Author Archives: azelleke

Put Economic Relief on Autopilot for Individuals and Communities, Not Just the Economy as a Whole

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Claudia Sahm, in her recent op-ed in the New York Times, proposes replacing one-time economic stimulus initiatives like the $1,200 payments in the CARES Act with an automatic stabilizer triggered by increases in the unemployment rate. An automatic stimulus payment would bypass the uncertainty of the legislative process in Congress–a process that worked relatively well in March, with the passage of the CARES Act, but faltered over the summer and fall as the pandemic worsened. There is, of course, a significant legislative lift in getting an automatic stabilizer in place, so we should fight for the right kind of stabilizer: one that targets its benefits to the individuals and communities most at risk in ordinary times and extraordinary crises like the one we’re in now.

Sahm’s op-ed echoes her contribution to Recession Ready: Fiscal Policies to Stabilize the American Economy (Brookings Institution, 2019). In that piece Sahm makes a persuasive case for both the effectiveness and efficiency of automatic stabilizers, so I won’t repeat those arguments here. Instead, I want to focus on her trigger: a 0.5 percentage point increase in the three-month average national unemployment rate relative to its low in the previous 12 months. Had the “Sahm Rule” been in place at the start of the pandemic, stimulus payments would have begun in Apr 2020, when the three-month average unemployment rate reached 7.6%, a whopping 4.1 percentage points above the low of 3.5% in the previous 12 months. Whether they would still be in place under the rule articulated in her 2019 essay is unclear–the latest data available from Dec 2020 reports an unemployment rate of 6.7%, below the unemployment rate trigger (at least on a monthly basis). Perhaps the triggers on both ends should reference labor force participation as well, which is currently 2 percentage points below the rate in Feb 2020 and likely reflects discouraged workers and caregivers who have had to leave the labor force during the pandemic.

While the rates used to trigger and end the automatic stimulus payments may need some adjustment in light of our experience with a pandemic-induced employment crisis, I’m more concerned about how the use of any national trigger interacts with existing economic inequities. Sahm is a macroeconomists, so her proposal reflects her concern with the economy as a whole, and for that purpose the national unemployment rate may be sufficient for triggering a response that provides a macro stimulus. But from a policy perspective, a national unemployment trigger risks perpetuating entrenched inequalities by operating as if unemployment falls on all demographic groups and locations evenly.

In fact, the unemployment rate for African-Americans met the criteria for the Sahm Rule in Dec 2019–a month before news of a new virus first emerged–when their unemployment rate hit 6.2%, a three-month average 0.6 percentage points above the previous 12-month low in Aug 2019. With the national unemployment rate as the trigger, African-Americans would have had to wait 4 months for White unemployment to catch up to theirs before any stimulus payments would have been activated.

A national unemployment trigger also obscures geographic differences in labor market conditions. While the average national unemployment rate was a rosy 3.7% for the nation as a whole in 2019, state unemployment rates ranged from a low of 2.4% in North Dakota and Vermont to a highs of 5.4 % in Mississippi, 5.5% in Washington, DC, and 6.1% in Alaska. The variance in state unemployment rates widened in 2020 as the economic crises deepened.

If we’re going to fight for an automatic stabilizer, why not fight for a more sensitive instrument that identifies groups and areas in need of economic stimulus well before the country falls into a national crisis? Instead of using unemployment rates as the trigger, why not individual income? A basic income phased out at higher income levels, as the economic stimulus payments were (eligibility for the full benefit was capped at $75,000 for individuals and $150,000 for couples), provides the same kind of automatic stimulus for individuals and communities as Sahm proposes for the national economy, but it does so in a more nuanced and proactive way than a stimulus that requires a national trigger.

