Tyler Cowen and Garry Kasparov have a new piece on Universal Basic Income and the pandemic:
Universal basic income was a popular topic in the U.S. before Covid-19 — in a theoretical sense. Now a pandemic is providing a tragic preview of some of the conditions UBI was conceived to address. And, though there are some important qualifications, Covid-19 is making UBI look better. . . . In response to an unemployment level unseen since the Great Depression, the federal government has instituted cash transfers, which in some cases result in unemployment payments that are higher than wages. This is a radical experiment. It is being called stimulus, inaccurately, when it is a humanitarian program designed to tide people over during economic duress — and it draws explicitly upon UBI-like ideas.
I’m not sure which programs this refers to. The $1200 checks to most adults are not aimed at tiding people over, as the cost of living has fallen for people with jobs. The unemployment insurance payments are indeed a humanitarian program to tide people over. But these payments only go to the unemployed, and thus are nothing like UBI (which goes to everyone.) Indeed the whole point of UBI is that everyone should get an equal payment.
Perhaps this refers to government subsidies allowing airlines to continue paying their workers through the recession. But the next quote (e.g. “in contrast”) suggests not:
In contrast, many European countries have been guaranteeing wages in the hopes of “freezing” the economy and then “defrosting” it when it is safe to return to work. Yet some recent U.S. estimates suggest there will be 3 new hires for every 10 layoffs caused by the pandemic, and furthermore 42% of the new layoffs will be permanent. (In post-pandemic America, there will be less need for waiters.) That suggests the American UBI-like strategy is likely to outperform the European approach, because the world is changing rapidly and labor will need to be reallocated accordingly.
I see no evidence that the world is changing rapidly or that there will be less need for waiters. Indeed productivity growth is much slower than when I was young. In the decades after WWII the world did change rapidly. Today, change is slow and I expect it to slow even further. Slow change also implies a slow rate of reallocation of labor into different fields.
To be sure, the world has changed rapidly in just the past 2 months, as productivity has declined. But we have no evidence that the pandemic will be permanent, and hence no reason to support a UBI program that would presumably be intended to be permanent.
Another positive sign for UBI is that most Americans seem keen to return to their workplaces. One fear has been that UBI would lead to a couch-potato culture, with people choosing to stay at home even when they’re finally able to leave. But blue-collar service workers are continuing to brave the front lines even when faced with reasonably high risks of infection. They are not trying to get fired so they can collect unemployment.
I don’t see the same “positive sign”. I see employment falling by millions each week. A UBI program might or might not discourage work (I think it would), but certainly there is no evidence in recent employment trends to suggest it would not discourage people from working. Again, employment is plunging at the fastest rate in history. The fact that 100% of workers have not suddenly quit their jobs is hardly reassuring. Most workers presumably assume that the lockdown will end soon—why quit your job in that case? If you did quit, it’s not easy to collect unemployment insurance. And if you get fired, that makes you less employable going forward.
In addition, evidence from Europe suggests that the disincentive effect of social welfare programs shows up over a very long period of time, not all at once. People don’t typically quit jobs to get welfare, rather they fail to get new jobs after being laid off. After the 1960s, unemployment rates in Europe rose stepwise, one recession to the next.
At this point the article switches emphasis and begins making arguments against UBI. I mostly agree with the last half of the article.
PS. Wired also has an article on UBI and the coronavirus:
READER COMMENTS
Tsergo Ri
May 17 2020 at 4:30pm
I think it would help if people are asked this question: If X% of GDP is taxed, how would you like it to be redistributed?
In France, where I live, people who support the current welfare system don’t have a coherent answer to that.
In the US, I think most of the government revenue still gets distributed to the bottom 30%. In France, it gets distributed to retired people above 60 who made around median level salaries while they were working and those currently working for the government [it is bloated, they are paid above median level, and they are taxed less].
When framed in terms of how to spend government revenue, I think it makes sense to redistribute it equally to everyone in the country provided one gets rid of most of the current spending in education, health care, pension, etc. If one worries about disincentive to work, maybe for people between 24-64, the payments from government should be put into an account that cannot be cashed until 65.
Scott Sumner
May 17 2020 at 7:33pm
Even in America, many entitlement programs focus on the old, not the poor.
Mark Z
May 17 2020 at 4:32pm
“In addition, evidence from Europe suggests that the disincentive effect of social welfare programs shows up over a very long period of time, not all at once.”
I think even evidence from the US negative income tax experiments hints at this too, with the reduction in workforce participation starting out modest after a year and growing several years out. In the real world job market, where employment gaps can reduce your income for decades to come, finding a new job is hard, and it’s a crap shoot whether it’ll turn out to be better or worse than the one one has now, even homo economicus would probably not quit his job upon finding out that he would be getting a UBI for one year, let alone a few weeks or months.
robc
May 17 2020 at 5:16pm
Kipling handled my views on the UBI 100 years ago:
In the Carboniferous Epoch we were promised abundance for all,
By robbing selected Peter to pay for collective Paul;
But, though we had plenty of money, there was nothing our money could buy,
And the Gods of the Copybook Headings said: “If you don’t work you die.”
