Universal basic income? How about a universal basic credit card

OPINION: Every time there’s a recession, governments struggle to get money into the hands of people who need it. Here’s one idea for when the next crisis hits
By John Michael McGrath - Published on Mar 27, 2020
The federal government should make a federally registered and insured zero-interest line of credit available to every adult Canadian. (iStock.com/stockphotos)

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People always need money. But they don’t always have it. And when there’s a sudden economic shock — like, say, a global pandemic that forces people to stay away from their workplaces — the gap between those two facts becomes more and more dangerous every day.

For the third time since I started voting, major Western governments are trying to deal with a major economic contraction by sending people cash as quickly as possible. But, despite the fact that this keeps being necessary, major governments — Canada included — have no way of doing it quickly: even when the federal government does get its online application system up and running, Ottawa estimates it’s going to take up to 10 days for money to start arriving in people’s bank accounts.

What’s needed is a system that government can put in place during “peacetime” and then rapidly dial up during an economic emergency. Much has been written about a universal basic income, including here at TVO.org, and advocates should definitely keep the pressure on governments to think big during the crisis.

One reservation I have about a basic income, however, is that, even with much higher levels of spending than we currently see, it still wouldn’t provide much of a cushion for people rocked by the unexpected. University of British Columbia economist Kevin Milligan has calculated that even if we quadrupled current federal assistance to $600 billion, people would receive $1,500 a month, or $18,000 a year. That would certainly be more than some people receive now, but it’s still a thin margin for someone to live on if they have to try to save for the inevitable rainy days.

We’ve solved this problem, however. There’s an invention that lets people spend money even when they don’t have it, that lets them weather sudden emergencies, and it’s very likely in your wallet right now: the credit card. The federal government should make a federally registered and insured zero-interest line of credit available to every adult Canadian. It could be directly provided by a federal Crown corporation, or it could be a compulsory service that federally chartered banks are required to offer. (Or it could be a mix of both.)

In normal times, this universal basic credit would operate much like a credit card does now, except that there would be no interest on it and only minimal fees to cover administration. People who maxed out their credit card would need to pay it off to make more “room” in their account for later, but they wouldn’t otherwise be penalized. This alone would be an enormous boon for low-income people, who often have trouble getting affordable credit from traditional banks — and so end up relying on payday lenders and pawn shops. It would also provide a bit of a safety net for the self-employed, if the limit were high enough: $5,000 would give people some breathing room to pay a month or two of rent and utilities in most cities. As an increasing number of brick-and-mortar businesses seek to go “cash-free” (not a bad idea in the current public-health emergency), this would guarantee that everyone still had the ability to participate in the local economy

(I hasten to add that this isn’t an original idea — I first read about it more than a decade ago. But I can’t remember where. I think it was something written by an American economist during the last recession — if anyone has ideas, let me know!)

In emergencies such as the current one, the limit on the line of credit could simply be lifted. If it’s $5,000 in normal times, make it $10,000 overnight. This ought to be possible within 24 hours of a decision being made in government, since the feds would have a registry of everyone’s account — nobody would need to give the government new financial information. But, in milder recessions, the government would have the option to make smaller sums available; money could be made repayable, or it could be forgiven. There would be a measure of control. It would still be expensive in accounting terms — all those guaranteed accounts would represent a liability on the government’s books — but the annual costs would be more manageable.

This wouldn’t be a replacement for a basic income. Any basic income at any level short of the utopian is still going to leave lots of people without enough money every month to plan for emergencies, so a public credit would function as a useful addition to a UBI, not as a replacement for it. Credit is different from income, and they do different things. But this idea doesn’t require a UBI to work, either.

Governments are unlikely to adopt this idea overnight: it really would represent a major expansion of government, and it certainly couldn’t be put in place before the current emergency passes. Which just means it’s the kind of thing governments should put in place for the next time the economy goes off the rails.

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