The Coronavirus is having a huge negative economic impact. In addition to measures taken to contain and treat the virus, Congress should be considering a substantial stimulus package that will minimize the economic effects in the short and long terms.
That package should include a substantial cash transfer given to every American, similar to a short-term universal basic income. We want to ensure that everyone is able to maintain their basic spending—on rent, groceries, and other necessities—while public health officials deal with the pandemic. We want people to be able to focus on the health consequences of the pandemic, without worrying about their basic needs.
The case for a basic income
There are two arguments typically presented against a universal basic income. The first is that we should not provide people with substantial benefits that are not tied to work. The second is that we cannot afford such a large government expenditure.
Both arguments are false.
The first argument is based on a false narrative about people living in poverty. Many people believe that people in poverty will simply stop working if they are receiving enough money to cover basic expenses like rent and food.
But this belief is not backed by evidence. The theory behind basic incomes have been tested in multiple ways—ranging from actual (nonuniversal) basic incomes, smaller cash payments without work requirements, or payouts to lottery winners—and we consistently find that providing people with money actually has a very limited effect of how much people work. On average, earned income only falls by about 10 percent of whatever the cash transfer was.
Many people believe that people in poverty will simply stop working if they are receiving enough money to cover basic expenses like rent and food. . .This belief is not backed by evidence.
The second argument is that a universal basic income is unaffordable. Under normal circumstances, this is a reasonable argument. Providing every American with $1,000 a month would cost something like $3 trillion a year—about 75 percent of total annual spending by the federal government.
But fiscal concerns are less of an issue right now. Interest rates for U.S. debt are low, and inflation expectations are falling. That means that fiscal policy should be looking for ways to increase spending massively. While the total impact of the recession is unknown, the government should be looking for ways to substantially increase spending—by a trillion dollars or more—over the next year.
The case for broad (vs. targeted) support
Obviously not everyone will be impacted by the coronavirus recession equally. Instead of providing everyone with cash support, why not simply target the money to the people and industries who need it most?
Unfortunately, the government has a poor track record with this sort of targeted support. While it is easy for us to anticipate which industries will be affected immediately (anything that involves people gathering in one place—restaurants, hotels, and other leisure industries come immediately to mind), there are going to be second- and third-order effects that policymakers will not, and cannot, anticipate. The type of knowledge policymakers would need for this sort of reaction is distributed throughout the economy. The government cannot target the people who need support the most unless 1) that information is already available in administrative data or 2) people self-report that they need help.
In the past, this type of targeted support has been ineffective. A good example is the Home Affordable Modification Program (HAMP) put into effect by the Obama Administration in 2009 in the wake of the housing crisis. The goal was to provide support to the four million households who were most vulnerable to losing their homes. The program failed. Only one million people received the assistance, and one-third of them still defaulted because their loan modifications were inadequate.
Only about 8 percent of Americans earn more that $100,000 a year, only 14 percent make more than $75,000. Cutting these people out of the income support program makes the program much more complicated but not that much cheaper.
Or look at the Trade Adjustment Act (TAA), which provides workers who lose their jobs because of foreign trade with up to $1,500 to help them with job search and relocation. Even when unemployment was at its peak, the take-up rate for TAA was only 1 percent. The process of getting certified that you have lost your job due to a trade-related event was arduous and lengthy. By the time most people were eligible, they would already have moved on.
Limiting the supports so that it only hit low income people also just doesn’t save that much money. Only about 8 percent of Americans earn more that $100,000 a year, only about 14 percent make more than $75,000. Cutting these people out of the income support program makes the program much more complicated but not that much cheaper. And if people do not need the money, they can choose programs to donate it to.
We need to provide people with supports now. The federal government should cut a check to every American, recognizing that it doesn’t have the ability to effectively target the people who are going to be most harmed. Representatives Ryan and Khanna, Senator Romney, and Senators Bennet, Booker, and Brown have all proposed bills that can do this. These should be paired with bills that do target the most vulnerable. The best way to do this is by working through the existing systems, such as unemployment insurance (see Arin Dube’s proposal), removing work requirements and other limits to the Supplemental Nutrition Assistance Program (see work by Hilary Hoynes and Diane Whitmore Schanzenbach), and monetary policy.
We need to act fast. Americans who rely on hourly wages and tips are already facing restrictions on their ability to earn an income. One thousand dollars a month for the duration of the pandemic is a good floor. Let’s get money to the people who need it: everyone.