Alan Goldhammer
May 17 2020 at 6:03pm
“I see no evidence that the world is changing rapidly or that there will be less need for waiters.”
Scott – Do you think things will rapidly revert back to the February 2020 employment base across all industries? That only happens if everyone forgets about social distancing and there are no controls on businesses with respect to number of people in stores. The hospitality industry is driven to a fair extent by business travel (I include meetings and conventions in this category) and discretionary travel (e.g., vacations) and in this latter category are a lot of us retirees who by age are most at risk for SARS-CoV-2. Among this second group which we are members of I don’t know of anyone who is going to be jumping on a plane or planning trips of any duration. We probably won’t even go out for dinner to a restaurant when our Maryland County lifts the restaurant ban.
I think hotel occupancy will be a key figure to watch in terms of how fast things get back to normal. Unfortunately, there will a lot of restaurants that cannot reopen based on 50% or less occupancy restrictions unless they get rent relief. This might happen as landlords do not want to see large numbers of vacancies that they will have trouble filling under current rent structures. Of course this will pose issues if the mortgage leverage is high and they are not able to service the debt load.
I see at least a year of 10-15% unemployment in the best case scenario though I hope to be proven wrong.
Scott Sumner
May 17 2020 at 7:35pm
It depends on the pandemic. If it ends and monetary policy is appropriate, then employment will go back to normal.
MarkW
May 18 2020 at 8:01am
I agree. I think that the demand for waiters, bartenders, hotel rooms (and maids), airline tickets (and pilots and flight attendants), cruise-ship cabins (and crew members) and movie and live-event tickets will remain seriously depressed until the pandemic has vanished. If the virus sticks around as a recurring seasonal phenomenon, then demand for those things will remain much lower than before (perhaps people will do those things during warm weather months only). I expect that many restaurants aren’t even going to reopen when the shut-down orders are lifted because they were marginally profitable before, because the owners had few reserves, and because operating at 50% capacity isn’t viable. And nobody’s going to be jumping in to fill those spaces (except maybe as short-term summer pop-ups)
On the other side, I’d expect outdoor recreation to do very well. People will take road trips rather than fly, and stay in rentals or motels (not hotels or resorts). Disney will suffer even after the parks reopen. Hawaii and tourist destinations in Mexico and the Caribbean will suffer and European destinations will struggle to attract North American and Asian tourists. Camping (which had already seen a resurgence) will continue to do grow due to ease of distancing and low cost. RV sales may do well. Possibly vacation homes too among the well-off oldsters who are no longer willing to fly. People will shift to sports (golf, tennis) that don’t involve close physical contact (I’ve been out golfing a couple of times this year — the courses were packed). Races that feature big crowds of runners will have low participation. These kinds of changes seem almost certain for this summer and probably the next year. If the virus becomes endemic and remains as dangerous, then they’ll likely persist for years and the post-pandemic world will look quite different.
Rajat
May 17 2020 at 6:40pm
I think in fairness to Cowen and Kasparov, and without knowing the details of the government’s program, they weren’t implying that the cash transfers were a UBI but that it drew inspiration from ‘UBI-like ideas’ such as unconditionality and lack of obligation to look for work. I support a low-value UBI for two reasons: (1) Like many non-Americans, I find it confronting when I visit to see poverty of such a scale in such a rich country. That’s not to say an unconditional payment would solve the underlying problems that lead to poverty, or that there aren’t more effective reforms that could be done, or that it wouldn’t discourage work to some extent, but a modest UBI could avoid some of the falling-through-cracks cases. One doesn’t see the poverty one sees in the US in Australia outside of indigenous settlements, which are largely a policy-created problem. (2) The simplicity of a UBI combined with an appropriately flat tax structure could work like a Friedmanesque NIT to help avoid some of the extreme effective marginal tax rates that can arise when a multitude of schemes apply and are withdrawn with income. In Australia, the pre-COVID unemployment benefit was about $A280pw and was conditional on looking for work and I believe was clawed back first at 0%, and then at 50% and 60% per dollar earned – and that’s before income tax starts kicking in. Many groups have been clamouring for the basic unemployment benefit to be increased by $50-100pw. I would prefer to cut it by, say, $50pw to $230pw and make it unconditional with, say, a 33% flat tax to apply from the first dollar of income, or something like that.
Scott Sumner
May 17 2020 at 7:40pm
Rajat, You said:
“I find it confronting when I visit to see poverty of such a scale in such a rich country.”
