A Wartime Universal Basic Income
Treasury Secretary Mnuchin recently suggested that $1,000 checks be sent to every American in order to combat the economic downturn caused by the Corona virus. Not some time, in the distant future, if it can get through Congress, the request is filed in triplicate with the right civil servant and the Rube Goldberg bureaucratic machinery does its job; now, soon, in a matter of weeks. Senate Republicans have suggested $1,200 to all Americans whose income is under a certain threshold ($2,400 for married couples). Andrew Yang’s phone is blowing up. The Trump administration and Senate Republicans, adopting a universal basic income as a policy position? Strange times, indeed.
The UBI is as good a solution to fight inequality as any. Certainly better than anything we have tried so far. So many times, I hear tenants say, “I can pay lot rent or I can feed my babies. I am going to feed my babies.” Or else, “If I don’t use what I have to make my car payment, I won’t be able to make any money. Then, I won’t be able to pay you.” Easy things are hard when you are faced with scarcity. You don’t have child care, your boss (or your landlord) nickel-and-dimes you, a car repair empties your bank account, you get penalized for foot-faults at work, in commerce, or in dealing with the government. Because of the so-called “poverty penalty”, you end up paying more for certain goods and services than middle-class people who have the luxury of being able to plan. There is even evidence that poverty-related stress in children may affect neuroplasticity. The poverty penalty and the obstacles thrown up by poverty-related stress form a negative feedback loop. You are poor because you don’t have money. And without money, you can’t afford childcare. Without childcare, you can’t show up at work. And without work, you can’t get money. You borrow from a payday lender because banks require a minimum deposit. And payday lenders charge interest rates that make shylocks blush. A UBI helps break that feedback loop. It is a way to make the small things possible. Once the small things are taken care of, you can make long-term plans and work on the big things.
Imagine you get $1,000 a month just for showing up. $360 goes for lot rent. Car payments might be $250. The rest can be put toward food and, maybe, child care. You won’t have any left over for beer or fancy restaurants (you need to work for that). But once the basics are taken care of, you will not have to take out payday loans. You can grow equity in a mobile home, rather than renting an apartment. You will be freed up to not have to miss work to care for your toddler, study for a degree, make sure your kids go to after-school programs, or see the doctor before your dry cough requires hospitalization. Your small kids will get baby formula. And your high school-aged kids will do better on standardized tests.
Inequality is a thing because income distribution and wealth are what I will call here “scalable”. A non-scalable data set is one that falls within a bell curve. A scalable set of outcomes has fat tails that do not fit within a probability curve. Height, weight, shoe size, IQ, temperature, precipitation — these are all subject to variation, but outliers fit within the curve. A corporate lawyer who charges by the hour may make a lot of money per unit of time (over $1,000 per hour is not unusual in large New York firms) but, absent shady billing practices, the amount of money he or she can make in a year is limited by the number of hours in the day. By contrast, a person engaged in a scalable business is not limited in this way. An app developer gets paid each time someone downloads her product; this may happen once, or a million times in a day. A trader doesn’t get paid for time spent staring at his screen — he gets paid for placing good bets, and for the size of his positions. The sky is the limit.
The most salient characteristic of scalable data sets is that they are lumpy, and do not fit under the curve. For example — how many people post on social media? Your guess is as good as mine, but the answer is, “A lot”. How many of those posts go viral? Leaving aside the issue of how many hits constitutes a virus, about one in a million. How many wannabe writers submit short stories to the New Yorker through the online submission process? Again, a lot. What is the chance of a story being accepted therefrom? Zero to infinitesimal — assuming the editor goes through the slush. These are cases where the outliers aren’t just outliers — they are almost a data set of their own.
But the real issue here isn’t the likelihood of the smartest Kardashian becoming popular on Instagram. It is the disparity of wealth and income in the United States, and the cycle of poverty for many of our tenants. According to a report by the Economic Policy Institute, average CEO pay went from $924,000 to $17,270,000 from 1978 to 2017. That is an increase of 1,769%. During the same time period, average worker pay went from $41,900 to $56,000. That is an increase of 34%. The ratio of worker pay to CEO pay went from 22.05 to 308.38 at the same time. In 2016, the top 20% of households in the United States held 77% of total household wealth, and the top 1% held 29% of same. From 1973 to 2010, the top 1%’s share of total income went from 8% to 17%. That’s an increase of a little more than 100%. During the same time, the top 0.01%’s share of the same pie went from .5% to 3.3%. That’s an increase of 560%. If you compare income and wealth of the top 1%, or even the top quintile of the population, to those of our tenants, you can see that this is a scalable data set. From “I can either pay my lot rent or I can buy baby formula” to a private jet is a quantum leap. They might as well be different planets.
What caused the post-postwar trend in inequality? There are plenty of people out there who know much more about this than me. My own guess is that several factors are at play. I suspect that the spike in CEO pay is due to the coziness of corporate boards with their officers, as well as a perceived arms-race for talent. The rise of the 1% and that of the 0.01% is likely due to the financialization of American business, and the shift from labor to capital. Remember — labor is not scalable. A doctor, a lawyer, or a bricklayer’s pay is limited by the number of hours in a day. By contrast, a financial engineer’s income is only limited by the amount of other people’s money he wants to put at risk. The poverty penalty and cognitive damage caused by poverty-related stress can only be self-perpetuating. Mr. Yang says that the decrease in the bottom quintile’s share of the pie is due to automation and the increased role of information technology in commerce.
The Corona virus is accelerating all of these, with the possible exception of CEO pay. Those of us who can work from home (bankers, lawyers, consultants, writing teachers, school administrators, traders, graphic designers) are working from home. Those of us who can not do so (home health care workers, housekeepers, waitresses, bartenders, fast food workers, roofers, painters) are, generally, out of work. These people are overwhelmingly represented in the mobile home park population. Mr. Yang initially thought that automation would put people without access to higher education out of work over the course of the next ten or twenty years. Corona virus has done all of that overnight.
Can anything good come of this? I hope so. The shock of the current crisis has forced the administration to throw everything at the wall, to see if it sticks — even progressive policies advocated by political rivals. With luck, this emergency measure will show the administration and the voting public that a UBI is both feasible and salubrious. The introduction of a regular, peacetime UBI might even enter mainstream policy discourse. With a lot of luck, the payments will help at least one mobile home park tenant pay for both lot rent and baby milk in the same month.
This article is for informational and entertainment purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.
