The economic impact of the coronavirus is unprecedented and far-reaching. People all over the world have been affected in some way, and it is likely that our lives will never be the same again.
One impact, viewed as positive by many economists and politicians around the world, is the re-emergence of calls for introducing a universal basic income (UBI). One highly influential voice at the heart of these calls is the Pope, with the leader of the one billion strong catholic church all for giving free money to everyone!
Yes, free money, you read that right! The idea behind UBI is that every citizen of a country will be guaranteed a minimum income paid to them directly by the government, with the purpose of ensuring that every citizen of a country can afford the basic cost of living.
The spread of Covid-19 around the world had led to the dampening of economic activity on an unparalleled scale. In order to protect businesses from going bankrupt and keep people employed, we have seen governments intervening in labour markets by subsidising wages (UK, Austria, Denmark) and giving out cash handouts (USA, Hong Kong, Singapore).
With Covid-19 exposing the inequality that exists in both developed and developing economies, calls for UBI are getting louder, and the recent fiscal measures of paying people’s wages and sending them cheques could lead to a widespread adoption of similar policies once the crisis is over.
Spain, one of the countries which has been worst affected by the pandemic, looks set to lead the charge in rolling out UBI. Minister for economic affairs Nadia Calvino, recently told Spanish media that not only would a cash handout soon be given out to help families manage finances through the crisis, but that it would also be considered as a permanent instrument which would stay forever. If undertaken, that would make Spain the first European country to formally adopt a basic income for all.
Whilst universal basic income sounds great on paper for dealing with income inequality and reducing poverty, there is a large body of economists, politicians, and academics, who argue that it could cause more bad than it does good, mainly by perpetuating unemployment and reducing labour force participation by disincentivising people to seek work.
The arguments both for and against UBI are compelling and it really depends on the structure of the economy in question. One thing is for sure though, with poverty and income inequality involved, it is definitely a debate worth having.
THINK LIKE AN ECONOMIST!
Q1. Explain how a universal basic income works.
Q2. Analyse the different fiscal measures which are being taken by the governments of the US and the UK in order to protect people’s jobs and stop businesses from going bankrupt.
Q3. Evaluate the view that a universal basic income is the best way of dealing with income inequality and poverty in a developed economy.
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