Prior to the pandemic-induced economic crisis, basic income had already been gaining ground as a policy proposal, partly due to Andrew Yang’s presidential campaign but also due to decades of international research on the power of conditional and unconditional cash transfers to promote economic security and to more recent proposals for various forms of child benefits to address child poverty and inequality. Concerns about labor disincentives of unconditional cash transfers were quickly discarded when the economy fell into crisis in March and stimulating consumer spending became one of the tools we reached for to try to stem the crisis. But many Americans were already in economic crisis in 2019, prior to the pandemic: the 34 million Americans with incomes below the poverty threshold, the 37% of Americans who could not handle an unexpected $400 expense, and the nearly 30% of families headed by single women that faced food insecurity. If we’re going to fight for an automatic economic stimulus, shouldn’t it be for a basic income that addresses the economic crises that are always there, hidden below the surface of the national economy?

Reflections on Nixon’s Family Assistance Plan Fifty Years Later

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Fifty years ago, on August 8th, 1969, President Nixon proposed a new anti-poverty plan in an address to the nation. The Family Assistance Plan (FAP) would have provided families with an annual guaranteed minimum income (GMI) of $500 for each adult and $300 for each child. Unlike Aid to Families with Dependent Children (AFDC), the primary poverty alleviation program at the time, FAP’s GMI would have gone to all families–unemployed poor and working poor families, with or without a “breadwinner” in the house.

It was a startlingly liberal proposal from a Republican president, but Nixon understood that it was the only way to provide benefits to the economically-insecure working class voters whose support he sought and at the same time address the developing crisis of rapidly increasing welfare rolls: give a flat grant to all poor families and allow them to combine the grant with earned income up to a decent standard of living, rather than withdrawing the grant as soon as recipients earned more than a few dollars, as AFDC did. By including the “breadwinners” in the program–fathers–rather than excluding them as AFDC did, Nixon also expected to address the “crisis of the black family” identified by Daniel Patrick Moynihan in a controversial report he wrote when he was Nixon’s domestic policy advisor.

FAP would have solved the inherent design dilemma of poverty assistance programs: a benefit for the unemployed poor high enough to meet their needs was likely to be higher than the low-wage jobs many of them might find in the labor market. There are only two ways around this dilemma for benefits programs: lower benefits to the unemployed poor–and increase destitution–or supplement the wages of the working poor as well. To his credit, Nixon chose the latter option, and did it in the way that empowers workers–by providing the full grant to workers with zero income, rather than what we actually ended up with after FAP’s defeat–the Earned Income Tax Credit (EITC), which provides nothing to those with no income, and its maximum benefit to full-time, above minimum wage workers.

In a longer essay published in Basic Income Today I challenge the dominant explanations about FAP’s defeat–the racism of whites opposed to expanding income support to blacks, or the cultural resistance to erasing the distinction between the “deserving” and “undeserving” poor. I tell the story of Louisiana Senator Russell Long’s role in FAP’s defeat, his use of the debate over FAP to enact the EITC, and why he and other Southern elites resisted what Nixon intended as a massive redistribution of resources to the South.

FAP wasn’t perfect. For one thing, recipients had to demonstrate their willingness to work, so it wasn’t an unconditional GMI, or a basic income. And its benefit level fell short of the poverty threshold and was well below AFDC payments in the North at the time. But FAP would have been the first step toward a more effective poverty alleviation strategy. FAP’s child benefit was independent of the parents’ willingness to work, which means it would have created a child allowance–means-tested, but on its way to a basic income for children. And benefits that went to both the working and non-working poor could have created a large constituency for its expansion and empowered the poor to agitate for a greater redistribution of income and wealth through other means–unionization, higher minimum wage laws, or an unconditional basic income.

UBI Panel at the Roosevelt House, Hunter College, Oct. 24, 2018

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Universal Basic Income: Is Now The Time?

October 24, 2018, 1:15-2:45 pm
Roosevelt House, 47-49 East 65th Street, New York, NY 10065

Speakers:

  • Michael A. Lewis, Silberman School of Social Work at Hunter College
  • Eri Noguchi, Association to Benefit Children
  • Almaz Zelleke, Department of Social Science, New York University, Shanghai
  • Sanford Schram, Department of Political Science, Hunter College (moderator)

LUNCH WILL BE SERVED. RSVP here.