Yes, but UBI won’t solve that problem. The streets in LA will still be full of thousands of homeless people.
“One doesn’t see the poverty one sees in the US in Australia outside of indigenous settlements, which are largely a policy-created problem.”
I agree, but that raises an interesting question. Why doesn’t Australia solve the policy problem? I suspect the answer is similar to the reason that America doesn’t solve its problems.
But I’m not opposed to a low-value UBI that replaces existing programs like housing subsidies, food stamps, Medicaid, etc.
MarkW
May 18 2020 at 2:15pm
Is that true? I took me about 10 seconds of searching to find images of tent cities in Sydney and homeless people begging on sidewalks that look very much like what you find in Los Angeles and San Francisco along with articles titled things like Sydney’s homeless accommodation reaches crisis point.
P Burgos
May 17 2020 at 8:21pm
I would suspect that the pandemic does change a lot of things going forward. More remote work, less demand for office space. Fewer restaurants near those now half vacant offices. Fewer shops as many people get accustomed to online ordering and don’t go back to shopping at brick and mortar stores. There’s probably more, but those are the things that I can think of. Definitely less construction and construction employment for retail and office space. Lots of bad loans from landlords who cannot meet mortgage payments. Lot of pretend and extend from those landlords who can meet mortgage payments.
Fewer nursing homes needed than expected due to the number of dead. Fewer homes needed due to the impact on immigration and births. Lots of failed colleges due to a lack of students now, and over the long haul due to fewer foreign and US born students.
robc
May 18 2020 at 8:09am
I think all of those things were going to happen anyway, COVID has just sped some of them up.
More and more companies are going to work from home. I switched jobs last year, and about 1/2 the jobs I interviewed for were WFH, but I was being picky, only looking at certain cities and WFH jobs. I ended up with one that wasn’t a work from anywhere, I needed to move, but 1/2 the office worked from home on any given day pre-pandemic. It is more a “work from home optional, but be near office in come in when needed” position. The pandemic has just made it obvious to more companies that were resisting it that it can work. Why pay for so much office space? I hate “hoteling” in a normal office, but if you switch to a model where the majority are at home most days and you only have desks for 20% of the total number, then it makes more sense.
The combination of pickup and home delivery services has made the grocery model look like a dead man walking to me also. I think someone (Kroger is experimenting with it) is going to go full warehouse mode, where customers never go in the store. You order online and either pick up or have groceries delivered. Grocery needs less space without being laid out for shoppers, reducing rent. I don’t think it works for produce, I want to pick out meat, fruits, and veggies myself, but above could be combined with small meat and produce shops for direct shopping. Inventory control needs to be better too, right now the biggest problem with online order and pickup is that they dont have the specific items in stock that you ordered. With a warehouse model, they should have better inventory control and know how much of each item is in stock when you order.
None of this is radical or surprising.
John Alcorn
May 17 2020 at 10:35pm
As far as I can tell, economists neglect the best argument for (temporary) Universal Basic Income during a pandemic: A temporary UBI would provide an exit option for workers who are pressured by unscrupulous employers (or managers) to work in unsafe conditions with excessive risk of infection. This UBI would increase workers’ bargaining power for safety, precisely when economic contraction would otherwise reduce their bargaining power and expose them to exploitation in the form of major new health risk. Barring the law of unintended consequences, this UBI would induce employers to make greater and quicker safety adaptations.
True, insofar as workers exercise the exit option and leave the workforce, this UBI would exacerbate economic contraction. And true, this UBI would be very inefficient because it provides a stipend to everyone, not just to the subset of workers who have unscrupulous employers (or managers). Is there a keyhole solution to the problem of exploitation of workers (via undue pressure to work in new unsafe conditions) in a pandemic?
If government imposes a lockdown, then there is a different argument, from compensatory justice: A pandemic UBI is minimal, across-the-board compensation for temporary shutdown of “non-essential” economic activity that cannot be done from home. Again, inefficient.
John Alcorn
May 18 2020 at 8:01am
On March 23, Greg Mankiw (Harvard) proposed a more efficient policy, “A Proposal for Social Insurance During the Pandemic.” The allocation temporarily would mimic a UBI; but then would turn out to have been a means-tested grant, potentially subject to a surtax in the next year’s income tax:
Prof. Mankiw’s proposal fell on deaf ears in Washington, DC.
Mark Brady
May 18 2020 at 2:03am
Scott writes, “The $1200 checks to most adults are not aimed at tiding people over, as the cost of living has fallen for people with jobs.”
Please clarify. I’d grant you that people who retain their jobs and who normally would commute to their place of work, now no longer have commuting expenses (and some no longer have to dress for work). But apart from that, how has their cost of living fallen? They may be spending less because they can’t go shopping or enjoy a holiday, but that’s not really the same thing as saying that their cost of living has fallen. Before the lockdown they didn’t face a higher cost of living. They had more things to spend their money on and chose to do so.
