Q&A: COVID-19 and global perspectives on universal basic income

Posted in: Basic income, Business and the labour market, COVID-19, Economics, Welfare and social security

Dr Aida Garcia Lazaro and Dr Luke Martinelli are Research Associates in the Institute for Policy Research (IPR) at the University of Bath.

On 27 May, the IPR hosted a webinar on COVID-19 and global perspectives on universal basic income featuring Dr Aida Garcia-Lazaro, Dr Luke Martinelli, Professor Nick Pearce and Rachel Statham from IPPR Scotland.

Here, Luke and Aida have responded to remaining questions submitted by attendees during the Q&A session. A full recording of the webinar is available here.


Governments seem very hesitant to use deficit financing of any sort. If we, for example, need governments to print more money, how do we move in that direction?

AGL: Many countries responded with fiscal stimulus in the aftermath of the global financial crisis. In the 2009 G20 summit, the leading economies joined a coordinated programme of fiscal expansion as a plan for economic recovery. However, when the fiscal deficits and, therefore, debt to GDP ratios skyrocketed, many of these economies switched their strategy to a fiscal consolidation programme. Fiscal austerity arrived as the policy to restore "confidence," it was not a choice but a necessity, as it was argued.

In favour of austerity, two Harvard economists - Carmen Reinhart and Kennet Rogoff - published the empirical paper "Growth in a Time of Debt". The authors concluded that high debt/GDP levels (90% and above) led to significantly lower GDP growth outcomes in advanced and emerging countries. This analysis was notably influential in the implementation of the austerity plans for the recovery phase of the global financial crisis. Its results became an unquestioned fact for many policymakers. For instance, in the UK, Chancellor George Osborne relied on this economic study to justify the dramatic cuts in many programmes from the government.

The prominent economic study became controversial years later. Thomas Herndon, Michael Ash, and Robert Pollin discovered flaws in the analysis and mistakes in the original data, contradicting Reinhart and Rogoff's results. Some further economic studies have emerged since – in a 2017 study, Auerbach and Gorodnichenko found that government spending expansions do not lead to persistent increases in debt to GDP ratios and unsustainable scenarios, contrary to the well-established argument in favour of austerity.

In a recently published paper, MacManus, Ozkan, and Trzeciakiewicz present additional evidence against austerity. They find that cuts in transfer and public employment, and increasing labour income taxes, are the most regressive forms of austerity causing a rise in income inequality. Speedy austerity produces the worst distributive effects, regardless of the composition of the cuts.

The review of the economic debates around fiscal deficits and debt to GDP ratio serve as arguments to make a case for fiscal stimulus during the recovery of the COVID-19 crisis. We lost 10 years after the last crisis, the results in terms of GDP growth are weak, and inequality is rising. Falling in the same trap of austerity is not learning from our previous mistakes. There is enough evidence to argue that more austerity will not lead us to a sustainable economic growth path.

It's arguable that the current contents of GDP are accidental, reflecting priorities at one point in time in a mix which is already out of date. As we look to the future, we seem likely to become more sensitive to collective rather than individual goods (faced perhaps with climate change, more epidemics, changing attitudes to work done by women or by volunteers). Does this mean that in making other significant change to economic systems we need as a priority to recast the contents of GDP?

AGL: The Gross Domestic Product (GDP) is a measure of total production in an economy, not an indicator of happiness, social wellbeing, or economic progress. It was invented in 1937 by the economist Simon Kuznets to measure the growth of the economic activity. Its contents were selected to reflect the final production of goods and services in an economy within a period. GDP does not account for significant aspects of the economy, such as unpaid work or informal production in emerging economies. Environmental costs have only recently been included in some countries, where green GDP—development of human and natural capital – is estimated.

Over the years, GDP has been misused and often attributed to characteristics for which it is not designed. In the Bretton Woods Conference, countries agreed to use GDP as an indicator of economic progress assuming its growth would translate into higher living standards and economic wellbeing for everyone. The mistake is to believe increases in production are distributed across all citizens. GDP per person is seen as an informative measure of average people's living standards, but it is widely known that top earners and corporate profits distort the figures, particularly in highly unequal countries. Moreover, it does not account for any other variable that reflects people’s satisfaction.

In 1990 Amartya Sen designed the Human Development Index as an alternative indicator; which assesses three dimensions: health, education, and standard of living (GDP per capita).  More recent efforts include the Stiglitz-Sen-Fitoussi commission, an initiative sponsored by the French ex-president Nicolas Sarkozy. Though largely created to achieve a more favourable evaluation from his potential voters, the commission released a long report with some suggestions.

Despite the increasing interest of some governments in developing a more comprehensive economic progress indicator, there is no consensus yet. I doubt the GDP will be abandoned soon. Still, we must certainly emphasise the need for indicators that better reflect the economic reality of people, and their wellbeing.

Will people be inclined to save rather than spend household income (basic income included) during a widespread recession, and might this limit UBI’s capacity for economic regeneration?