 

Actually, a Universal Basic Income Will Solve Poverty

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Eduardo Porter’s “Why a Universal Basic Income Will Not Solve Poverty” contains many common misperceptions about basic income that it’s important to clear up.

The first misperception is in the unfortunate title attached to his essay. A basic income would in fact eliminate poverty if set at a level high enough to do so, which Mr. Porter himself acknowledges. This is true by definition, of course, but worth pointing out, since no other U.S. social policy implemented since poverty was officially defined in the 1960s has been able to durably lower the poverty rate below 15%.

The second misperception is that basic income is unaffordable. It’s true that basic income is expensive, but calling it unaffordable short-circuits the discussion we should be having about the costs and benefits of a basic income. Raising taxes is never an easy sell, but might it be worth it if the additional revenues were spent on a program guaranteed to eliminate poverty?

This leads to the third misperception, which is that a basic income could be financed by replacing current social spending with a flat check to all. Mr. Porter is right to point out that doing so would redistribute income upward, which is exactly the goal of Charles Murray’s plan–not a basic income at all, but a thinly veiled attempt not only to dismantle the safety net but also to privatize Social Security.

The only basic income that makes any sense, and is affordable, is one that is financed through higher taxes–on income, wealth, estates, or some combination of the three. If the basic income is financed through progressive taxes, its net cost decreases from the scary math of $10,000 times the population. By how much? It depends on how much we’re willing to tax.

Thinking seriously about a basic income means coming to terms with the “r” word–redistribution. If we were willing to acknowledge the need for redistribution in a country in which more than 20% of children live in families with incomes under an outdated and inadequate poverty line, then we could debate whether a basic income makes more or less sense than subsidized jobs, subsidized wages, or something else.

If we had that debate, we could consider whether a basic income might actually encourage work if recipients could keep the full benefit as they earned wages–which no current anti-poverty program, including the EITC, allows; whether cash rather than in-kind benefits (like food stamps and housing subsidies) might enable the unemployed to move to where there are jobs, better schools, or safer communities; and whether a steady stream of unconditional income might incentivize investment in the training and education that will be required for the higher-skill jobs of the future.

As Mr. Porter notes, more income for the working class is not only more equitable, but would provide a boost to the economy, since people at the lower end of the income scale spend a higher proportion of their money. Basic income is not the only way to get more money into their hands, but it does so without the poverty traps and disincentive effects of our current anti-poverty measures–the ones that have kept millions of citizens in the richest country in the world stranded in poverty.

Reparations and a Basic Income

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Like Thomas Piketty’s Capitalism in the Twenty-first Century, Ta-Nehisi Coates’ “The Case for Reparations” in the June 2014 Atlantic provides support for the case for a basic income. Coates does not mention a basic income, nor does he propose any particular remedy for the economic injuries endured by African-Americans. His focus is on demonstrating how discrimination and predatory practices in the housing market in particular kept African-Americans from participating in the housing-based asset accumulation that was a key part of the fortunes of the middle class in 20th century America. But a basic income could be part of the remedy for the injustices he describes.

Coates’ article is a hard read. On his blog, he refers to himself as a failed academic, but it’s his journalistic rendering of the suffering of people like Clyde Ross who just tried to play by the rules and were repeatedly punished for it that make his piece so convincing. As a Northerner, I’ve often wondered why African-Americans who have the means to leave the South—a big qualifier, I know—would ever choose to stay. Coates’ account of treatment of African-Americans in Chicago is a well-deserved rebuke to the simplistic belief that racism is primarily a Southern problem.

