2013. A research was conducted to determine the impact of opening the US markets to Chinese goods, particularly in areas that produce goods which China is very good at. It was found that these areas were gravely affected by the trade shock.
When the exports started falling, it set off a downward spiral starting with worker layoffs. These unemployed workers spent less in local businesses, such as shops and restaurants. As most of the neighborhood started going down, the value of houses declined, which further reduced their consumption. These further affected the shops and the restaurants, and some of them ended up closing. The disappearance of these amenities, the dearth of nice neighborhoods, and the catastrophic decline in the local tax base that makes it harder to provide water, schools, lights, and roads eventually make these areas so unattractive that it becomes impossible to revive. No new firm will want to move there to take the place of those that have died. This happened at several US cities, including Tennessee. If the United States, with its massive economic clout, is susceptible to such trade shocks, one can only imagine the impact on poorer countries.
There is no debate that the exchange of goods, people, ideas, and cultures made the world much richer. Those lucky enough to be in the right place at the right time, with the right skills or the right ideas, grew wealthy, benefitting from the opportunity to leverage their special gifts on a global scale. For the rest, the experience has been mixed. Jobs were lost and not replaced. Rising incomes have paid for more new jobs, but trade has also created a more volatile world where jobs suddenly vanish only to turn up a thousand miles away. The gains and the pains ended up being very unequally distributed. With the world’s richest 1% being twice as wealthy as the poorest 50%, it’s high time we learn to redistribute the gains from trade better.
One solution suggested by the authors to curtail the effects of a trade shock is to expand a program like the Trade Adjustment Assurance (TAA – a federal program of the United States government to reduce the damaging impact of imports felt by certain sectors of the US economy), by making it more generous to individuals and more easily awarded. For example, the revamped TAA could offer victims of a trade shock a means to get a new start, by providing up to thirty-six months of education benefits (including tuition fees, housing stipend, etc.).
From an Indian perspective, the book’s findings justify the government’s decision to opt out of RCEP (Regional Comprehensive Economic Partnership). Like the United States, India could have very well been hit with the “China Shock”, leading to dumping of cheaper goods such as diary and farm products, and electronic items, in the Indian market, severely affecting local industries. Also, for India, with its straining fiscal deficit, a program like the TAA is not even worth considering.
In another chapter, the authors examine how social media is causing exponential polarization. One research has found that Americans of different political hues have started to positively hate each other. In 1960, roughly 5 percent of Republicans and Democrats reported they would “feel displeased” if their son or daughter married outside their political party. By 2010, nearly 50 percent of Republicans and over 30 percent of Democrats “felt very unhappy at the prospect of inter-party marriage.
While Facebook (~2.4 billion users) and Twitter (~330 million users) should, in theory, should expose us to disparate views across the globe, these social networks have failed to integrate their users on divisive issues. A recent study suggests that 84% of the followers of conservative users are other conservatives, while 69% of the followers of liberal users are liberal. So, both Facebook and Twitter end up being echo chambers. Democrats pass on information produced by Democratic candidates, and Republicans do the same for Republicans.
The problem with these echo chambers is that we are not only exposed to ideas we like; we are also exposed to them again and again and again, endlessly, throughout the day. I was an inadvertent victim of this phenomenon myself. Following mostly left-liberal media sources on Twitter led me to believe that the 2019 Lok Sabha elections would actually be a lot closer, when it eventually panned out to be a landslide victory for the right-wing BJP party. It was likewise during the British general election, when my Twitter feed was swarming with #VoteLabor tweets.
It gets worse when it comes to growing anti-Muslim, anti-immigrant prejudices, with clickbait and fake stories acquiring a life of their own. The endless repetition whips people into a frenzy (much like the way political demonstrations use repeated chants), making it harder for people to stop and fact-check the viral stories doing the rounds.
Gordon Allport, a professor of psychology at Harvard, formulated what he called the contact hypothesis in 1954. This is the idea that under appropriate conditions, interpersonal contact is one of the most effective ways to reduce prejudice. By spending time with others, we learn to understand and appreciate them, and as a result of this new appreciation and understanding, prejudice should diminish. Going by this hypothesis, it’s high time we used social media to expose ourselves to disparate views across the globe. Doing some basic fact-checks before forwarding WhatsApp messages can also go a long way in reducing growing polarization.
