Corona Curates the Income Support Debate

Shankkar Aiyar
5 min readMar 21, 2020

The acceptance of the need, spurred by the coronavirus, is serendipitous given multiple disruptions underway in the global economy. The spectre of recession has determined when but what and how is yet to be lit up.

By Shankkar Aiyar | Published: 21st March 2020 09:30 PM |

The future, Victor Hugo said in Les Misérables, has several names. ‘For the weak, it is impossible; for the fainthearted, it is unknown; but for the valiant, it is ideal.’ Governments across the world, attempting to deal with the known and unknown fallouts of Covid-19, are devising ways to mitigate pain, trying to design what Hugo would define as the ideal of the valiant.

The quest to flatten the curve of Covid-19 infection has deepened distress. Regimes are faced with a challenge at the intersection of economic and political survival and sustainability. The lockdown on public engagement has resulted in partial-to-total paralysis of economic activity rendering millions vulnerable to deprivation.

In the past week, country after country has engineered and announced alleviation action agenda. Welfare-sensitive Canada, first off the block, announced $900 every two weeks across 14 weeks to those isolated or quarantined and grounded at home — this would be in addition to existing schemes. Britain set up a coronavirus Job Retention Scheme which will offer employers a grant to cover 80 per cent of the retained workers’ salary.

India has set up a Task Force and a scheme deploying the Aadhaar-based direct benefit transfer system to deliver succour is on the agenda. In the US, the Senate pushed a $1 trillion package, the CARES Act providing for “forgiveness of indebtedness on a covered 7(a) loan 13 in an amount equal to the cost of maintaining payroll continuity during the covered period.”

It is true that extraordinary times call for extraordinary measures. This week, the states of California and New York, economic powerhouses accounting for nearly $4 trillion in GDP, mandated ‘stay at home’ directives and shut down businesses. As per Bloomberg, over 10 per cent of working Americans are employed at restaurants which account for more than $1.3 trillion or 8.5 per cent of consumer spending. Employment uncertainty is morphing into job losses estimated at over 2.5 million.

Equally there is no denying that ideological positions have given way and reality has come to dawn on even those who swore by the Horatio Alger narrative. In 1981, at Cancun, Ronald Reagan, said the poor nations and their people “needed to pull themselves up by ‘their bootstraps’ and rise out of their predicament through ‘the magic of the marketplace’. Indira Gandhi, who spoke after him, countered with wry humour: “Most people forget that there are millions of people in the world who don’t own any boots and therefore don’t have any straps with which they can pull themselves up.”

Covid-19 has brusquely brushed-off orthodoxy, re-arranged thinking, on the accepted wisdom of pundits, on postulates and perspectives. The crisis has curated the income support debate. Political opinion, which was deeply polarised on concepts such as the universal basic income, post the arrival of the crisis in the wake of the virus, has swiftly coalesced into consensus, on the need for income support.

That said, the road ahead is yet to be lit up. The design of public policy is dictated by events and the spectre of recession has taken care of when but ‘what’ and ‘how’ is yet fuzzy. And the danger is it could be hijacked by interest groups into exploitative models of the ‘Speenhamland’ kind or dead on arrival with debt-weight models of the leftist kind.

The acceptance of the need spurred by the coronavirus is serendipitous given multiple disruptions underway in the global economy — especially the impact of AI and digitisation, the shift away from fossil fuels, the migration from ownership to sharing have implications for the future.

The emergent trends, whether it is the unprotected gig economy or the retrenchment of human interface, and the level of inequality calls for a template which factors the future and is informed and inspired by Milton Friedman’s idea of negative income tax.

What can be done is clearly dependent on circumstance and economic context. And the way to think about it is to outline the objectives. It could range from protecting jobs to sustaining segments to national security concern about economic fragility. What is critical thereafter is to align incentives to the objectives. These could span an array from temporary dole to tax rebates to reskilling grants to living cost benefits.

The ‘how’ is critical. Initial estimates reveal costs will be in multiples of trillion dollars. So sustainability depends on how these will be funded. The headroom available in country balance sheets is limited and will shrink further as data flows in — the lockdown will drive down tax revenues, both consumption and income.

For sure this will encourage licentious printing of money but sustenance calls for rethink on spending — should government own or should it incubate businesses, should it build or should it fund PPP.

The quantum of cost and level of inequality obliges governments to review taxation on the basis of proportionality of contribution and redistribution of gains — one or another avatar of tax on wealth, of the Elizabeth Warren kind, is on the anvil.

The reset button has been hit. The hiatus, between unknown and known, affords the world time to debate and design the template.

Shankkar Aiyar, political economy analyst and Visiting Fellow at IDFC Institute, is author of Aadhaar: A Biometric History of India’s 12 Digit Revolution&Accidental India. You can email him at shankkar.aiyar@gmail.com and follow him on Twitter @ShankkarAiyar. His previous columns can be found here. This column was first published here.

--

--

Shankkar Aiyar

Journalist-Analyst. Author of ‘Accidental India, ‘Áadhaar: A Biometric History’ and ‘The Gated Republic’. Studying how politics rules the economics of people!