The dawn of UBI?

Charlotte Street Partners, by Juan Palenzuela
14th April 2020

Last week was a good one for the proponents of universal basic income (UBI). The policy, which until recently was little more than a fringe idea, is now gaining real traction across the developed world.

In Spain, the minister for economic affairs announced that they are working on a version of the policy, and that they would like to persist with it after the pandemic too. In the UK, a new paper from Reform Scotland calling for a £5,200 basic annual income for adults was welcomed by Scotland’s first minister, Nicola Sturgeon. Twitter’s chief executive Jack Dorsey, meanwhile, committed $1bn to support UBI experiments once the pandemic is over, among other things.

The policy also gained some unexpected backers. The Pope, who does not typically offer an opinion on specific policies, called for a universal basic wage to be considered, one which “would acknowledge and dignify the noble, essential tasks you (workers) carry out”.

With momentum apparently building behind the idea, it would not be surprising to see more figures follow suit in the coming days, and perhaps we could even see the policy materialise in countries other than Spain. These are extraordinary times, after all, which will lead to extraordinary measures.

The real question, though, is whether the policy can remain in the mainstream after the pandemic.

As Nobel economists Esther Duflo and Abhijit Banerjee have pointed out in the past, economic (dis)incentives are probably a bit overrated; people will not stop working if they are to receive regular payments because, in general, people work for more than just their wages.

But some remain hesitant and understandably so. Citizens’ behaviour and choices adapt when they can expect regular payments in advance.

Nonetheless, it is becoming increasingly tone deaf to ignore the trickle-down impact that universal income could have, especially in the immediate aftermath of this crisis. Once millions of people that were left out of work hit the streets once again, we cannot simply rely on their desire and ability to seek a better life to smooth things out.

In the face of the largest sudden economic contraction we may have seen since the beginning of recorded economic history, policy makers may feel compelled to give basic income a shot.