If we are moved by the story Coates tells, what should we do? Coates argues for a national investigation into the legacy of slavery and its aftermath. This would be an important step—an airing of the evidence, and a collective embrace of our responsibility for our nation’s history. It’s hard to see how any specific proposal for reparations could be approved without an admission that harm was done. Other countries with similarly horrific histories have been able to move beyond them through this process of truth and reconciliation. If Germany and Israel, white and black South Africans, and Hutus and Tutsis can go through this process, Americans ought to be able to as well.

What about the reparations? Our judicial system relies heavily on the adjudication of specific claims between specific litigants. Should the descendants of individuals enslaved by a particular family be able to sue the descendants of that family, to recover all or a portion of any inherited wealth? Why not? But how would we compensate those whose family histories are less traceable, or recover wealth from those families whose fortunes have been lost or used up? What of the everyday gestures of humiliation and intimidation, or the millions of choices not to sell a home to an African-American family? How do we measure those?

As Coates’ makes clear, its impossible to fully separate the actions of the undeniably culpable from all the rest of us who profited from rising housing prices that benefited from keeping African-Americans out of white neighborhoods, or from good schools that segregated African-Americans from the whites. Slavery and ongoing violence and discrimination against African-Americans are a collective responsibility that demand a collective response, in addition to any particular claims that can successfully be made through a judicial system that, of course, continues to reflect the comparative advantages and disadvantages of whites and African-Americans in our society.

What would a collective form of reparations be? Brown University, which went through a truth and reconciliation process of its own, chose to respond to its historic ties to slavery through a number of educational programs to benefit African-Americans and school children in its hometown of Providence, RI. Other institutions might choose this form of in-kind reparation, but the power that was taken away from slaves, and from aspiring homeowners who were redlined, and from workers who were paid less because of the color of their skin, is economic power in the form of capital. And this is where a basic income comes in.

A universal basic income, together with progressive taxes on income, wealth, and inheritances, redistributes from those who benefit most from our social, economic, and political institutions, to those who profit least. Like accumulated capital, basic income provides a steady stream of income that supplements income earned from work. It provides an income floor, but not an income ceiling, so it doesn’t eliminate the rewards that come from education, hard work, or entrepreneurial savvy, but it limits the inheritance of economic inequality from one generation to the next.

A universal basic income might seem like a blunt instrument to address an injustice limited to a fraction of the current population. It is true that a basic income targets the poor regardless of race, ethnicity, and family history. It will go to whites, some of whom may be the descendents of slaveholders, and it will be effectively taxed away from prosperous African-Americans who are nevertheless descendents of slaves. But it will immediately and durably improve the lives and prospects of poor African-Americans, almost a third of whom live under the poverty line. It will address the economic injustices directed at poor Americans of other races as well, including those who are the victims of predatory labor practices.

While a basic income may not be enough to satisfy the demands of reparations for the specific injustices of slavery and its legacy, it is a step that equips those who continue to suffer from discrimination and predation today with the means to participate in the conversation. Poverty not only robs its victims of the ability to make economic choices but constrains their political participation as well. Raising African-American economic status through a universal strategy might well be a necessary step toward making a conversation about more targeted reparations politically possible.

Ross Douthat on Basic Income Again (sort of)

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“At the same time, though, the design of Obamacare—Medicaid expansion, subsidies for comprehensive rather than catastrophic coverage, and then the way the subsidy disappears if you get a raise or take a higher-paying job—makes the work disincentive much more substantial than it would be under, say, a conservative alternative that offers everyone a flat credit to buy a catastrophic plan.”

Ross Douthat, “Leaving Work Behind,” New York Times, February 8, 2014.

In yet another column, Ross Douthat argues against basic income without saying what it is or explaining why anyone might be for it. The context is the CBO’s recent report on the labor supply effect of Obamacare. Douthat is concerned that liberals are giving up on the inherent dignity of work by decoupling access to affordable healthcare and employment. I was preparing to write a full-blown response, but two things stopped me.

First, the vast majority of the online comments have already done an exemplary job of calling him on the ridiculous assumption that all paid work, including poverty-level jobs with ever shifting hours and schedules, promises “dignity, mobility and social equality.”