Economic Growth (GDP)
In a chapter that gets a bit abstract, the authors discuss the newfound obsession with GDP growth rates. Before getting into the future growth debate, I want to summarize the findings of the brilliant ‘Why Nations Fail’ by Daron Acemoglu and Jim Robinson, which provides a sweeping historical perspective on growth. The book has a remarkably simple theory for why some countries are rich, while others languish in poverty.
The authors show in the initial years of European colonization, in countries with vast labor supply, Europeans preferred to set up exploitative colonies where the institutions were designed to allow a small number of Europeans to lord it over vast numbers of natives who labored to grow sugarcane or cotton or to mine diamonds that the Europeans would then sell. These are the countries that tend to be relatively poorer even today. By contrast, the places that were relatively empty to start with (e.g., New Zealand and Australia) and where settler mortality from malaria and other such diseases was low, were the places where Europeans settled in large numbers. As a result, these places got the institutions the Europeans were then developing and that would eventually provide the basis of modern capitalism, leading these countries to become significantly richer in the modern world.
Coming back to the present, the authors offer multiple schools of thought on the future prospects of global growth. The one I’m leaning towards is Robert Solow’s logic that growth would eventually slow down based on the principle of diminishing returns. Capital-scarce economies grow faster because new investment is highly productive. Rich economies, which are, in general, capital abundant, tend to grow more slowly because new investment is not as productive.
Another extension of Solow’s theory, and perhaps the most striking, is what economists call convergence. Countries scarce in capital and relatively abundant in labor, like most poor countries, will grow faster because they have not yet reached their balanced growth path. They can still grow by improving the balance between their labor and capital. As a result, we would expect the difference in GDP per worker across countries to be reduced over time. All else being the same, poorer countries will catch up with their richer counterparts.
But, however sound this theory is, this convergence may not be automatic which is why countries like India that are growing fast right now should fearful of complacency. It is relatively easy to grow fast, starting from a spectacularly messed-up economy, because of the gains from better resource use. In Indian manufacturing, there was a sharp acceleration in technology upgrading at the plant level, and some reallocation toward the best firms within each industry after 2002. This appears to be unrelated to any economic policy, and is described as “India’s mysterious manufacturing miracle.” But it is no miracle. At its root, it is a modest improvement from a dismal starting point.
But as the economy sheds its worst plants and firms, the space for further improvement naturally shrinks. Growth in India, like that in China, will slow. And there is no guarantee it will slow when India has reached the same level of per capita income as China. When China was at the same level of per capita GDP as India is today, it was growing at 12 percent per year, whereas India thinks of 8 percent as something to aspire to. If we were to extrapolate from that, India will plateau at a much lower level of per capita GDP than China. The growth tide does raise all boats, but it doesn’t lift all boats to the same level.
The bottom line is that, we have no accepted recipe for how to make growth happen in poor countries. So, the best bet therefore, for a country like India is to attempt to do things that can make the quality of life better for its citizens with the resources it already has: improving education, health, and the functioning of the courts and the banks, and building better infrastructure (better roads and more livable cities, for example). For the world of policy makers, a clear focus on the well-being of the poorest offers the possibility of transforming millions of lives much more profoundly than we could by finding the recipe to increase growth from 2 percent to 2.3 percent.
On that regard, there is actually a glimmer of hope. The last few decades have been rather good for the world’s poor. Between 1980 and 2016, incomes for the bottom 50 percent of the world’s population grew much faster than the next 49 percent. The one group that did even better was inevitably the superrich top 1 percent of the world.
Encouragingly, the story of the last three decades is not just one of poverty going down; we also see large and important improvements in the quality of life of the poor. Since 1990, the infant mortality rate and the maternal mortality rate were cut in half; as a result, more than a hundred million child deaths have been averted since 1990. Today, barring major social disruption, nearly everyone, boys and girls, has access to primary education. Eighty-six percent of adults are literate. The gains in income for the poor have not just been paper gains. And, if you are interested in more feel-good stats, check out the lovely ‘Factfulness: Ten Reasons We’re Wrong About The World – And Why Things Are Better Than You Think’, which is heavily recommended by Bill Gates as well. Another book that got the stamp of approval from Bill Gates is ‘Growth—From Microorganisms to Megacities’, which supposedly offers more perspectives on global growth.
