With the President’s signature on the newly minted $ 2 trillion coronavirus emergency expense bill, the most urgent part of the legislation – at least as far as individuals are concerned – deserves closer examination.
Under the historic coronavirus stimulus bill, dubbed the CARES Act, a an estimated $ 250 billion is set aside for direct payments to individuals and families. Each person with an income of less than $ 75,000 should receive a direct payment of $ 1,200, plus families and an allowance for each additional child. The effort is aimed at providing short-term relief to Americans who lose their jobs in the wake of the pandemic. Although this idea seems similar to the universal basic income (RUB) popularized by entrepreneur and former Democratic presidential candidate Andrew Yang earlier this year, this policy response is profoundly different. Here’s why:
Comparison with the universal basic income
First, the most striking difference from the Universal Basic Income is that the intention and execution of it is temporary. While cash transfers may extend beyond the scope of this month and next, they are not a standing plan. The permanent monthly checks offered by UBI change the incentive structure of the economy, while this temporary infusion is aimed at preventing, hopefully, temporary circumstances from becoming permanent.
Second, Yang’s UBI was also to be funded by a value-added tax, which would have had a disproportionately negative effect on small businesses and poorer consumers who would have had a harder time absorbing the additional costs. Coronavirus recovery bill cash transfers, on the other hand, will be funded and managed by the treasury, and will not require small businesses and consumers to collect the bill.
Maybe the only similarity to UBI is that if we really want to subsidize the income in this case, $ 1,000 may not be enough. Median weekly income in the United States is approximately $ 1,000 and most Americans save little, the government should therefore hopefully realize that a substantial larger amount is needed to smooth revenues.
The Coronavirus Recovery Bill also provides assistance to small businesses, providing Federal government needs guaranteed loans from community banks to retain workers it would be forgiven after the crisis if the money was used for payroll. This is also crucial for the US economy, because small businesses are responsible for almost half of private sector jobs and stimulate job growth in the United States. Small ones with few cash reserves and no ability to move online are particularly vulnerable, as nearly all non-essential businesses across the country are or will soon be closed.
Why these economic benefits are different
However, it is not certain that these proposals will suffice. The economy needs an almost unprecedented response because we are in unprecedented territory. First, this economic shock is intensifying faster than the others. While the Great Recession also seemed sudden, contagion from the financial sector to the non-financial sector did in fact occur. over several months. This time around, however, the government has less time to respond.
Second, at this point, it is almost impossible to predict the extent of the people who will be affected. While blue-chip unemployment is evident, other jobs are at risk that are less obvious to expect. Aside from the direct industries that will be affected (travel, leisure, recreation), anyone earning a sales commission based on physical sales – from car dealers to real estate brokers – will be compromised. And to that end, automakers and real estate developers will also feel the crunch of the pandemic.
We also don’t know at the moment how long this will last and how long it will take to get back to normal. Although it is hoped that since this is an external shock as opposed to a financial shock exposing vulnerabilities in our system, it will be much more temporary. Soon a vaccine and treatments will surface (hopefully). However, even in the best of circumstances, consumers will need time to readjust. There will likely be great skepticism around travel, for example, hurting related business for an extended period of time.
What is the hope with this policy?
With all of this uncertainty, what we need now is a swift, broad and clear response from the government, especially to protect the most vulnerable Americans (e.g. wage earners) and small enterprises, in order to contain the economic fallout. Economic crises are similar to viruses in that they can easily spread from one part of the economy to another. The government’s response must therefore be based both on short-term aid such as these cash transfers and short-term loans, as well as on longer-term strategies such as loan extensions and discounts. small businesses. In the same way that we hope to contain the virus, the policy should aim to contain the economic fallout.
It is a moment in history for government and policy makers, science, health professionals and humanity in general to shine. The most important thing the government can do right now is to provide certainty and stability. It should be remembered that looking back, most analysts would like 2009’s $ 800 billion stimulus package to be bigger, not smaller. It is very rare to say that the government has done too much, too quickly, to respond to a crisis. It’s time to move.