Moving down the slippery slope towards a universal basic income


Modern Monetary Theory (MMT) now plays a role in your life whether you know it or not. The theory holds that a nation can never really run out of money, and it advocates quantitative easing to solve a nation’s debt and unemployment problems.

Historically, quantitative easing and currency devaluation have been used as options of last resort to pay off growing national debt during war, recession, or other crises.

Due to the COVID-19 pandemic, lockdowns and huge government spending to keep businesses alive, MMT and quantitative easing are very much on the table.

These aren’t just mainstream ideas now – they could redefine Western economies in a matter of months.

MMT and universal basic income go hand in hand today, with the biggest supporters of the former also advocating the latter. New York Rep. Alexandria Ocasio-Cortez advocated both. And in January, she joined dozens of other House Democrats in calling on new U.S. President Joe Biden to make recurring cash payments to U.S. citizens instead of a single COVID relief check.

“We ask your incoming administration to consider including support for recurring cash payments in your future economic relief plans,” the letter read. “Recurring payments would provide a long-term lifeline for struggling Americans for the duration of this deadly pandemic.”

FROM THE ARCHIVES: Why a Canadian Basic Income is Inevitable by Evelyn Forget

Universal Basic Income is back in fashion in Canada. Liberal MP Julie Dzerowicz has apparently won the support of some cabinet ministers for her universal basic income plan. In February, she introduced Bill C-273, a private member’s bill calling on the Minister of Finance to study various models of universal basic income and formulate a national plan.

Dzerowicz said a “large swath” of MPs from his party supported the idea.

Canada’s $ 100 billion stimulus debt is already a source of concern to the country’s leaders, with the International Monetary Fund (IMF) suggesting that continued spending in Canada could “weaken the credibility of the fiscal framework.” And with more than 850,000 jobs lost since the start of the pandemic, the economy needs dramatic action to get back on track.

On the left, everything points to modern monetary theory and universal basic income. It is an easy answer to many problems facing Western economies. But this ultimately leads to the devaluation of the currency. And it could turn countries that embrace QE into near-North Korea, with citizens trapped at home paying outrageous prices for foreign goods and foreign companies reluctant to invest in a nation that keeps devaluing its currency.

Should Western economies continue to provide direct financial assistance to citizens during the pandemic and beyond?

MMT will need to be implemented to absorb the costs. But an increase in the supply of liquidity does not necessarily stimulate the economy.

The marginal propensity to consume for one of the millions of people either unemployed or barely re-entering the labor market is determined not only by their current income, but also by consumer confidence, interest rates and general market conditions. A worker who has recently returned to the workforce after a year of low income and accumulating debt has no incentive to spend on anything other than paying down that debt.

Even with a universal basic income, it may take a year or more for workers to feel comfortable spending their savings as the economy picks up. At best, a combination of MMT and universal basic income in response to the pandemic would create short-term solace for workers in debt, but long-term problems when international travel and trade stabilize again.

The economic measures taken in response to the COVID-19 lockdowns were designed to ensure that life can remain as normal as possible. Workers who lost their jobs were offered direct income support to minimize debt build-up and a poverty crisis. Businesses forced to shut down have received loans and grants to help reopen once the pandemic is over.

But MMT and Universal Basic Income are long-term economic changes that do the opposite of maintaining the status quo.

As global economies heal and businesses reopen, politicians must earn the trust of voters who may have lost everything. During economic conflicts, it is easy for these politicians to promise the world.

Universal Basic Income is an easy way to convince voters, and MMT could be the way to pay for it, even if in the wrong place.

Jack Buckby is a research associate at the Frontier Center for Public Policy.

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