Second, his critique of Obamacare’s supposed work disincentives, excerpted above, is exactly why basic income advocates like me argue for a flat grant basic income over a negative income tax—not to mention a reason to prefer universal health care to the private insurance-based Obamacare (but that’s another post). To keep work incentives as strong as possible at the lower end of the income scale, benefits phase-outs and taxes should be as low as possible, which is exactly what a flat grant basic income does. Instead, the programs we have now—TANF, SSI, SNAP, and the EITC—all have steep phase-outs designed to restrict them to the very poor, penalizing the working poor financially when they begin to earn a little more.

Like people hearing about basic income for the first time, Douthat assumes it is a substitute for work, rather than an economically secure foundation upon which work can build. But Douthat has written about basic income before in exactly the same disingenuous way. I welcome his contributions to the debate on a policy alternative that is getting more and more attention these days, even if he disagrees with it. But if he really wants to understand, or wants his readers to understand, how a basic income works, maybe next time he can include a link in his column to one of the many sites that explains it honestly. Here’s one of the links he left out.

Zeynep Ton, The Good Jobs Strategy

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Zeynep Ton, an adjunct professor at MIT’s Sloan School of Management, argues in The Good Jobs Strategy that well-paid employees + good operations is the winning strategy for better performance for all stakeholders–employees, customers, and shareholders. My favorite part is when she explains why retailers that skimp on labor costs can’t keep track of their inventory even when they have scanning and tracking systems in place.

But it’s the connection Ton makes between worker satisfaction and economic performance that is really striking. Just as the retailers and manufacturers she discusses get trapped in a vicious downward spiral of poor performance leading to cuts in labor costs leading to even worse performance, our society as a whole treats citizens as expenses to be minimized, as if, to paraphrase Ton, they had a fixed value, rather than a value that rises with investment. The stories Ton tells about companies that follow the good jobs strategy–QuikTrip, Costo, Mercadona, and Trader Joe’s–should inspire us to promote the economic security of all citizens the way those companies promote the economic security of their workers. It won’t just help the economically insecure–it will make us all better off.

First, I’m going to give a copy of her book to the manager of my local supermarket….

The Liberal Case for a Basic Income

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The Washington Post‘s Wonkblog held a debate on basic income in December with Mike Konczal, Max Sawicky, Megan McArdle, and Veronique de Rugy. Konczal, who has written thoughtfully in favor of basic income, posted Sawicky’s remarks–“The Liberal Case Against Basic Income” on–his Rortybomb blog a few weeks later. BINews posted my response–“The Liberal Case for a Basic Income”–today.

Long-Term Effects of Income Supplements for Children

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Excellent piece in the Times by Moises Velasquez-Manoff about a natural experiment on the effect of income supplements on the long-term mental health of Native Americans who received dividends from casino profits in North Carolina. Unsurprisingly, mental health outcomes were better for children whose families had received the dividends than for the control group of white children in the same area whose families were not entitled to tribal dividends.

The investigators, led by Jane Costello of the Duke University Medical School, had been following the children (both Native American and white) before the Eastern Band of Cherokee Indians began distributing dividends. This means they had an existing control group and had data on the control and experimental groups before and after the dividends were implemented.

Their first report was published in 2003. Their second report, published in 2010, followed the children into adulthood.

Alaska has a similar (though smaller) resource dividend from the sovereign wealth fund it established with oil royalties, but since the dividend goes to all state residents, there is no control group to measure the dividend’s effects against.

Costello’s findings provide support for the idea that an unconditional basic income, while expensive to implement, actually saves money in the long run by cutting social costs related to mental illness and substance abuse. They also provide support for including children in basic income schemes in countries like the U.S. that lack child allowances because, as I argued in Basic Income Studies, a basic income that goes only to adults is less efficient in targeting child poverty in single-parent families.