The second round of COVID-19 relief checks from the federal government is going out to start off the new year. Most Americans will receive $600, half the amount sent out during the first round of checks.
Sending that money made sense in the spring because soaring unemployment caused both the government and credit markets to fear “credit-card debt and delinquencies…to surge as struggling households borrowed more to make ends meet,” as the Wall Street Journal reported.
By August, however, it was clear that the opposite had happened. According to the Journal, “Credit-card debt in the U.S. and other advanced economies has fallen. Fewer people are late on their credit-card payments. Consumer demand for new borrowing –through credit cards, personal loans and even pawnshops — is down sharply.”
The Journal also found that “[t]he flood of money, along with debt-relief measures such as deferred-mortgage and student-loan payments, has stabilized the finances of many households and even left some in better shape than before the pandemic — at least for now.”
In essence, our attempts to save the economy and the American people during the greatest downturn in economic activity in U.S. history were an outstanding success.
As 2020 wrapped up, those consumer debt figures started creeping back up again, though some reports say “the increase in non-revolving debt in October 2020 could indicate Americans tapping into their home equity to survive loss of income during the pandemic, or to pay down higher interest revolving debt.”
That assessment is backed up by Experian, whose data “shows a record drop in credit card balances in 2020, after almost a decade of consistent growth. For eight consecutive years, consumer credit card debt (not just statement balances) grew to hit a record high of $829 million in 2019, right before the onset of the pandemic. But in the past year, balances decreased by 9%: Total U.S. outstanding credit card debt is now around $756 billion, the lowest point since 2017.”
Obviously, not everything is alright. We need economic activity to get back up to speed. Lockdowns cannot become a permanent part of the American economic landscape.
All the measures we’ve enacted for the last year have been to keep people afloat, and we’ve succeeded on that front. Long-term flourishing, however, requires a fully functioning economy.
But one of the other lessons of this pandemic is that giving people relief and letting them choose how to use it has worked far better than any program ever designed, where politicians and bureaucrats decide how people get help. Direct cash transfers have directly helped the American people without empowering government agencies or building needless bureaucratic labyrinths of red tape and regulation.
It’s a similar story when you study Operation Warp Speed, a modern medical marvel, producing multiple vaccinations for a new virus in under a year, once all the needless bureaucratic red tape got cut.
If the direct cash payments and Operation Warp Speed have worked this well, it’s worth asking how those lessons could impact the rest of the government.
One idea that could see second life after the pandemic subsides is Charles Murray’s version of universal basic income (UBI). His proposal would give “every American citizen age 21 and older…a $13,000 annual grant deposited electronically into a bank account in monthly installments. Three thousand dollars must be used for health insurance…leaving every adult with $10,000 in disposable annual income for the rest of their lives.”
If you divide that up monthly, it’s essentially a little over $800 a month. Murray’s version is unique because it “replaces all other transfer payments and the bureaucracies that oversee them.” Essentially, it gets rid of the entire welfare state and replaces it with direct cash payments to allow people to use it as they see fit. It empowers people to make decisions, not the government.
How would you pay for it? By getting rid of everything:
The UBI is to be financed by getting rid of Social Security, Medicare, Medicaid, food stamps, Supplemental Security Income, housing subsidies, welfare for single women and every other kind of welfare and social-services program, as well as agricultural subsidies and corporate welfare. As of 2014, the annual cost of a UBI would have been about $200 billion cheaper than the current system. By 2020, it would be nearly a trillion dollars cheaper.
In short, it would single-handedly “drain the swamp” by removing massive government agencies. Politicians couldn’t determine how you use the money or run your life, and everyone is in the same boat.
The idea doesn’t work if you place the UBI on top of the existing welfare state. It’s too expensive and wouldn’t work. But if you use it to replace every government program in existence, then it has merits.
Murray’s plan also has the benefit of handling health insurance, which could potentially fix that issue.
Is it foolproof? Of course not. People could waste that money and the opportunity; that no doubt happened with the COVID-19 relief checks this past year. But it could also help stabilize the budgets of American households and reduce debt, all while eliminating wasteful government entitlement programs.
In any previous year, this talk was theoretical. After 2020 and the coronavirus pandemic, the speculative looks like it runs better than any government program. We should look for more avenues to reduce government meddling.