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.

Up until a few months ago, the argument for UBI was that the rate of automation and productivity growth would be increasing faster than the rate of job creation. Artificial intelligence is often cited as a harbinger of mass layoffs. Those concerns are largely overblown, but — so the thinking went — it would be better to have UBI than a destructive Luddite rebellion against technology.

Job creation during the pandemic is as slow as many UBI advocates feared. Even in health care, where one might expect employment to be rising, it is sluggish. In part because of regulatory restrictions on COVID-19 testing and other health care responses, the GDP loss in the health care sector has been a major factor behind the swift economic contraction.

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.

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. 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.

Another positive sign for UBI is most seem keen to return to work. 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.

That said, the U.S. runs the risk of going too far too fast, and of focusing too much on building a safety net instead of preventing people from falling in the first place.

The crisis is serving up a different and inferior bargain than the one many original UBI supporters advocated. Institutionalizing emergency measures designed to respond to CPVOD-19 would be irresponsible. It would entrench UBI without the prerequisite productivity boom from AI and automation. (For some time it appeared the opposite might happen — an AI boom but no UBI.)

What the U.S. needs is the economic growth to pay for the huge deficits it has run up during the current crisis.

Given America’s chronic inability to become more dynamic again, it’s still not ready to deal with the next crisis when it comes.

Tyler Cowen is a Bloomberg columnist. Garry Kasparov is chairman of the Renew Democracy Initiative and a former world chess champion.

(1) comment

Funding Secured

The demand side problem we have has been understood since Keynes and the solution for this in financialized economies has been understood since Minsky. Lot's of economic wrongs addressed by increasing financial security and disposable income of the lower income cohorts. UBI is one way. There are better solutions imo, but no time to say. Either way, increasing demand in lower half is the solution to much. I will support basically anything that is not supply side.

Welcome to the discussion.

Keep it Clean. Please avoid obscene, vulgar, lewd, racist or sexually-oriented language.
PLEASE TURN OFF YOUR CAPS LOCK.
Don't Threaten. Threats of harming another person will not be tolerated.
Be Truthful. Don't knowingly lie about anyone or anything.
Be Nice. No racism, sexism or any sort of -ism that is degrading to another person.
Be Proactive. Use the 'Report' link on each comment to let us know of abusive posts.
Share with Us. We'd love to hear eyewitness accounts, the history behind an article.