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Never let a good crisis go to waste, advised President Obama’s chief of staff Rahm Emanuel during the 2009 economic meltdown. Today, advocates of universal basic income (UBI)—a government program providing people with regular payments regardless of their income, resources, and employment status—are taking his advice to heart and pushing for widespread adoption of the program. Policymakers should resist such calls, as implementing UBI would only increase unemployment rates, making the already-growing massive national debt simply explode. Despite the appeal of such form of government support, there are better ways to help alleviate both short- and long-term economic suffering.
Former Democratic presidential candidate (and now New York mayoral candidate) Andrew Yang did much to promote UBI, but the ongoing unemployment crisis turned this potential program into the flavor of the month. Advocates and policymakers around the world have jumped on the bandwagon—one UK professor stated that implementing UBI is “almost a no-brainer”; Spain’s economy minister Nadia Calvino announced the government would introduce a UBI program of 440 euros ($470) a month; House Speaker Nancy Pelosi implied that a “guaranteed income for people” might be “worthy of attention now,” while Pope Francis himself wrote, “This may be the time to consider a universal basic wage.”
There should be no doubt that the hearts of UBI advocates are in the right place—this is a terrible crisis with too many people lacking income—yet UBI is still not the answer. The $3 trillion annual expected cost is a lot of money, even for the federal government and, in the short run, it means that relatively scarce government resources are being spent on people who don’t need an income rather than on those who do. By definition, UBI payments would go to the unemployed as well as the employed, and many of the latter would be earning well above the median wage.
In the long run, absent massive tax hikes, UBI would bankrupt the federal government. Moreover, if the payments are high enough to provide real income security, the program would boost the unemployment rate as some would simply take the money instead of focusing on finding job opportunities. And the longer people stay unemployed, the higher the risk for their skills to atrophy. This creates yet another chain of unfortunate situations—folks would face lower chances of ultimately exiting unemployment and higher chances of receiving lower wages if they finally return to work. If the government decides to make these payments small enough to not permit people to live with just this income, then the point of a universal basic income is lost, replacing the whole idea with a universal supplemental income.
For a crisis like the one we are currently experiencing, the federal government needs to quickly get cash to low- and moderate-income Americans, especially those who are unemployed. And one problem is that the process of getting the money to Americans is clunky, and some Americans don’t even have bank accounts. But most of them have smartphones. As ITIF proposed, Congress should accelerate the adoption of mobile payment technology so that, for the next crisis, the Treasury Department would send money to people’s smartphone bank accounts in minutes, instead of weeks.
For ongoing challenges, instead of a UBI that would reach tens of millions of Americans who do not need it, Congress should increase the minimum wage. This way, low-income workers would end up spending their increased earnings, ultimately creating jobs. To support workers who’d lost their jobs, Congress should modernize the unemployment insurance system. It should start by providing funding to states to modernize their unemployment websites which currently fail to meet basic standards.
More importantly, Congress should strengthen the unemployment insurance system, as many states provide only minimal income support to laid-off workers. For that, Congress should increase the federal unemployment insurance tax and remit the funds back to state trust funds, in order to reduce the competitive pressure for states to keep their benefits and eligibility low. Strengthening unemployment insurance programs rather than implementing UBI would create a stronger countercyclical system of payments where payments would go up when overall economic demand would go down; in contrast UBI would always stay the same regardless of the economy lagging or booming.
If the nation ever succumbs and passes UBI, it will be the penultimate evolution of an American culture of selfishness. “Who doesn’t want free money?” you might ask. Everyone who is a responsible citizen.