Michael Sandifer
May 18 2020 at 2:58am
I favor a UBI precisely because it would allow the poor to work less, if they choose. I favor it as part of a negative income tax though, which does offer an increased incentive to work also, though not a net increase.
john hare
May 18 2020 at 4:47am
Unfortunately, many of them are poor because they work less. Even many that are working full time are not working towards a better future with an 8 and the gate attitude. The extra work of learning to do better is often skipped.
Michael Sandifer
May 19 2020 at 5:52am
First, what evidence do you have for your claims?
Second, I don’t care. I like entitlements and think they should grow as productivity allows. Also, the negative income tax is a better way to help the poor than welfare, food stamps, and public housing programs, as Milton Friedman pointes out.
The 40 hour work week was established in the 30s under FDR, when productivity was a small fraction of what it is today. A UBI is a more efficient way to allow some to shorten their work weeks further.
john hare
May 19 2020 at 8:19pm
First is many decades of working with and around poor people and observing their behavior. I suspect that most people that recommend transfers have never observed the actual work/not work behaviors of most poor people. The only ones I have ever seen go from poor to not poor did it by working their way out.
Second is if you don’t care, then you undercut your preferences.
Michiel Sondorp
May 18 2020 at 5:05am
A UBI is nothing but a floor to an economy.
It means that we can chose whether to work in what society/the market calls jobs, or we can do something we think makes more sense.
A UBI is a floor that we could build another social system on top of. But it will first and foremost eliminate the ongoing mindset of scarcity in a capitalist system that produces more than enough for everyone s basic needs.
There is simply no need for everyone to strive to be a millionaire . It should be OK to just be , eat, interact. People will, with a UBI, want to work. It s in peoples nature, it doesn’t need an out of date coercion system to make people want to improve their lives.
Michael Sandifer
May 19 2020 at 5:54am
Yes, I like Friedman’s negative income tax idea, which is a UBI for those who choose not to work, but a wage subsidy for those who do choose to work. Best if both worlds, in terms of allowing the poor more flexibility and money.
Fred Foldvary
May 26 2020 at 11:21am
Why not a negative income tax? The primary question is, why have any income tax? There are taxes with less deadweight loss. We can have UBI without an income tax.
BlakeFelix
May 18 2020 at 8:57am
What we are doing with the unemployment system is inferior to a UBI because it acts as a marginal income tax on lower incomes, IMO. If I work moderately hard, I will risk exposure to COVID and make about $500 a week after expenses as a contractor. If I don’t I will get $800 a week and can be safe and work on house projects. That is a perverse incentive not to be productive, where if there was an $800 a week UBI I could make $1300 a week working, or maybe $1100 a week working slower and safer. It also ignores the demand side and the people who fall through the cracks, UBI would reduce desperation and so incentive to work, but poverty is crippling, especially with child care systems shut down. And the increased demand would drive up wages and increase incentives to work. I am not sure which way it would end up, but even if it resulted in a lower number of hours worked overall, they would be more productive hours, and eliminating the suffering caused by poverty has to be worth something. And the government has handed out like what, 72k per person? I’m not convinced oil companies, state governments, banks, or Boeing spend money as wisely as the average Joe.
Thomas Hutcheson
May 18 2020 at 9:32am
It seem to me that UBI makes sense only if technological change is so extremeness biased against unskilled (unskilled) labor as to make it virtually impossible for some significant fraction of people to earn more than a pittance. Even in that context, however, a wage subsidy targeted at these low productivity workers seems better.
For us today, it seems much better to to just subsidize low wages by increasing the EITC, financing SS and Medicare with a VAT instead of a wage tax, and moving away from employers being encouraged to purchase health insurance for their employees, which acts like a head tax on employment falling most heavily on low income employees.
And the unemployment caused by the pandemic and the Fed’s inadequate response it so far noting of this has any bearing on the UBI vs wage subsidy issue.
Michael Sandifer
May 19 2020 at 5:56am
Why one or the other? Why not both? Why not a negative income tax?
Brian J Gladish
May 19 2020 at 9:17pm
As a UBI reduces the marginal utility of work, there is no choice but to accept that in the advent of UBI less work will be done than otherwise would have. This is not an empirical question, but dictated by economic theory.
Fred Foldvary
May 26 2020 at 11:19am
The marginal utility of work is subjective. It depends on several elements: the marginal utility of income, the enjoyment and satisfaction from work (or else the disutility), and pride in a successful career. The marginal utility of income is normally diminishing, but that is not the same as labor. Some workers would use extra income to obtain greater human capital and make their work more productive.
Fred Foldvary
May 26 2020 at 11:15am
UBI done right.
https://schalkenbach.org/universal-basic-income/
Comments are closed.