We are teetering on the brink of an economic disaster, the likes of which this country has not seen since the Great Depression. Kenneth S. Rogoff, a Harvard economist, recently told the New York Times that “I think the 2008 financial crisis was just a dry run for this.” According to Fortune, 24.9% of Americans are out of work, the highest since the Great Depression high of 26.5%. To make matters worse, while the stock markets were doing well leading up to the pandemic, the financial welfare of the American people themselves was silently fragile. Last year, Forbes reported that 78% of Americans were living paycheck-to-paycheck.
All of this means that most Americans suddenly don’t have much or any money to spend. This is a big deal, as consumer spending makes up over 70% of the U.S. economy. Suffice to say, this is terrible news for the economy, and we can already see the effects: consumer spending dropped 7.5% in March, the largest drop ever recorded.
To understand why this is so problematic, we have to look to the past. One major contributor to the Great Depression was a rapid falloff in consumer demand for goods and services. Put simply, the Great Depression was not a crisis of scarcity, but rather one of abundance. So much of the wealth was concentrated with the wealthy that not enough was left for everyone else to buy all the goods that were being produced, crippling the economy.
According to a paper published in the National Bureau of Economic Research, the top 0.1% held 25% of the wealth in 1929, just before the depression. That dropped heavily during the depression and throughout the mid-twentieth century but started gaining ground again in the 1970s. Today, the top 0.1% of households possess 20% of the wealth, and the wealthiest 1% have twice as much as the bottom 90%.
This is not to say a depression is certain, but rather that the conditions are in the right place, and a failure to recognize the patterns of history will be devastating. Even once people can go back to work, the economic fallout means that much of that unemployment is likely to stick. To make matters worse, the pandemic has accelerated our cultural shift towards online retailers and dealt a heavy blow to the already dying brick-and-mortar retail industry, which employs 29 million Americans. Furthermore, because the coronavirus has forced workers to stay home and companies to work elsewhere, the pandemic has “caused an acceleration of some labor trends like automation,” Karen Fichuk, CEO of Randstad North America, told CNBC. Tragically, those who are out of a job first will be the meat packers, truck drivers, and farmworkers—those least able to recover.
If we don’t do something to combat the dangerous levels of inequality in our society and put wealth back into the hands of the poor and middle class, the combined forces of automation and coronavirus layoffs will smash into an American people living paycheck to paycheck like a child smashing open an empty piggy bank.
How, then, are we supposed to prevent this disaster? We put money in the piggy bank, and we do it with a Universal Basic Income. For those unaware, a Universal Basic Income proposal entails the guaranteed payment of a subsistence wage, classically $1,000 a month, to every American. Up until this point, it was largely a fringe idea, but now the concept of a UBI is entering the mainstream. In some sense, it took a radical situation for people to be willing to see the benefit of a radical idea. Abroad, Spain is considering passing a permanent minimum income plan in response to the coronavirus. Here in the United States, Nancy Pelosi, the democratic centrist Speaker of the House, said that it is “perhaps time” to implement a UBI. Even the GOP’s stimulus bill acknowledged the benefit of putting money straight into people’s hands.
Unlike traditional welfare systems, a UBI would require little bureaucratic oversight and wouldn’t trap people beneath a “poverty ceiling,” where those actively attempting to get a job and better themselves can wind up worse off earning their income than they were on welfare. Furthermore, because it comes with no strings attached, people can use it to better themselves however, they see fit. After all, you can’t start a small business with food stamps. A 12-year study is currently being conducted in Kenya, studying the effect of a UBI on 14,000 households. Preliminary results published in the Quarterly Journal of Economics concur with previous studies: direct cash payments are far more effective than traditional welfare. The money is not wasted by the poor, but instead improves their lives and those of their whole community.
One major and eminently relevant benefit of such a system would be its effect on the economy: A recent model from the Roosevelt Institute shows that a UBI of $1,000 a month for every adult could increase the U.S. GDP by 12.6% over eight years above the expected projections. By putting more money into the hands of the people that can use it, the implementation of a UBI would cause an uptick in spending across the United States, and could, therefore, be a powerful force in combating the current economic crisis and the impending threat of another great depression.
According to Karl Widerquist, an economist Georgetown University who has studied Universal Basic Income proposals for more than 20 years, “an emergency UBI is just about the best economic stimulator that exists in modern times,” due to what he calls a “multiplier effect.” In essence, when an economic recession occurs, and people lose their investments and jobs, it causes the country to spend less, thus deepening the problem. A UBI “gets money in the hands of everyone. No one’s income would go to zero due to stock market-related layoffs or corona-related precautions. That income helps people maintain some of their spending, which helps prevent others from losing their jobs through the multiplier effect,” he says.
If passed, a UBI would create financial security for Americans in this uncertain time. It would help dampen the impacts of economic shocks, such as being laid off or unable to go into work because of the pandemic. A UBI would protect those replaced by online retailers or automation in the wake of the pandemic, enabling them to go to school or start a business so that they can succeed in a changing economy. Combatting our destructive level of inequality is not only essential to prevent further economic fallout, but also to protect the well-being of Americans in a rapidly changing world. Those graduating from Bellevue College this year will be stepping out into a world without job prospects, without opportunity. Everyone in our country deserves a slice of the American Pie. Unless we do something, most of us may not get one.
A Universal Basic Income represents a path forward, not just through this coronavirus crisis, but for our country. It’s time we take it.