AGL/LM: Possibly, and this is why Keynesian demand policies have usually focused on increasing public sector employment, or infrastructure investments. On the other hand, the proportion of the population who have experienced significant income falls would likely spend their basic income, since much of their immediate consumption expenditure would not be discretionary. Also, boosting aggregate demand would only be one of the policy’s aims. There might even be ways to ensure the money cannot be saved (by imposing time limits on when vouchers can be redeemed, for example).

Wealthier people would be especially likely to save their basic incomes, and that’s an argument for targeting money towards the poor rather than making universal payments. However, much of this depends on how the basic income would be financed. If the basic income scheme transfers cash in net terms from wealthy savers to poor spenders, it would probably have a positive effect on aggregate demand even despite people’s inclinations to save due to the uncertain economic climate.

There are certainly concerns that people might be inclined to save money while businesses are still closed and social distancing and travel restrictions are in place. This is why Frances Coppolla has argued that helicopter money should not be implemented until after the immediate public health crisis has subsided.

How can costs be controlled to ensure the public benefits rather than business profiteering? E.g. will private landlords end up benefitting by increasing their rents as there is a guaranteed source of income, forcing tenants to work to fill the gap.

LM: There are concerns that basic income would essentially subsidise landlords and businesses paying poverty wages, and thus not really benefit the poor or the public more generally. Whether or not, and the extent to which, this would actually happen would depend on supply and demand conditions, and the degree of market power/concentration. These are very complex issues, but housing and labour markets are at least subject to a degree of competition, even if they are not perfectly competitive and may be skewed towards landlords and employers rather than renters and workers.

As such, it seems unlikely that price or wage changes would entirely negate the progressive effect of the additional income for poor people. Nevertheless, it is also true that basic income would not negate the need for regulations that prevent exploitation, such as minimum wages, protections for renters, or for broader structural policies promoting competitive markets.

The implementation of a basic income policy should come together with additional regulation on the housing sector. As an example, a cap on the annual increase in rents regulated by the government would limit landlords' speculation allowing them to adjust costs.

Can the panellists please discuss how they conceptualise leisure beyond its usual ‘free time’ definition, and its value to Basic Income?

LM: It’s an interesting topic to which I’m afraid I haven’t given a great deal of thought! I think the important thing to recognise is that clearly, a scheme in which any activity outside of the labour market – caring for children, community volunteering, education – is confined to ‘leisure’ is quite restrictive.

Basic income challenges the primacy of labour in our culture, and liberates people from their reliance on labour, freeing them up to engage in these kinds of socially beneficial activities. An important effect of basic income is enabling people to more effectively allocate their time to different responsibilities and forms of ‘work’. Because these activities are valuable from a societal perspective, then it can be argued that basic income will augment social welfare.

How to fund the current deficit is a big question. Could it be done at current very low interest rates by issuing War-Loan-type debt with no maturity date (which might never actually have to be redeemed)?  Or would the market refuse to respond? 

AGL: The COVID-19 crisis has come at a moment where the interest rates are close to zero - borrowing is cheap, and it is a relief for governments facing this health and economic crisis with additional fiscal expenditures. Some external agencies have foreseen that the UK policy rate could reach values below zero in the next year, and the Bank of England (BoE) has not ruled out the possibility of negative interest rates. Andrew Bailey has also declared the need to be prepared to move towards those uncharted waters if needed. With negative yield curves, borrowers would be awarded for taking loans. In this scenario, it seems less appealing to propose a non-repayable bond to finance the recovery.

Jordi Gali, a well-known economist, proposed to use helicopter money to finance additional government spending during the COVID-19 crisis. He formulates the need for direct, unrepayable funding by the central bank. It would avoid the increase in debt levels or the rise of taxes in the future to repay. I guess that is the closest policy to the War-Loan type debt.

A second example could be the proposed corona bonds that refer to the mutualised debt issued by the Euro member states. Countries could receive economic aid without expanding their national debt; however, the initiative faced opposition from Germany, Netherlands, Finland, and Austria.

Given the need to contextualise the 'universal basic income', is there a case to change the name? Tony Atkinson talked of a 'participation income'. The experience of Latin American countries currently is interesting. Many of them are building on their existing cash transfers to add an 'emergency basic income', which as you said, ECLAC advocates to continue beyond the crisis. But this presupposes adequate provision of public services. It wouldn't work in Africa or Asia. So, my question, is it actually helpful to talk of a 'universal basic income'?

LM: I agree that it is important to contextualise UBI, and in reality, the policy would look very different in different countries and regions with different institutional structures in place, and with different underlying political economies. The presence of capacitating public services is one important aspect that would determine a basic income’s effect; the character of wider social protection systems (formal and informal) is another.

But I’m not clear about the claim that universal basic income ‘wouldn’t work’ in Africa or Asia. I still think it is important to have clear definitions: a universal basic income is a universal and unconditional regular cash payment. Calling it something different in different contexts would obscure that. Actually, the term basic income is already misapplied to targeted policies (like the one being implemented in Spain).


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All articles posted on this blog give the views of the author(s), and not the position of the IPR, nor of the University of Bath.

Posted in: Basic income, Business and the labour market, COVID-19, Economics, Welfare and social security


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