Debating the Size of the Social Safety Net

Finland might change its social safety net.

Hoping to diminish unemployment by making lower paying jobs more attractive, they are contemplating a monthly €800 ($870) check for everyone.

Where are we going? To safety net tradeoffs.

A Basic Income Check

If a trial version of the Finnish basic income plan is implemented next November, then all participants will get €550. It won’t matter how much each person earns. If you have a pulse, you get the money.

Rather amazingly, people on the left and the right both like the idea. Advocates on the left see an anti-poverty weapon. If the euro amount is high enough, it eliminates poverty. But the right smiles too because of less government. And both sides approve of the added respect the system gives to low earners because no one tallies how they spend the money.

Still though, it’s an expensive gamble that might create a work disincentive and a disproportionate downside to bad spending decisions. With all previously received benefits removed, some households could receive less. And they are venturing into unknown incentive territory. During the 1970s, when a Canadian town sent selected residents a “stipend check” for several years, the poverty rate and hospitalizations declined while high school completion rates and unemployment were up.

Our Bottom Line: Tradeoffs

Like we just did, most researchers look inside countries when debating the tradeoffs of the social welfare safety net. Instead, in a 2012 paper, three economists looked at the impact of the Scandinavian welfare state on other nations. Fascinatingly, they concluded that the world would be less affluent and less innovative (see below) if we all adopted Finland’s “cuddly form of capitalism.” As they tell us in their last sentence, “we cannot all be like the Scandinavians, because Scandinavian capitalism depends in part on the knowledge spillovers created by the more cutthroat American capitalism.”