With the President's signature on the newly minted $2 trillion emergency coronavirus spending bill, the most urgent part of the legislation--at least as far as individuals go--is worth a deeper look.
Under the landmark coronavirus stimulus bill, dubbed the CARES Act, an estimated $250 billion is being set aside for direct payments to individuals and families. Every individual earning less than $75,000 income is expected to receive a direct payment of $1,200, with more going to famililies and a stipend for each additional child. The effort is intended to provide short term relief to Americans losing work as a result of the pandemic. While this idea seems similar to the universal basic income (UBI) popularized by entrepreneur and former Democratic presidential candidate Andrew Yang earlier this year, this policy response is profoundly different. Here's why:
Comparison to Universal Basic Income
First, the starkest difference to universal basic income is that the intent and execution of this is temporary. While the cash transfers may extend beyond the scope of this month and next, they do not represent a permanent plan. The permanent monthly checks proposed by UBI changes the incentive structure of the economy, while this temporary infusion is meant to prevent hopefully temporary circumstances from becoming permanent.
Second, Yang's UBI was also meant to be funded through a value added tax, which would have had a disproportionate negative affect on small businesses and poorer consumers who would have had a harder time absorbing the additional costs. The cash transfers from the coronavirus recovery bill, on the other hand, will be funded and managed by the Treasury, and will not ask small businesses and consumers to pick up the bill.
Perhaps the only similarity to UBI is that if we really want to subsidize income in this case, $1,000 may not be enough. Median weekly income in the U.S. is about $1,000 and most Americans save little, so the government should hopefully realize that a substantial amount larger is needed to smooth income.
The coronavirus recovery bill also provides help for small businesses, providing federally guaratneed loans at community banks to be used for worker retention that would be forgiven after the crisis subsumes if the money was used for payroll. This also crucial for the American economy, as small businesses are responsible for almost half of private sector jobs and drive job growth in the United States. Small with little cash reserves and no ability to move online are particularly vulnerable as almost all non-essential businesses across the entire nation are or will be on lockdown soon.
Why this economic fallout is different
However, it is unclear that these proposals will be enough. The economy needs an almost unprecedented response because we are in unprecedented territory. First, this economic shock is escalating faster than others. While the Great Recession seemed sudden as well, the contagion from the financial sector to the non-financial sector actually occurred over many months. This time around, however, the government has less time to respond.
Second, at this point it is almost impossible to project the scale of who will be affected. While the first order unemployment is obvious, other jobs are at risks that are less obvious to predict. Besides the direct industries that will be affected (travel, leisure, recreation), anyone on a sales commission predicated with brick and mortar sales -- from car salesmen to real estate brokers -- will be compromised. And to that end, car manufacturers and real estate developers will also feel the crunch of the pandemic.
We also don't know right now how long this will last and how long it will take to return to normalcy. While the hope is that since this is an outside shock as opposed to a financial shock exposing the vulnerabilities in our system, it will be much more temporary. Soon, a vaccine and treatments will surface (we hope). However, even in the best case scenario, consumers will need time to readjust. There will likely be a heavy skepticism around travel, for instance, hurting related business for a prolonged period of time.
What is the Hope with this Policy?
With all of this uncertainty, what we need now is a swift, large, clear government response, particularly to protect the most vulnerable Americans (e.g. wage workers) and small businesses, in order to contain the economic fallout. Economic crises are similar to viruses as they can easily spread from one part of the economy to another. The government response, therefore, needs to rely on both short-term help such as these cash transfers and short term loans, as well as longer term strategies such as loan extensions and forgiveness to small businesses. The same way we are hoping to contain the virus, policy should aim to contain the economic fallout.
This is a moment in history for the government and policy makers, science, health professionals, and humanity in general to shine. The most important thing the government can do right now is provide certainty and stability. It is worth recalling that looking back, most analysts wish the 2009 $800 billion stimulus package had been larger, not smaller. It is very rare to say that the government did too much, too fast, to respond to a crisis. It's time to get moving.