Schansberg: A COVID-19 Basic Income
by Eric Schansberg, Ph.D.
You may remember Andrew Yang. He was a Democratic candidate for President who had a surprisingly successful run. He didn’t have any political experience. And unlike most of his competitors, he brims with joy and thoughtfulness about policy. His most intriguing (and popular) proposal is to give every American $1,000 per month.
With COVID-19, some politicians have been pitching similar proposals — at least temporarily, during the crisis. As usual, it would be better — at least on paper — to target the assistance, more effectively, to those in need. As such, quicker and more liberal unemployment insurance and health care for the newly-unemployed makes more sense, assuming the government can do this well.
The fancy term for this is “Universal Basic Income (UBI),” that is, everyone should have (or be given) enough income to survive. The idea has been around for decades and championed by thinkers and politicians on the Left and the Right. (As a budding young economist, I remember reading about it through Milton Friedman.)
Yang motivates UBI from his concern about the impact of technological advance on the labor market. This is always a factor in the “churn” of the market. But he believes this time is different — along the lines of a crisis, particularly for less-skilled workers. (His favorite example is truck drivers being replaced by self-driving vehicles.) I’m confident that his worries are exaggerated — that our current technological advances will not be much more disruptive than what we’ve seen in the past.
But there are other reasons to consider UBI. A year ago, I read Charles Murray’s nice little book on the topic, “In Our Hands: A Plan to Replace the Welfare State.” His argument is that UBI would be better than our current welfare system — cheaper, less intrusive and fewer disincentives. If America insists on a significant “welfare state,” a well-constructed UBI would almost certainly be better.
Murray’s UBI proposal is that all Americans ages 21 and over would be offered catastrophic health insurance coverage and $10,000 per year by the federal government. (High cost-of living states might choose to supplement this. If not, many people would choose to move to lower cost-of-living areas.)
Yang’s proposal kicks in at age 18, but Murray is wiser in proposing UBI at age 21. This is crucial, since the habits created between ages 18 and 21 will change the way that the UBI is perceived. Someone in college will not be tempted (much) to leave college to rely on the UBI at 21. Someone who works after high school for three years is less likely to be tempted to leave a job, income, and career path to rely solely on the UBI at 21.
The UBI would replace all other federal welfare programs. People could opt into the UBI or stay with their current arrangements. As Murray explains, aside from people at or near retirement, most people will choose the UBI. (Again, states might supplement these efforts — particularly, to help those with children.)
One advantage is immediately obvious: the dog’s breakfast of current federal welfare programs for the poor would be replaced by a cash grant that is simpler, more efficient, and less prone to promote disincentives to work, to save, and to form and maintain a two-parent household.
Unlike welfare programs, all people would receive the UBI, so it would remove the stigma for receiving “assistance”. It would reduce the disincentives to work because you would still receive UBI, even if you earned quite a bit. It would reduce the disincentive to save. Currently, recipients can have their government benefits reduced or even cut off — if they save “too much.” And it would reduce the disincentives against two-parent households among the poor, since current programs are often conditional on not being married.
Conservatives will applaud the UBI’s efficiency and reduced disincentives on work, saving and family formation. Liberals will appreciate resources for the needy, the removal of stigma for welfare and disempowering the bureaucracy that tends to dehumanize recipients.
How would we pay for the UBI? It turns out that the current set of entitlement and welfare programs are more expensive. Murray recommends a modest UBI reduction rate between $30,000 and $60,000, so that those above the poverty line receive less from the UBI, reducing its costs. (And we might expect wealthy and liberal people to refuse the payments, lowering costs further.)
Murray’s concerns are clearly valid. Society cannot afford to destroy incentives to work, save and raise children in two-parent households. And taxpayers cannot afford the current system of entitlements and welfare programs. The UBI would be a big improvement over the status quo. Thanks to Murray and Yang for promoting the idea.
D. Eric Schansberg is professor of economics at Indiana University Southeast, adjunct scholar for the Indiana Policy Review Foundation and author of “Turn Neither to the Right not Left: A Thinking Christian’s Guide to Politics and Public Policy.”