A Universal Basic Income (UBI) is a divisive measure that entails a guaranteed minimum income for each citizen by a government. It is also known as a citizen’s income, or simply basic income. A government would entitle each citizen to an income, minimum enough to cover the basic cost of living, whether they are employed or not.

The idea was proposed to address the jobs lost due to technological advancements and automation; however, in time of the COVID-19 pandemic and subsequent job losses in the millions, the strategy has been gaining steam as an alternate measure to the financial packages earmarked for mitigating the economic and social impact. Moreover, it is proposed as a better alternative to the welfare system and its many failures, such as the infamous “Poverty Trap”.

Funding

A social policy of this magnitude requires significant funding; different approaches have been proposed to cover the cost of UBI.

For one, scrapping and completely eliminating the welfare system already in place would free up $1 trillion to be directed towards funding UBI in the United States. Additionally, in a world where income and social inequality is on the rise and the gap between rich and poor continue to widen, the prospects of taxing the rich “1%” of society seems reasonable enough to redistribute the funds by providing basic income for everyone, and tackling inequality by narrowing the gap between the rich and the poor and maintaining social cohesion.

Yanis Varoufakis, a Greek economist and former finance minister of Greece, has proposed the idea of a “Universal Basic Dividend”, directing a percentage of all shares from all companies to a public equity trust and distributing the dividends equally for all members of society as producers of “social capital”.

How does it help the people?

• Social Safety Net: Income to lean back on in times of crisis or job loss
• More time to find better jobs: Allow people to dedicate more time to search for jobs they enjoy doing.
• Care for a relative in need: Take time off from work to care for a sick relative or babysit without losing income.
• Pursue education: Opportunity to pursue or continue further education.
• Less stress: Fear of being financially insecure mitigated.
• Increased Productivity: Lower stress and continued education increases productivity and valuable skills respectively.

How does it help the socio – economics?

Is it feasible?

The feasibility of applying a universal basic income is complex for a number of political, economic and financial reasons, depending on the variety of different countries that exist.

UBI would be more accepting in traditionally socialist countries, while opposition in capitalist or neoliberal nations would be more pronounced and difficult to apply due to lobbying by the “1%” who might be taxed.

Moreover, we have to take into account the financial and economic capabilities of different nations; countries with weak and low GDPs and a high debt burden would see it difficult to apply such a scheme.

Although small scale pilot program has been implemented regarding UBI; this scheme has yet to be applied on a wider scale. Meaning, despite the valuable data derived from the different pilot programs applied, it has never been fully tested on a whole nation; thus any discussion regarding the successful implementation of a program of this magnitude are largely theoretical.

Universal Basic Income is a highly complex and ambitious social program that has recently gained awareness as a potential solution to those affected by the job losses due to pandemic. However, it still remains a divisive program with many hurdles and unanswered questions. Nonetheless, it is an idea worth investing in.

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What are ‘recession shapes’?

They are graphical representation used by economists; often taking the shape and form of letters, most commonly ‘V, U, W and L’; to describe the different types of economic recession/recovery.

• V shaped: Economic recession followed by equally sharp recovery.
• U shaped: Economic recession followed by gradual recovery.
• W shaped: Double dip. Initial recovery after recession; but effects weigh in, plunging growth back down.
• L shaped: Economic recession without recovery.

COVID-19 recession; what would it look like?

Although the world has been through different pandemics throughout modern history, what differentiates the COVID-19 pandemic is the sheer effect it is having on the world economy. Gross domestic product figures saw its worst decline for 1st quarter of 2020 since WWII, stirring debate on what shape would economic recovery take on a graph.

“It is an abrupt stop of economic activity, from 100 to zero in just a few days or weeks,” said Carsten Brzeski, global head of macro at ING Research; rendering predictions of economic outlook difficult; also varying between different countries depending on their responses.

Best case scenario: V shaped.

Recession would be brief and severe because of the sudden lockdown; but after a few months, as a result of fiscal and monetary support, and easing of restrictions; growth plunge is followed by an equally sharp recovery.

Most likely scenario: U shaped.

Economic recovery will be more gradual and slower; as long as the threat of COVID-19 looms large, it will be impossible for countries to completely ease lockdown measures, thus preventing the economy from rebounding quickly and sharply.

Possible scenario: W shaped.

After easing lockdown measures, the economy rebounds. However, in the case of an absence of good and efficient national health response, a second wave of COVID-19 infection would demand another strict lockdown, plunging growth again for a second time.

Worst case scenario: L shaped.

A complete lack of government action; without rigorous and effective economic and health policies, the outlook for growth would take the shape of an L, meaning there will be no economic recovery after the pandemic.

Past experiences:

Looking back at previous pandemics and recessions, economic growth had taken the V shaped pattern in “six of the past seven recessions”. Moreover, during the SARS outbreak in 2003, which spread to far less countries and disappeared far quicker than COVID-19, growth recovery also took the form of a V shape. In 2020, COVID-19 is posing a much greater and difficult challenge on the economies of the world, with different responses by countries, some more successful than others; which poses the question…

What shape will the economic recovery of the world take?

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