The ABC’s Nassir Khadem recently reported on proposals including a univeral basic income and reverse taxation that some thinkers have proposed for supporting citizens and the economy while many people are forced out of work by closures imposed as part of government responses to the COVID-19 outbreak. Following the same sort of thinking over at the Conversation, Jeremy Baskin makes a more detailed case for a universal basic income and how it could be implemented in Australia. The current circumstances are quite different to those that I contemplated in Science Fiction and the Economics of the Future but in both cases the challenge is a society in which there’s isn’t much work to do.
Baskin argues that the existing welfare system caters for the “twentieth century” version of work in which one either has a job or does not, but that a universal basic income would better support a “twenty-first century” economy with a great deal of part-time, casual and “gig” employment. Though his article is framed in terms of a temporary response to the COVID-19 outbreak, I presume that he would agree with economists quoted in Khadem’s article who express hope that measures like these might become permanent.
Of course there are also plenty of critics of these ideas; Baskin spends most of his article responding to the ones that complain that such measures would be very expensive. Ian Verrender notes in another ABC article how galling even the current measures must be for an Australian government that has held up a budget surplus as one of its prime measures of success for the past ten years without yet achieving said surplus. Commenters on Baskin’s article supply other sorts of criticisms, such as the supposed disincentive to work, though few of these are based on any evidence and are often in direct contradiction to the actual evidence that Baskin quotes.
We might expect universal basic incomes and reverse taxation (and welfare payments in general) to be easier to afford when economic activity returns to normal; this is more like the scenario envisioned in Science Fiction and the Economics of Utopia. But so far all of the announcements I’ve seen presume the various COVID-19 payments to be temporary, which is perhaps as it should be given that Australia is only a few weeks into the outbreak and has immediate needs to be addressed before contemplating long-term changes to the welfare system.
Whatever the long-term fate of economic activity and welfare might be, the economic effects of COVID-19 bring out two points for me: firstly, the role of luck in economic success and, secondly, how we pay for events for which no one is responsible or could even have predicted.
COVID-19 has so far had little economic impact on me because I happen to hold a salaried job that can be performed remotely. Some businesses, like delivery services and manufacturers of hygiene products, might even benefit from increased demand while others are forced to close by restrictions on public gatherings. No one could have predicted which sectors would be affected by COVID-19 and in which way, and a person’s or business’ circumstances might vary greatly depending on whether that person or business happened to be in hospitality or manufacturing or one or another kind of retail. Some workers are already moving from suffering sectors like travel and hospitality to boom sectors like healthcare and home delivery, but this will take time and it may not be much fun for displaced workers and business operators undergoing such radical and uncertain changes in the meantime. The lack of income now may also permanently reduce savings, look forever bad on one’s CV, and/or destroy otherwise-successful enterprises that might never come back.
So who pays for the bad luck? And, for that matter, how do we distribute the good luck? One might propose to suspend loan repayments in order to help out-of-work borrowers, for example, but how then do the bank’s staff get paid? Can or should we divide the available work more evenly by having some of us who’ve kept our jobs work less?
John Quiggin, one of the economists that Khadem quotes as supportive of making a universal basic income or reverse taxation permanent, explains the position of government in terms of what hypothetical all-knowing all-powerful “social planner” might want to achieve in a Conversation article. Central planning has a bad reputation in government and economics, but the point is to imagine the ideal distribution of resources and economic rewards then judge the real market and taxation system on how closely they achieve that distribution, rather than analysing individual transactions in isolation and hoping that the larger system somehow works out.
As Quiggin explains it, the planner moves resources from, say, restaurant meals to take-away and home-delivered meals, which a functioning market might be expected to do by itself given that there are (now) no rewards in the former but some rewards in the latter. But the planner can also distribute the luck more evenly by moving resources from those with the luck to have kept their jobs or businesses to those without it, which informs the design of the taxation and welfare systems.
I’ll leave arguments about what an ideal social planner might do for another day, but imagining the planner does at least clarify what the purpose of the market and the taxation system might be. Whether or not the government wants to embark on a science fiction future or return to business as usual once COVID-19 has passed remains to be seen.