IN 2019, it is impossible to think about economic growth without confronting its most immediate implication. We already know that over the next hundred years the earth will become warmer; the question is by just how much. The costs of climate change would be quite different if the planet got warmer by 1.5°C, or 2°C, or more. Climate change is also massively inequitable. The lion’s share of CO2e emissions are being generated either in rich countries or to produce what people consume in rich countries. But the greatest share of the cost is, and will be, experienced in poor countries.
As just one example, between 1957 and 2000, India experienced on average five days per year with an average daily temperature above 35°C.5 Without a global climate policy, it is projected to have seventy-five such days by the end of the century. The typical US resident will experience just twenty-six. The problem is that poorer countries tend to be closer to the equator and that is where the real pain will be felt. To make matters worse, the residents of poor countries are less equipped to protect themselves against the potential bad effects of hot temperatures. They lack air conditioning and they work in agriculture, on construction sites, or on brick kilns where air conditioning is not really an option.
In the last two decades, coal consumption has trebled in India and quadrupled in China while declining slightly in the United States and other developed countries. But for most Indians, additional consumption and additional energy consumption, in particular, is not a luxury. They cannot possibly use less, and ought to have a right to use more. In that case, is there a rationale for poor countries to stay completely outside of the climate conversation? Or, at a minimum, to limit any sacrifice to their richest citizens, who have the lifestyles and the emissions of rich Americans?
It is hard to say no. There is certainly something deeply unfair about the world’s poor paying for the past and present indulgence of the world’s rich. But unfortunately, the crux of the issue is whether the developing world can afford to continue at its current pollution levels (or grow them), even without the threat of global warming. CO2e emissions are strongly correlated with something else that directly affects their citizens today: air pollution. The environment in China and India has degraded so fast that pollution has become a massive and urgent public health hazard, and it is also becoming worse in other emerging economies.
Several Indian cities, including the capital New Delhi, top the list of most air-polluted cities on earth. Globally, the Lancet Commission on pollution and health estimates that 9 million premature deaths were caused by air pollution in 2015. More than 2.5 million of those deaths were in India, the most in any single country. Pollution in Delhi in the winter is due to a combination of several factors (including pure geographical bad luck), but some of it is due to behaviors that could be changed. One important pollutant comes from burning the stubble left after crop-cutting in states neighboring Delhi. The smoke from the burning outside the city is then mixed with various pollutants produced inside the city: dust from construction, exhaust from vehicles, residue from the burning of trash and the open fires the poor use to cook and keep warm in winter.
The smog in Delhi is so bad there is a clear impetus to act immediately. Delhi is a relatively rich city. City dwellers can easily afford to pay the farmers not to burn their crops, and to instead use machines to bury them and ready the soil for the next planting. The government could ban open fires in the city and create heated rooms where the poor could gather on cold nights. It could replace trash-burning with a more modern trash collection and treatment system. It could ban old cars (or in fact ban diesel-fueled cars altogether) It could improve the public transportation system. It could shut down or upgrade the large thermal plants operating within the city. Perhaps none of these would be sufficient individually, but combined they would surely improve the situation.
None of this is out of reach. For example, a “friends of the court” brief submitted to India’s supreme court suggested that a subsidy of Rs 20 billion (about $300 million) would be enough for the farmers of Punjab and Haryana to purchase the equipment needed to prepare their fields. This is only approximately Rs 1,000 per inhabitant of greater Delhi. In India, it may soon become enough of a public issue to lead to some change. The priority should then be to enact policies that will lead to cleaner consumption patterns, even if they come at some cost. The costs may not be very large. In many cases, India would be able to leapfrog to the cleaner technology (e.g., when the poor finally get electricity, they get LED bulbs). In some cases, the new technology may be more expensive than the old (e.g., clean cars may be more expensive than dirty cars). This means the poor will need to be compensated. But the total cost of this is small, and could easily be borne by the elite if the political will was there.
More generally, it is going to cost a lot of money to prevent climate change. There will have to be investments in infrastructure, and meaningful redistribution to those whose livelihoods are affected. In poor countries, money could help the average citizen achieve a higher quality of life in a way less threatening to the future of the world. (Think of the air-conditioning debate, for example; why doesn’t the world simply pay India to leapfrog to the better technology?) Given that the poor do not consume very much, it would not take a lot to help the world’s poor consume a bit more, but also get better air and produce less emissions. If taxing the world’s richest can pay for a clean transition in poor countries and the planet benefits, there is no reason to shy away from that approach.
