China has high rate of personal cash-savings. For this reason, painful though the lockdown in China was, as long as some shops stayed open and some people were willing to make deliveries, most Chinese had sufficient savings to purchase the essentials they required to live. The same cannot be said for many other countries.
So far, crime has fallen in many countries, such as the U.S., India, Ireland and in many other countries…so far.
Perhaps criminals are committing them less due to the infection risk posed by having altercations with people. Or perhaps gathering limits prevent criminal gangs from wandering around causing trouble, or perhaps, since there are no crowds, criminals can’t blend into the crowd. In any case, the drop in crime, so far, has been one of the few silver linings in an otherwise woeful situation.
Unfortunately, in the absence of sweeping fiscal reforms, this situation is unlikely to last.
Italy : The Canary In The Coalmine
One notable exception to this is Italy, the country that first imposed a lockdown on its citizens. Crimes in Italy have recently surged with large numbers of Italians increasingly defying lockdown orders as the people start to lose patience with the government’s lockdown. There are pitiful videos of starving people begging the police to come to their home to see they have no food and scary videos of angry Italians, who are running out of money to buy food, threatening revolution against the Italian government while other Italians are using social media to organise groups to raid food from supermarkets.
Organised criminal gangs are seeking to exploit the general discontent as a means to recruit people and destabilize the entire system.
Things are starting to look very dire in Italy, and if society starts to break down, new COVID-19 cases will resurge and millions – rather than tens of thousands – could die.
Italy is the Canary in the coalmine, it was the first country with low levels of personal savings to institute a nationwide lockdown and it is the first country where social order is beginning to disintegrate.
Italians are just as concerned as everyone else about getting infected by COVID-19, but ultimately, if complying with a lockdown results in starvation, then many people will not comply. History has shown us that when a government fails to feed its citizenry, social disorder and, ultimately, civil war often follows.
Other nations, whose populous are complying with the lockdown – for now – may not believe they will follow Italy’s slow descent into chaos. These are the same nation who, just a few weeks ago, did not believe that COVID-19 would spiral out of control within their borders. These are the same nations who, a few weeks ago, believed they were somehow different from Italy and that there would be no need for any lockdown at all.
Italy is not fundamentally different to other countries. Italy is just ahead of them. What happens in Italy today, will happen elsewhere in several weeks – at least in countries with low levels of cash savings.
Desperation causes social disintegration.
There will be mass social disorder in other countries whose governments cannot assuage the fear and uncertainty felt by their citizens.
Lockdowns In India : All Stick And No Carrot
India is the other country where the lockdown is starting to show cracks. Although police are running around the streets beating people with sticks migrant workers in the city, who have lost their jobs and their income, are still violating the lockdowns in large numbers for the simple reason than they have no money to buy food, are afraid of starving and, because of this, are migrating on mass back to their home villages. The mass exodus of desperate people crowding onto buses to get back to their hometown that resulted from job losses due to the shutdown might even spread the virus more quickly than if there was no shutdown at all.
As with Italy, no one in India wants to catch the virus, the problem, as with Italy, is desperation stemming from lack of money to buy food however, the size of the crowds resulting from the lockdowns in India dwarf even the number ignoring government lockdown orders in Italy.
The Problem Is Not The Supply Of Essentials, But The Distribution of Money To Pay For Them
Despite terrifying featured images of empty shelves in articles about panic-buying, if you watch videos YouTubers have made of shopping in supermarkets during lockdown (here is another video) you can see that, while one or two shelves are empty, by and large, there is plenty of food available for shoppers to purchase. And even in Italy, the shops aren’t empty, it’s simply a matter of people not having enough money to buy the produce.
In every country under lockdown, governments have allowed workers who perform essential services to go outside and continue to work at their job. So the basic goods are still being produced and the basic utilities are still being maintained. The problem is not a lack of essential services, but rather that those who do not work to provide essential services have no money to pay for the goods and services which essential workers are providing.
Mass Unemployment Is Paralyzing Welfare Systems
Reports from Americans, suggest the welfare system is on the brink of paralysis. Welfare applicants can’t get anyone on the phone, the website keeps crashing. Initial unemployment claims have surged to levels that are over 5 times higher than at any previous point in recorded history and some economists even predict that unemployment rates could exceed 30%. Furthermore, the U.S. is not alone, benefit offices everywhere are overwhelmed with a tsunami of claims to process in the U.K., Norway, and many other countries.
The existing benefit systems of countries were not designed to process and monitor this many applicants and, undoubtedly, many benefit applicants will slip through the cracks, have their applications rejected, and be unable to find anyone with the time to process their appeals.
Only Basic Income, Combined With Freezes In Rent, Mortgage and Debt Payments Can Stave Off Calamity
The current COVID-19 response of most governments to the newly unemployed over the course of the emergency is to give everyone a fraction of their previous salary. This is leading to a ridiculous situation where the government is paying everyone to do the exact same thing (i.e. to sit at home and twiddle their thumbs) but where some people get paid vastly more money to twiddle their thumbs at home than others – and there may even be scope for some people not to qualify for any benefits at all.
