The History of Guaranteed Minimum Income and "The Great Society"

Part I (1791 - 1945) • Part II (1946 - 1975) • Part III (1976 - 2025)

In the post World War II years, the United States led the world in manufacturing and technological development becoming the first democratic world superpower. This resulted in a period of unprecedented economic growth – from 1945 to 1960, GDP grew from $228B to $542B (237%, although there was certainly some inflation and population growth) and by 1960 the US was producing 40% of the world’s manufactured goods. It was an era when the president of General Motors could confidently state before Congress: “what was good for our country was good for General Motors, and vice versa”.

Yet there were still persistent voices of concern.

Economist John Kenneth Galbraith’s The Affluent Society (1958) countered that what was good for large manufacturing companies wasn’t necessarily good for America as a whole. He found important shortcomings in American public life: inadequate investment in healthcare, education, and public infrastructure.  Additionally, Galbraith believed inadequate resources had been invested in alleviating poverty and preventing environmental degradation.

In 1963 the New Yorker Magazine published "Our Invisible Poor", the longest book review it had ever run. Cultural critic Dwight Mcdonald combined his review of Michael Harrington’s recently released book The Other America with many other sources and economic reports illustrating that nearly 1 in 4 Americans still lived in poverty despite the widespread economic growth of the 1950s.

The Other America sold 70,000 copies the year after this seminal New Yorker article, catching the eye of president John F. Kennedy, inspiring him – and his successor, Lyndon Johnson – to expand the role of government to address the root causes of poverty in America.

Prior to 1964, the primary anti-poverty tool was the New Deal era cash assistance program Aid to Families with Dependent Children (AFDC). It was limited to single mothers, but had a side effect of disincentivizing work, because each dollar earned would be subtracted from the cash assistance. To address this, staunch free market advocate and economist Milton Friedman proposed a “Negative Income Tax” (NIT) in Capitalism and Freedom (1962). 

He later added a modest direct cash transfer to his proposal, which could be augmented by the NIT. This allowed recipients to keep a larger share of their earnings and effectively created a Guaranteed Minimum Income. For Friedman, a vocal advocate of limited government, the strength of GMI was the empowerment and economic freedom it extended to its recipients without excessive government bureaucracy.

In "The Case for Negative Income Tax: View from the Right" (1966) Milton Friedman remarked:

... in my opinion, the negative income tax is more compatible with the philosophy and aims of the proponents of limited government and maximum individual freedom than with the philosophy and aims of the proponents of the welfare state and greater government control of the economy.

Instead of the simple, single direct cash assistance program proposed by Friedman, the Johnson Administration chose to implement numerous programs tackling a wide variety of perceived societal shortcomings for the impoverished:

• Health Care (Medicaid)
• Housing (creation of the Department of Housing and Urban Development to expand federal housing programs)
• Education (Head Start)
• Food (Food Stamps)
• Job training (Job Corps, Neighborhood Youth Corps, Volunteers in Service to America)
• Community services (Community Action Program)
• Access to legal aid (Legal Services Program)

Martin Luther King's 1967 book Where Do We Go From Here: Chaos or Community was a sharp rebuke of the complex bureaucracy and politics involved in administering all these different programs. He felt they did not directly address poverty. King made the moral case for the simplicity and effectiveness of  guaranteed minimum income as an alternative.

• Like Thomas Paine, King believed that economic insecurity was at the root of all inequality. 
• Like Henry George, King wanted a “citizen’s dividend” – direct cash payments – as a right for all American workers.
• Like Milton Friedman, King agreed that guaranteed income was the simplest and best way to fight poverty.

Johnson approached poverty as a war to be fought on many fronts via many programs. These programs were effective in reducing poverty, even deep poverty, but also created enormous government bureaucracies that were difficult and expensive to administer.

Shortly after taking office in 1968, Republican president Richard Nixon announced the Family Assistance Plan as a replacement for Aid For Dependent Children. All working class families with children would receive a monthly cash stipend, and families could continue to earn additional income until the breakeven point of the benefit had been reached – effectively the same model Friedman had proposed in 1962. However, while the Family Assistance Plan passed the House of Representatives,  it never cleared a Senate vote largely due to partisan concerns over work requirements by the recipients.

While full GMI implementation was never reached under Nixon, partial GMI programs were created – and are still active today:

• In 1972, Congress established the Supplemental Security Income (SSI) program, providing direct cash assistance of about $20,000 per year to low-income elderly, blind, and disabled individuals with little or no income.
• In 1975, Congress passed the Tax Reduction Act in 1975, establishing the Earned Income Tax Credit (EITC).  Employed parents below a certain income level with children can apply for the credit with their federal tax filing. This tax credit is not guaranteed income, but operates like Milton Friedman's NIT – reducing taxes on the income of low-wage workers increases their take home pay and encourages more work. According to the US Census Bureau, it is the second most effective anti-poverty tool after Social Security, established in 1935, but the amounts are under $10,000 per year.

These continued efforts at securing a Guaranteed Minimum Income recognized the shortcomings of the many complex government programs that offered specific services for many types of relief. The guaranteed cash payments of SSI and EITC were simpler, easier to administer, and provided more individual choice.

Despite the advantages of GMI in alleviating poverty, Americans at this time remained concerned with the market effects GMI would have on their fellow citizens’ work ethic and the workforce in general.

Ultimately, the patchwork system of benefits programs set up by the Johnson administration would falter and prove less effective, becoming more complex to maintain under the many economic challenges of the 1970s - the costs of the Vietnam War triggering economic recession, the oil shocks of 1973, 1979, and subsequent “Stagflation”.

These challenges provided new opportunities – would incoming administrations utilize Guaranteed Minimum Income to address poverty in America?

Continue to Part 3 – Guaranteed Minimum Income and Economic Security in The Second Gilded Age

Part I (1791 - 1945) • Part II (1946 - 1975) • Part III (1976 - 2025)

Works Referenced