Tax and Inequality
In terms of the taxpayer population, India and China offer an interesting contrast. Historically, most citizens in both countries had too little income for it to be worth taxing them. But as incomes grew, India kept raising the threshold above which people had to pay income taxes—on budget day, when new tax rates are announced, the raised threshold is often headline news. As a result, the share of the population that paid any income tax remained stable around 4%. In China, where the thresholds were not adjusted, the fraction of the population subject to the income tax went up from less than 0.1% in 1986 to about 20% in 2008. Income tax revenues in China boomed, from less than 0.1 percent of GDP to 2.5 percent in 2008, while in India they have stagnated at around 0.5 percent of GDP. More generally, tax revenues as a share of GDP have been stable at about 15 percent of GDP in India for many years now, while they are above 20 percent in China, giving China the option to invest more and/or carry out more social spending.
The Economic Survey of 2015-16 had stated: “For the level of democracy, India’s ratio of taxpayers to voting age population is significantly less than that of comparable countries. This implies that while at present about 4% of citizens who vote pay taxes, the percentage should be about 23.” According to Vivek Kaul, author of The Easy Money trilogy, it’s a minuscule portion of Indians that actually pays the bulk of India’s individual income taxes. In AY19, individuals paying an income tax of greater than ₹1.5 lakh accounted for nearly 79% of the total tax, which roughly translates to 0.26% of the population paying close to four-fifths of the individual income tax. But as things stand, raising taxes for the middle class is a no-fly zone for politicians on the left and the right. There is another valid concern that as tax rates go up, so will tax evasion.
In part for this reason, a small number of politicians in the United States and some economists are pushing for a progressive wealth tax applicable on worldwide wealth (in 2019, Elizabeth Warren proposed a 2 percent wealth tax on Americans with assets above $50 million, and a 3 percent wealth tax on those who have more than $1 billion). The wealth tax would be progressive and apply to all forms of wealth, not just real estate. The advantage of a tax applied on very high wealth, from the point of view of fighting inequality, is that very wealthy people do not consume the vast majority of the income they derive from their wealth
A wealth tax would raise more revenue as long as steps were taken to reduce evasion. Saez and Zucman estimate that a 2 percent wealth tax on Americans with assets above $50 million (this would affect about seventy-five thousand people), as well as a 3 percent wealth tax on those who have more than $1 billion would raise $2.75 trillion over ten years, which is still just 1 percent of GDP.
Another alternate proposed in a Mint article by our Economics professor at IIM Ranchi is the Inherent tax. He argues that while the per capita income of Indians has risen since liberalization, growth has failed to be inclusive. An inheritance tax, coupled with associated tax reforms, can potentially prevent the concentration of income and wealth in the hands of a few, reduce intra-generational inequality, promote inter-generational equity, and serve a meaningful purpose to address the distributional gaps that exist in India today. According to a 2018 Oxfam survey, 37% of Indian billionaires have inherited family wealth, and control 51% of the total wealth of billionaires in the country. Thus, even a moderate inheritance tax of 10-15%, benchmarked to other Asian countries such as the Philippines, Taiwan and Thailand, can potentially act as a stable and significant source of revenue for the government.
A lack of such wealth or inheritance taxes is the reason why India, much like the United States, has not been very successful in using taxation to limit the ballooning of inequality. According to Credit Suisse 2018 Global Wealth Report, the richest 1% own 51.5% and the richest 10% account for 77.4% of the nation’s wealth. In contrast, the bottom 60% of the population owns only a meagre 4.7% of it.
The interesting counterexample here is Latin America, for many years the example everyone used for exploding inequality, where the recent decades have seen a significant reduction in inequality. This was driven by policy interventions, higher minimum wages, and large-scale redistribution in particular. The way redistribution was expanded in those countries is instructive.
Figuring this out maybe one of the greatest challenges of our time. Much greater than space travel, perhaps even than curing cancer. After all, what is at stake is the whole idea of the good life as we have known it. We have the resources. What we lack are ideas that will help us jump the wall of disagreement and distrust that divides us. When my favorite niece was asked what she would do if she won a million-dollar lottery, her answer was to spend half on buying barbies and donate the other half to charity. There might be hope after all for the next generation.
