Catherine Kaufman, MPA Staff Writer, Brief Policy Perspectives
On March 27, President Trump signed a $2 trillion stimulus bill (the CARES Act)—the largest in U.S. history. The bill includes a provision to send a $1,200 check to every adult who makes under $75,000 a year, designed to help citizens cope with the coronavirus outbreak and dull its overall blow to the U.S. economy. House Democrats have also introduced a plan that would give all Americans $2,000 a month until the economy recovers.
This direct payment method is not unheard of in American history, but it might sound more familiar as of late. Andrew Yang, driven by fear that a rise in automation would displace workers, spearheaded a similar concept during his 2020 Democratic presidential run: universal basic income (UBI). UBI is a cash allowance given to all citizens periodically. The universal idea is not means-tested, meaning that every citizen, regardless of wealth or other factors, would receive the same allowance and that the cash would be unconditional. The amount varies with specific proposals, but the general idea remains the same: giving an income to everyone to solve economic and social problems.
Though the CARES Act stimulus checks and the Democrats’ proposal do not qualify as UBI (there is an income limit on both, and the CARES checks are one-time), their respective passage and proposal seems to indicate that lawmakers may be more open to UBI or a similar concept than previously assumed. At the very least, the pandemic may force lawmakers to consider UBI’s pros and cons as the economy continues its downward spiral.
A Brief History of UBI
UBI has a long history with roots in social-democratic, anarchist, and socialist thinking. Thinkers such as Thomas Paine (1797), Joseph Charlier (1848), and James Meade (1935) embraced forms of the idea, all with the common goal of wealth redistribution. The basic idea was popular among many social movements and their leaders, including Martin Luther King, Jr., the Black Panther Party, James Boggs, and feminist movements.
Forms of UBI have been tested in countries such as Kenya, Finland, Namibia, India (which is planning to implement the largest-ever experiment of UBI in 2022), and Canada (Vox provides a map of places where these tests have taken place). Examples of testing in the U.S. have been relatively small and short, though Alaska is a notable exception. Since 1982, the Alaska Permanent Fund allows the state to pay each citizen an annual check that can range from around $1,000 to $2,000 per person. These quasi-experiments and examples have demonstrated mixed results, with opinions on each varying wildly based on different criteria, and such small-scale versions of UBI are difficult to envision on a national level.
Pros and Cons of UBI
One of the main arguments against UBI, besides the cost, is that it would lead to inflation. More money in the hands of consumers would theoretically increase demand, or individuals’ willingness to pay for products and services, and producers would raise their prices in response. Over time, money would become less valuable, and a guaranteed income that stayed the same would not raise standards of living. Another argument claims that individuals would no longer be incentivized to work since they would already have a steady income from the government. Those looking primarily for an economic stimulus from UBI may also fear that recipients would not spend the money and stimulate the economy, but would instead add to their savings and rainy-day funds.
Perhaps the biggest argument against UBI among people who otherwise support welfare programs, though, is the fact that it is not means-tested. Because the system would give money out to those who do not need it along with those who do, many consider those funds to be wasted. A targeted program such as SNAP, some argue, allows for more money to go to those who need it most.
On the flip side, a universal allowance means that anyone can access the money without jumping through bureaucratic hoops, thus also theoretically making a UBI cheaper to implement than traditional welfare programs. The “poverty trap” created by traditional welfare options, which stop giving benefits after an individual reaches a certain income level, could be eliminated, and the stigma of receiving welfare would no longer be a factor. And because proposals like Yang’s are funded through taxes, wealthier Americans would likely pay more into the system than they would get through the allowance while poorer Americans would get more than they put in (if they pay in at all).
Other theoretical pros of UBI include allowing workers to further their education or training to expand their economic opportunities. Adults could gain enough stability to start a family, raising falling national birth rates. And, important in the current moment, proving a stable income to all Americans could help stabilize the economy in times of recession.
Could UBI Help with the Coronavirus Economy?
Economists are divided over whether providing checks to all Americans during this crisis would help to re-stimulate the economy. While it could help with basic expenses, the nature of this crisis means that people cannot spend money where they would typically spend it, which is the very reason that an unprecedented 22 million Americans filed for unemployment benefits in the last four weeks. Others, however, argue that the fact that people are losing all forms of income means that they cannot spend any money, so providing anything means that they will still be spending at least that amount to keep the economy afloat. Many agree that while UBI or other cash transfer programs will not solve the economic problem created by coronavirus on its own, it can help to an extent within a larger stimulus package.
Regardless of whether a UBI would work during normal times, Congress seems to agree with many economists and other researchers that providing people with money during the current pandemic will at least slow the inevitable economic disaster. Many economists and policymakers are urgently trying to come up with solutions to meet Americans’ economic needs as efficiently and equitably as possible, with UBI being a prominent suggestion. Future stimulus plans are likely, and time will tell whether a true UBI or something similar will be considered a more plausible policy moving forward.