Someone who earns 30,000 GBP, gets paid 24,000 GBP to twiddle their thumbs at home. Another person who earns 10,000 GBP per year gets paid 8,000 GBP to twiddle their thumbs.
This is ridiculous and unfair.
Every healthy person has roughly got the same basic needs, therefore everyone should be paid the same amount of money. Furthermore, giving people government handouts based upon their previous salary is a terrible use of resources as those with large salaries are more likely to have significant savings to weather the lockdown.
So the government is paying less money to people who probably have less savings…what’s with that?!?!?!
There is only one necessary item of expenditure that those on large salaries may have which those on small salaries lack – housing costs.
Therefore in addition to basic income and disability allowance, the government should place a moratorium on rent and mortgage payments and outlaw evictions for the duration of the pandemic.
After all, people won’t be able to stay at home and save lives if their landlord, or the bank, turfs them out of their home. But beyond that one measure of securing people existing accomodation the government should pay people the same amount for doing the same thing.
Means-testing (other than for disability) is also silly during a lockdown.
The main goal of means-testing is to only pay money to those who lack the skills to earn their keep by working and who have high expenses. In a lockdown, the overwhelming majority of people don’t have the means to work, so testing people’s means to work will only result in huge processing costs (from the tsunami of applications) and delays in payment and the only result will be the welfare department effectively saying “O.K., fair enough, you can’t earn anything during this lockdown here’s some money”. If the benefit office is just going to end up saying the same thing to 70% of applicants, then why not cut the red tape and just pay everyone the same amount of money?
Furthermore, there are some pretty critical jobs like delivery men or seasonal workers that we desperately need more of.
Do we really want those on means-tested benefits who are thinking of working in these important jobs to worry about having to declare their additional earnings to their benefit officers and having their benefits withdrawn as a result?
Furthermore, checking up on those who receive means-tested benefits often requires interviews, inspectors visiting homes to check for benefit fraud, etc., to make sure people aren’t lying. Do we really want all this going on during the middle of a pandemic?
The penalty for lying about your circumstances in order to get benefits can be prison.
Do we want to crowd prisons and courts with people guilty of benefit fraud during a pandemic?
The penalty for lying about means-tested benefits can also be steep fines or the suspension of benefits.
Yet if we suspend people’s benefits during the lockdown, we’ll end up in the exact same situation as Italy with desperate people storming supermarkets and violating lockdown orders.
And if people don’t get punished for lying on their means-tested benefit form during the pandemic, then all we’ll be doing is giving less to honest people.
Most healthy people have the same basic biological and dietary needs (roughly speaking). So why not keep things simple, eliminate processing times and just pay everyone the same basic income?
Across the world, from Ecuador to Italy, those who are violating lockdowns orders are all doing so for the same basic reason: lack of money.
At a time like this, it crucial for everyone to comply with lockdown orders. A small number of violators could compromise the whole containment effort.
Fortunately essential workers can still produce enough necessities to cover everyone’s basic needs.
Because of this, the solution to desperate, starving people not complying with lockdown orders is very simple follow South Korea’s example and pay everyone enough money to allow then to procure the necessities of life.
Also, if we don’t want essential workers to start quitting their jobs it’s probably a good idea to pay them this amount on top of their wages (i.e. don’t withdraw the payment for those earning money).
Simple as that.
Lockdowns Cause Inflation – Basic Income Doesn’t
Assuming the entire financial system doesn’t collapse, we are heading for a period of high inflation.
This is unavoidable.
The result of a lockdown is a reduction in the quantity and variety of goods and services available to be purchased with cash.
If the same amount of cash chases a smaller number of goods and services, the price of each good will go up; this logic is inescapable.
The only way to avoid inflation when the quantity of goods and services, available to purchase, contracts would be to correspondingly contract the amount of cash in circulation.
If there is any significant reduction in the quantity of cash in circulation, then it will fall far short of what is required to pay all the aggregate outstanding debts plus interest – this, in turn, will result in waves of debt defaults.
And because the debt owed by borrowers to the bank backs up the outstanding loans owed by the bank to depositors, if large numbers of borrowers default on their debts, and fail to make payments, then depositors will lose their deposits which will cause a further contraction of the money supply, which will cause further debt defaults, which will cause the loss of more deposits, which will contract the money supply further, which will cause more debt defaults and on…and on…and on…
The net result of contracting the money supply to the point of causing debt defaults that exceed the emergency reserves held by banks will be the complete collapse of the entire financial system.
If the financial system collapses, the banks close down and everyone loses their savings. Furthermore, they lose the ability to make payments conveniently into other people’s accounts or accept payments into their own – such as payments from their employer in exchange for work, or welfare payments from the government. Paper cash, which is 3% of the money supply, would be all that would remain. International payments between companies would grind to a halt, global supply chains would collapse. Furthermore, at a time when we are supposed to socially distance ourselves from others, our ability to make remote payments without exchanging physical cash with other human beings would disappear.
In other words, the complete collapse of the banking system would be really bad.
The only alternative to this is to continue to increase the supply of money in circulation so that it is sufficiently large for debtors to continue to pay their outstanding debts to the bank and if the supply of money increases at a time when the supply of goods contracts sharply you will get inflation.
