What word do you associate with it? Danger? Reward? Both certainly fit.
We take risks every day. Certainly, the ongoing COVID-19 situation presents a risk. While the vast majority of the population has no need to fear it on an individual level, it could have a massive impact on those with underlying conditions or heightened probabilities of complications.
So what do we do? Try to mitigate the risks. “Social distancing.” Self-quarantining. Hand washing. Closures of certain public gathering locations. Each is a piece of the puzzle to try and overcome the challenge.
However, that mitigation can create its own drawbacks if it is taken too far. So, we don’t ask medical professionals to socially distance themselves from their job or close hospitals. We know some jobs — vehicle repairs, food distribution, police, and firefighters — are probably worth the risk to keep our society running.
A similar assessment is made with the economy. Risk is inherent in any economic activity. On an individual basis, people have different appetites for it. Some appreciate certainty with a legally-protected agreement to work some number of hours, completing some task, for a certain amount of pay.
Others are more willing to “risk it.” They may start making homemade candies in their garage, selling them at farmer’s markets. Maybe their customer base grows, leading to a store and bigger workspace. They hire employees and buy equipment. People rave about their chocolate lighthouse, flocking from near and far.
Then the coronavirus hits. And it all goes to zero. They will still need to pay their people. The money they invested in raw materials and equipment? It’s locked up in those assets. They still need to pay their vendors — the local dairy for the milk in the milk chocolate — who have their own employees and costs. And so on down the line.
The entrepreneur took a risk. For a while, it paid off. Until it didn’t. They didn’t do anything wrong; they were merely collateral damage from a worldwide incident. Such is the nature of risk.
So what happens to that small business owner? She still needs to buy groceries and diapers for her kids.
That leads to one of the more interesting pending proposals in Washington.
Andrew Yang staked his longshot presidential campaign on what he dubbed a “Freedom Dividend.” In less buzzworthy circles, it is also called a “UBI” or universal basic income. And it is the gist of what GOP Sen. Mitt Romney has proposed in response to the economic fallout from COVID-19.
In short, it suggests sending every American $1,000. Period. No complicated tax credit forms, no restrictions on which flavors of Cheerios can be bought. Cash.
It’s a good idea.
And, surprisingly to some, it isn’t (solely) some woolly-headed liberal, new-age, feel-good policy. Two preeminent Nobel laureate, market-driven economists — Milton Friedman and Friedrich Hayek — advocated for it. Friedman called it a “negative income tax” and Hayek a “guaranteed minimum income.”
We have programs similar to a UBI, where the government levies a tax and then pays out cash. You know them as Social Security and unemployment insurance. They just have limited beneficiaries for the time being.
When the present crisis is over, a discussion around this policy should be had for the long term. To do it correctly, it couldn’t simply be a new program; it would have to be the lodestar to a massive reform of our welfare system, entitlement edifice, and tax regime.
But it is a great way to manage risk. It gives individuals and families a clear, foreseeable baseline without worrying about their employer’s financial stability. It treats all types of work — from self-employment to the gig economy (like driving for Uber delivering food), to a traditional job — equally. And it reduces bureaucratic waste in business and government by removing countless regulatory hoops that need to be jumped through, checked, filed, and audited.
In short, it is a way to give Americans the freedom to take economic risks. And it is a way to help mitigate the risks from a worldwide disease outbreak. Maybe it is an idea that is finally ready for prime time.