Americans Need a Trampoline, Not a UBI Mattress

By: Gonzalo Schwarz

As governments around the world take unprecedented actions to address the coronavirus pandemic, one idea that is being floated as an ideal fix for this crisis is the adoption of a Universal Basic Income (UBI).

Adopting a UBI as a means to solve problems — from income inequality to mass unemployment caused by automation, and now economic shocks from a pandemic — has been touted by many, most prominently former Democratic presidential candidate Andrew Yang. Twitter founder Jack Dorsey recently donated $1 billion to fight the coronavirus, much of which will later be directed to UBI-related projects.

Despite marketing UBI as a creative solution to a novel pandemic, it’s yet one more attempt to exploit a crisis to push for a policy that proponents say can solve any and all problems. We must tread carefully.

In announcing his donation, Dorsey stated that the idea needs experimentation. However, several UBI experiments have already been tried and most trials have been canceled for a variety of reasons.

Finland discontinued its program primarily because — surprise, surprise — giving money to jobless people without any requirements wasn’t very popular. The Canadian experiment in Ontario (which had some conditionality, making it not fully universal) was ended due to the high price tag.

In the United States, one of the pre-eminent UBI experiments currently being conducted is in the city of Stockton, California. And, even though there are some promising developments, it is too early to tell whether the program is successful. More important, an experiment at the local level is small in scale compared to the astronomical cost it would take to adopt it on a national level.

To address the current crisis, the $2 trillion stimulus package includes critical support for the health care sector and others affected by pandemic, including small- and medium-size businesses. In terms of direct financial support for people (which resembles a UBI), all Americans earning less than $75,000 as an individual and $150,000 as a family would receive $1,200 for each adult and an additional $500 per child, which could go up to $3,400 for a family of four. Furthermore, unemployment benefits have been increased and extended for an additional four months.

While the stimulus’ direct financial relief resembles UBI, it is important to note that it is at least somewhat targeted and not universal, even if the cap for such relief may still be too high. Nevertheless, we’re already being told the stimulus isn’t enough, and lawmakers are gearing up for a second stimulus without trying to improve on the first one or even waiting for the results.

Although there are those who do need direct cash payments, there is a strong case that our limited resources should be targeted so that relief can get to Americans most in need. Essential workers are not being laid off and many of the largest employers of essential workers have hired more employees. Amazon and Walmart have even awarded temporary raises.

Many non-essential businesses and their workers are still able to function remotely while complying with social distancing norms — leaving those businesses and individual livelihoods unaffected.

There have been salary adjustments all over the private sector, with many private sector CEOs like FedEx’s Fred Smith and others cutting their salaries and avoiding layoffs as much as possible. Additionally, a large number of public-sector jobs will most likely be completely spared.

Unfortunately, neither a UBI nor the current stimulus package makes such distinctions, which is why universal programs end up being more wasteful than necessary. Targeted social welfare is always preferable, particularly in more normal times when timeliness is less of a concern.

Before the public health crisis arrived, the labor market was extremely strong, with more job openings than people looking for work. That’s good news: As Nobel laureate Vernon Smith recently wrote, the labor market and our broader economy will bounce back in due time.

The most important conversation to have now is how the economy can go back to operating close to normally without compromising at-risk groups. The economic problems we’re experiencing have more to do with short- and medium-term uncertainty related to the labor market, and a UBI does not address any of those concerns.

While a temporary UBI may seem appealing for the duration of this crisis, buyer beware: Calls for UBI to become permanent are a certainty, as is currently happening in Spain. For too many, the coronavirus crisis is just one more nail to be solved with the hammer of a UBI.

Social welfare programs do have a role in providing a helping hand, especially in extraordinary times like these. But they should be a trampoline instead of a mattress — targeted and temporary rather than universal and permanent.

Gonzalo Schwarz is President and CEO of the Archbridge Institute.

This article was originally published by Inside Sources.

Photo by Sharon McCutcheon on Unsplash.