November 28, 2021

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Coronavirus Is Making Universal Basic Income Look Better

(Bloomberg Opinion) — 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 among those working in white-collar jobs and in the service sector. 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 dramatically in the midst of a pandemic, 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 U.S.’s 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. (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.

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. White-collar workers, meanwhile, are feeling restless and unproductive. Working from home may become more common, but most people seem eager to get back to the office — especially if the alternative is a combination workplace/schoolhouse.

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. Representative Alexandria Ocasio-Cortez as well as Senator Mitt Romney have argued that UBI is an appropriate response to a pandemic, though Ocasio-Cortez favors making it permanent.

However much that proposal might appeal to people’s benevolent instincts, the crisis is serving up a very different and inferior bargain than the one many original UBI supporters advocated. Institutionalizing emergency measures designed to respond to Covid-19 would be irresponsible. It would entrench UBI without the prerequisite productivity boom from artificial intelligence and automation. (For some time it appeared the opposite might happen — namely, 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. Just as there are no atheists in foxholes, there are no deficit hawks in a pandemic. But before the U.S. establishes a huge new program to redistribute wealth, it needs to find a way to produce more of it. Greater redistribution will require higher productivity.

In sum: Covid-19 is illustrating that some aspects of a UBI may be more necessary and more workable than previously thought. But there is one big piece missing: The economic output required to pay for such policies.  For that it is necessary to boost American abilities to succeed with major projects and to invest ambitiously in innovation.

Paying people to stay home is a social necessity at the moment, but corporate and government money is better devoted to basic research and development. Given America’s chronic inability to become more dynamic again, it’s still not ready to deal with the next crisis when it comes.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tyler Cowen is a Bloomberg Opinion columnist. He is a professor of economics at George Mason University and writes for the blog Marginal Revolution. His books include “Big Business: A Love Letter to an American Anti-Hero.”

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

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