Universal Basic Income
The coronavirus pandemic has renewed the debate on whether countries should implement Universal Basic Income (UBI). In responding to COVID-19, countries are anticipating, expanding, and increasing payments of their flagship cash programs. Under UBI, citizens would receive a set amount of money from the state, forfeiting other benefits.
In a recent knapp, Knappily (a heavily recommended award-winning news analysis app that gives a 360-degree view of current affairs) presented empirical evidence, showing that universal cash transfers, if spent judiciously, can save lives and help people get permanently out of poverty. In Africa, the provision of $1 in such programs generated between $1.27 and $2.60 in local economies. In the United States, a dollar’s worth of SNAP, a quasi-cash scheme, leads to $1.79 in economic gains.
Further, Professor Guy Standing, an economist who co-founded the Europe-based advocacy group Basic Income Earth Network (Bl EN), said that he was closely involved with three major pilot schemes in India – two in Madhya Pradesh and another in West Delhi. The schemes in Madhya Pradesh were launched in 2010, and provided every man, woman, and child across eight villages with a modest basic income for a period of 18 months, the report said. It was found that the scheme led to improved nutrition, healthcare, sanitation, school attendance and performance among the children.
According to Standing – “The most striking thing which we hadn’t actually anticipated is that the emancipatory effect was greater than the monetary effect. It enabled people to have a sense of control. They pooled some of the money to pay down their debts, they increased decisions on escaping from debt bondage. The women developed their own capacity to make their own decision about their own lives. The general tenor of all those communities has been remarkably positive!”
The main arguments against UBI are that it would reduce the motivation for work and might encourage people to live off assured cash transfers; and it is quite simply unaffordable. Even today, the consensus in several parts of the world seems to be that if the poor are given cash, they will stop working or drink it up. Somewhere behind this is the suspicion the poor are poor because they lack the will to achieve. The authors offer evidence from a wide range of literature, suggesting that getting the extra cash could actually make the poor to go somewhere else to look for a better job, to learn a new skill, or to start a new business. For the socially stigmatized workers in India, like scavengers and waste-carriers, UBI can provide an escape ladder, and induce society to mechanize, as much as possible, such unwanted, filthy jobs.
On the affordability front, UBI would undoubtedly cost a significant chunk of any country’s GDP. In an Indian Express article, Maitreesh Ghatak, professor at the London School of Economics, estimated that paying a basic income equivalent to the poverty line, to each and every adult in India, would entail a cost of 11% of GDP, which is way above the 4.2% of GDP that the government currently spends on explicit subsidies.
Similarly, it would cost $3.9 trillion a year to pay $1,000 a month for every American. That’s about $1.3 trillion more than all existing welfare programs, roughly the equivalent of the entire federal budget, or 20 percent of the US economy. To finance it without cutting back all the traditional functions of government (defense, public education, etc.) would require eliminating all exiting welfare programs and raising the US tax level to the level of Denmark’s. One way to circumvent this would be targeted cash transfers, but the authors argue against it, citing the high costs and complicated screening rules to identify the right people and make sure benefits are going to them.
However, there is another variant of universal income that even developing countries can afford – UUBI (Universal Ultra Basic Income). The Economic Survey of India proposed something like that in 2017. It estimated that an annual transfer of Rs 7,620 ($430 at PPP) to 75% of India’s population would push all but India’s absolute poorest above the 2011–2012 poverty line. Rs 7,620 is very little even by Indian standards, but perhaps enough to survive on. The survey puts the cost of such a scheme at 4.9% of India’s GDP. In 2014–2015, India’s major fertilizer, petroleum, and food subsidies cost 2.07% of GDP, while the ten largest central welfare schemes cost 1.38%, so cutting these existing programs entirely would pay for about two-thirds of the UUBI.
It would also be fairly easy to exclude 25% of people from the program. Requiring each beneficiary to visit an ATM every week and put their biometric ID into the system, whether or not they take out the money, would have the dual advantage of eliminating ghost claimants and making it too much of a hassle for the wealthy to want to claim the benefit. The authors conclude that the best combination may be a UUBI everyone can access when they need it and larger conditional transfers targeted to the very poor and linked to preventive care and children’s education.