Los Angeles Takes an Oprah Approach to Guaranteed Incomes

Bloomberg Opinion , April 30, 2021

Los Angeles understands publicity and trendiness. Its leading industries depend on grabbing attention and conjuring desire. Its culture celebrates storytelling.

So it’s fitting that in his recent State of the City address, Los Angeles Mayor Eric Garcetti announced plans to give 2,000 local households $1,000 a month for a year. He boasted of his role as a founding member of Mayors for a Guaranteed Income and touted his program as “the largest Guaranteed Basic Income pilot of any city in America.” The $24 million plan will also be the first paid for with taxes — funds from the federal American Rescue Plan — rather than private donations.

The idea is alluring in its apparent simplicity: The solution to poverty is reliable cash. Let’s give everyone a regular check.

“Everyone deserves an income floor through a guaranteed income, which is a monthly, cash payment given directly to individuals” without strings or work requirements, declares Mayors for a Guaranteed Income. The advocacy group has established a center at the University of Pennsylvania School of Social Policy and Practice to conduct and track research on the idea.

Guaranteed-income programs have become the must-have policy accessory of the season. There are pilots in the works in Newark, Atlanta, Pittsburgh, New Orleans and St. Paul, among others. In December, Twitter CEO Jack Dorsey gave Mayors for a Guaranteed Income $15 million to fund such efforts. Having one in your city marks you as progressive, upbeat and visionary.

Like all glamorous visions, however, the general concept of a guaranteed income hides many details and difficulties — from where the money is supposed to come from to what the long-term effects might be. There’s a huge difference between the golden dream of money for everyone and the reality of small pilot programs.

That doesn’t mean pilot programs are useless. There are three possible reasons to run one. The first and most obvious is to help poor families. “This is one of the cheapest insertions of resources to permanently change people’s lives,” Garcetti told Bloomberg News.

The second is to learn more about details that could make a difference in a full-scale policy. How does a guaranteed payment change people’s behavior? Would a child allowance be better? How large should the payments be? Should they come as larger lump-sum amounts, say, quarterly or smaller, more frequent sums? How does cash compare to in-kind payments such as food stamps? A well-designed pilot can serve as a social science experiment, aimed at answering such important questions.

Or it can simply be a publicity stunt, serving to attract attention and garner good will for both the idea and its proponents. So far, that’s what L.A.’s appears to be.

In context, Garcetti’s plan looks more like Oprah’s “You Get a Car” moment than a transformative attack on local poverty. Los Angeles has about 1.4 million households, and about 18 percent of its residents are poor. 1 That means about a quarter million poor households. The plan, which will be limited to families with minor children, covers less than 1% of them—for a single year. A lucky few get a short-term windfall.

Catalyzed by the federal government’s cash programs of Covid relief, the L.A. program follows an attention-getting two-year experiment in Stockton, in California’s Central Valley. There, 100 residents received $500 a month for two years with no strings. Another 25 “served as a politically purposive, or storytelling cohort,” who got the payments and talked to the press. A control group of 200 received nominal compensation for participating in the research but no regular payments.

Not surprisingly, the dependable money reduced participants’ income fluctuations and their stress. Compared with the control group, they were more likely to have full-time jobs after a year, possibly because the guaranteed income gave them the freedom to take time from part-time gigs to hunt for work. And, no, they didn’t spend the extra money on frivolities.

In his Bloomberg News interview, Garcetti touted those results, which garnered headlines at the time and made former Stockton Mayor Michael D. Tubbs a political celebrity. “Everybody said: ‘You give people money, they’re going to buy even bigger TVs,” he said. “Stockton showed that’s just not true. Low-income Americans know what to do with additional resources to build health and wealth, but too many of them are caught in the cycle of poverty.”

But the Stockton results didn’t surprise social scientists who’ve kept up with decades of research on what happens when people get unrestricted cash, whether through government programs, inheritances, lotteries or other sources.

“There’s often this idea that everyone is going to quit their jobs, and everyone is going to use drugs and alcohol and cigarettes,” says economic sociologist Stephen Nuñez, the lead researcher on guaranteed income policy at the Jain Family Institute. “That’s just not true, and you don’t need more studies to show that.”

For every 10% increase in household income from a source other than labor, the number of hours worked goes down about 1%. It’s a remarkably consistent result across time and space, from negative income tax experiments in the 1970s to studies of lottery winners and the Alaska Permanent Fund Dividend, which is funded through state oil revenue. (Results vary for secondary earners, such as teenagers with summer jobs and mothers of young children.) Drug and alcohol use doesn’t increase and in some cases goes down with reduced stress.

With thousands rather than hundreds of participants, the Los Angeles program could provide a chance to do more than generate human-interest stories and build political momentum. It could test different payment amounts, for example. If you double the amount of money, do you double the positive results? Or, to put it another way, what’s the most cost-effective amount to distribute?

But the mayor has already foreclosed that option. And it’s hard to get information on what, if anything, the pilot is supposed to test. When asked for particulars about its design, the mayor’s office referred me to researchers at the Penn center.

Amy Castro Baker, the center’s co-director, declined to comment, saying that “we are still in the design phase of the research.” She referred me to the mayor’s spokesman. That’s not a good sign.

  1. These numbers apply only to the city of Los Angeles. The local area encompasses many separately incorporated cities, such as Santa Monica, Burbank and Monterey Park, as well as unincorporated portions of Los Angeles County, including the historically Mexican-American neighborhoods of East L.A.