Finnland‘s experiment with a universal basic income has failed, but why is no one talking about Alaska‘s UBI?

Imagine you got paid for living here (Image Source)

As you may have read in the news, the results are in for Finland‘s experiment with a universal basic income (UBI). To everyone's surprise while it turned out to be a blessing to those who received it, for society as a whole it clearly is not the thing you want. Too little incentives to find employment and way too expensive for the remaining tax payers. But there is still a silverlining. UBIs can work and there is already at least one place on earth that has one: Alaska, baby!

Alaska's wealth fund and it‘s life in the shadows of attention

According to Wikipedia, the Alaska Wealth Fund has been set up in 1976 after a passage has been added to the state‘s constitution. Since then it has been filled with the state‘s oil revenue and as of 2016, it was 55 billion $ heavy. 

Quite a lot for a rainy day fund, especially considering Alaska's population of well below one million. For every citizen, there are now more than 75,000$ handled by the fund.

In article 9 section 15 of the Alaskan constitution it says: „At least twenty-five per cent of all mineral lease rentals, royalties, royalty sale proceeds, federal mineral revenue sharing payments and bonuses received by the State shall be placed in a permanent fund.“

That sounds about like what Norway is doing with its own wealth fund. State income from resources go to a good part into the government budget, while at least a fixed minority of the revenue goes into the long-term savings account. 

The passage in the constitution finishes with: „All income from the permanent fund shall be deposited in the general fund unless otherwise provided by law.“

This roughly means that profits coming from investment by the wealth fund have to be reinvested to further the growth of the fund, unless the current government needs some money. In that case – and that is always the case – they can create a law redirecting the profits to spend them for public purposes.

.. and one of these spending laws for the profits of the wealth fund is a UBI for all Alaskan citizens.

What it needs to get a piece of the Alaskan cake

Given Alaskas resource rich soil the fund quickly became a success. This of course caused envy to rise. In 1982 this resulted in the establishment of a „Dividend program“ which does exactly what you think it does. Every year, every Alaskan citizen gets a piece of the big cake transferred to his or her bank account and it became a fixed part in Alaskan life.

That warm anula shower is so popular that by the year 1999 when oil prices and thereforer the profits hit a low, people even voted in favor of changing the rules to „let's take a little bit from the wealth base“ and not just from the profit topping. Given human nature, that was all but surprising. Luckily for the fund's long-term prospects, oil prices went up again and so the wealth fund is still properly filled.

In case you are a US-citizen who‘s eyes start glowing when thinking about receiving a UBI, you may check out this page where you can look up the requirements to receive the money from the fund.

Compared to what you get out in money, the requirements are surprisingly lax. All you need is:

  • Being a registered citizen of Alaska for the entire year for which the profits are redistributed.
  • You also have to spend at least 180 days in the state – which would be the summer half, I presume.
  • You have to „intent to remain an Alaska resident indefinitely“ - however that is enforced by the authorities.
  • Add to that no criminal record - which should be possible – and you‘re in.

Especially for families with lots of well behaved children - think of three in five of Sarah Palin's children - financially, this turns Alaska into a pretty decent place.

What it‘s worth to be an Alaskan

Now, the big question is how much you can get out. Wikipedia delivers the list with the annual payouts per citizen. In 1982 it started with a flat 1,000$. According to the inflation calculator the amount paid out back then would be equal to more than 2,600$ today.

As of 2018 the payments reached 1,600$ and before that they peaked in 2008 with 2,069$. Generally, over the years the amount fluctuated between these two numbers.

So, it‘s not that much. 

The net profit of moving to UBI Alaska becomes even smaller when you consider the state‘s climate and the far distances between it‘s towns. Especially if you price in one two week vacation in Mexico every winter - something which seems to be necessary when living in such a place – you end up with a net value of zero. 

Effectively, all the dividend is accomplishing is to counter the disadvantages of living in an icy and more or less deserted place. The only way you can turn a profit by receiving a UBI in Alaska is when you have plenty of children and know how to grow your vegetables in the back yard – well, despite the climate.

The bottom line is that even though Alaska‘s UBI model has been set up according to the textbook and only causes little concern for eating itself, it is by far not what people in favor of such a system would want and need.

What we can learn from Alaska

What Alaska‘s model can teach us is the principle by which you have to set up such a UBI. 

First, you need a steady flow of income from resources that you can redirect into a fund, because that‘s the only way you won‘t hurt the economy while doing so. This fund also needs strict ratios for investments and the withdrawal of profits to ensure it survives political changes. And then you also need both capable managers to run the fund and politicians with integrity who won‘t just take the money and throw it out as Nicolas Maduro has done it in Venezuela. 

In case this happens despite its hazardousness for the future existence of the fund, politics as well as the population need to know they can‘t just take more and more and have to go back to a tight regime. To my own surprise, this dialing back after too much redistribution seems to work quite well in Alaska as it happened several times.

Also important is a Chinese wall of interest between politics and the investments of the funds or otherwise it may happen like in California, where „ethical investing“ is leading the state's pension fund straight to bankruptcy.

Overall, long-term discipline is king as it has always been the case with building wealth.

If you still want a UBI but Alaska is not your thing, because cold and hilbilly, you may wait a few years and then you might find what you are lookinng for in the Indian state of Assam. There, they are planning the same thing as in Alaska. Not with oil, but with hydro electric power. 

The mountainous state in Northern India is currently building power stations that will produce ten times as much as the state needs in electricity. According to political plans, the profits from the sales to other regions will be paid out to Assam citizens as a UBI. 

But be aware, there are more than 100 Million poor people living in the proximity of Assam. For them, a UBI payment of roughly a few hundred Dollars per head and year would easily double up their current income.

So, better bring some bricks for a wall.