So, during this lockdown, we have two options:
- Let the entire global banking system collapse
- Accept fairly high inflation that significantly erodes the value of people’s cash savings
Or, alternatively expressed your two options are:
- Lose the entire value of your savings deposit (other than cash in your wallet and in your house) and also lose the ability to receive digital payment or, indeed, any form of payment other than cash
- Lose a significant portion of the purchasing power of your cash savings due to inflation
These are both pretty lousy options, but clearly option 1) is a great deal lousier than option 2). For this reason, we are going to have to accept the fact that we are about to enter a period of high inflation – there is no acceptable way to avoid this.
In scenario 2), people may lose a portion of the value of their savings, but at least they will still possess the means to conveniently receive further cash transfers from the government, such as basic income, disabilty benefits or the state pension.
It is worth mentioning that even if only a few banks collapse, this is still the last thing we want to happen during a nationwide lockdown. We don’t want pensioners with internet banking to suddenly lose their ability to receive payments from the government into their account because the particular institution that they banked with went bankrupt. We don’t want crowds of people rushing into high street banks to try and start new accounts because the bank they held their previous account with went bankrupt. This is not desirable at the best of times and certainly not desirable when a potentially lethal pandemic is spreading through the population.
I must confess, that before I heard about the surging crime rate of Italy as the society there begins to unravel, which convinced me of the desperate need for basic income, I was reluctant to advocate introducing basic income during this pandemic as, due to the sharp recession produced by the lockdown, we are inescapeably heading towards a period of high inflation and I was concerned that, if basic income is introduced at a time like this, it might forevermore become associated with high inflation…
However, basic income does not necessarily cause inflation. In fact, although universal basic income cannot prevent the inflation that will inevitably occur over the next few months, it will actually minimize the amount of inflation we will have to put up with.
Basic Income Is The Least Inflationary Path Forward
In order to minimize inflation we need to:
- Contain the coronavirus and restore the production of goods and services to pre-crisis levels as quickly as possible
- Promptly issue the minimum necessary amount of cash required to secure compliance over the period of the lockdown
Given that the lockdown has gutted economic activity, governments are not going to be able to find sufficient tax revenues to finance the expenditure required to hold society together over the period of this pandemic and, hence, all (or the lion’s share of) government spending will have be financed with debt – and must hence be inescapeably inflationary.
It’s entirely possible that, once governments really get going in using massive amounts of debt financing to avoid complete economic collapse we could easily see inflation rates of 5-10% per month. For this reason, it is crucial to minimize the number of months over which lockdown is maintained. Over 2-4 months, this level of inflation will not be the end of the world, but if inflation rates like these last much longer than a few months, things could rapidly snowball.
In order to minimize the duration of a lockdown everyone must comply. If even a small fraction of the population doesn’t comply with lockdown restrictions, this will greatly extend the necessary lockdown period required to contain the virus and – hence – the amount of aggregate inflation.
Everyone will only comply with lockdown orders if they can comply without starving to death. People who face starvation in the event of a lockdown will violate lockdown orders and even commit crimes if doing so is necessary to feed themselves.
Existing benefit systems usually result in most people getting what they need, but the complex application process often results in a few people falling through the cracks, of a few people not getting the money they desperately need. With the flood of benefit applications, resulting from mass unemployment, the number of applicants that fall through the cracks, don’t get their applications processed properly and don’t get the money they need, is likely to skyrocket.
So, in order to ensure widespread compliance with lockdowns, governments must pay everyone enough money to buy what they need for the duration of the lockdown. To prevent hoarding, this money should be paid in small, regular installments as opposed to a large sum.
Furthermore, in order not to discourage essential workers from performing their tasks, those whose work at essential jobs should receive their salaries on top of the basic income paid to everyone else.
How does Basic Income compare to the existing plans of governments?
The U.K. government’s current plan is to pay everyone 80% of their wage all this money will come from government debt.
This is more inflationary than Basic Income because:
- Many people will receive more money (ultimately printed out of thin air) than they need to survive – this means the government will print more money out of thin air than necessary, accelerating inflation to even higher rates than they need to.
- Some people, who cannot produce the required paperwork to provide proof of their previous income, may not get enough money to survive and may run into desperate financial problems and risk starving. Desperate people will violate the lockdown and will continue to spread the virus, this will increase the R0 and even if the R0 remains below 1 this will still extend the lockdown and, hence, the period over which high inflation rates are necessary.
- Even if everyone qualifies for benefits from the government in theory, in practice the processing time is likely to be long as benefit officers work out how much everyone was previously paid and, in the absence of previous employment, assess them for means-tested benefits. During these waiting times, many people may find themselves in cashflow crisis and may still starve to death. Only basic income – one person, one payment – can be processed fast enough to get everyone the money they need to buy the essentials necessary for survival in a timely manner.
We urgently need to pressurize our representatives to institute a basic income in any way possible, such as by signing petitions, like this one.
During the best of times, universal basic income is a good idea, during this crisis, it is absolutely essential.
John McCone
