Coronavirus notes #1: The magic money tree and universal basic income

By Chris Lang

This post is the first in an occasional REDD-Monitor series collecting together some thoughts around the coronavirus crisis. Forests, deforestation and the climate crisis may seem distant problems when we’re all facing the threat of a deadly virus. But when the coronavirus crisis is back under control at some point in the future (which let’s face it, will not be by Easter) these problems will once again loom large.

Before the coronavirus crisis, the world faced a series of related crises: The climate crisis, the destruction of the rainforests and loss of biodiversity, ever increasing inequality, and the shaky global economy – held up only by trillions of dollars of quantitative easing.

The magic money tree

Last night, the US senate agreed a US$2.2 trillion bill to keep the economy alive. It included US$33 billion for airlines. Republicans managed to delete a provision for the bailout to be conditional on a 50% cut in emissions.

The Federal Reserve, meanwhile, has promised “an unlimited amount of asset purchases to support markets, including, for the first time, buying corporate bonds and exchange traded funds”, Quartz reports.

During the 2008 financial crisis, Ben Bernanke, then-chair of the US Federal Reserve, explained how this is basically money printing:

“The banks have accounts with the Fed, much the same way that you have an account in a commercial bank, so to lend to a bank, we simply use the computer to mark up the size of the account they have with the Fed.”

So, the magic money tree is real.

This is in direct contrast to what neoliberal politicians tell us. For decades we have been told that we have to rely on the “free market” – the same “free market” of course that allows billionaires to make ever more money and to horde it in tax havens, well out of reach of governments.

For example, during the 2017 UK election, Theresa May, then-Britain’s prime minister ruled out a pay rise for nurses:

“I recognise the job that you do. But we have had to take some hard choices across the public sector in relation to public sector pay restraint. We did that because of the decisions we had to take to bring public spending under control, because it wasn’t under control under the last Labour government. And I’m being honest with you in terms of saying that we will put more money into the NHS, but there isn’t a magic money tree that we can shake that suddenly provides for everything that people want.

But when banks trigger a global financial meltdown, it turns out that there is a magic money tree. Central banks have been shaking the magic money tree since 2008 to keep the economy alive. Between 2009 and 2017, the Bank of England magicked £453 billion into existence through quantitative easing.

In 2013, May’s predecessor, David Cameron also told us that there is no magic money tree.

As Ellie Mae O’Hagan pointed out in the Guardian, when the UK decides to pay for Syrian airstrikes, or the Queen’s Jubilee, the money is there, as if by magic. The same magic though, cannot pay nurses a decent wage.

When it comes to finding money to address the climate crisis, or to stop deforestation, the magic money tree disappears completely. And the “free market” profiteers have moved in with their crackpot ideas like carbon offsets, that have steadily worsened the climate crisis by allowing the continued burning of fossil fuels.

In a recent article in the New York Review of Books, David Graeber takes aim at mainstream economists:

Mainstream economists nowadays might not be particularly good at predicting financial crashes, facilitating general prosperity, or coming up with models for preventing climate change, but when it comes to establishing themselves in positions of intellectual authority, unaffected by such failings, their success is unparalleled. One would have to look at the history of religions to find anything like it. To this day, economics continues to be taught not as a story of arguments — not, like any other social science, as a welter of often warring theoretical perspectives—but rather as something more like physics, the gradual realization of universal, unimpeachable mathematical truths. “Heterodox” theories of economics do, of course, exist (institutionalist, Marxist, feminist, “Austrian,” post-Keynesian…), but their exponents have been almost completely locked out of what are considered “serious” departments, and even outright rebellions by economics students (from the post-autistic economics movement in France to post-crash economics in Britain) have largely failed to force them into the core curriculum.

Universal Basic Income

Given that the magic money tree exists, there’s nothing to stop governments from immediately paying their citizens a universal basic income. Bailing out the financial sector will not help people who are self-employed, people in the gig economy who cannot work from home, casual labourers, or people without savings.

A universal basic income (UBI) would give everyone enough money to get through the coronavirus without running up large debts. A universal basic income gives everyone the same sum of money, with no strings attached.

Here’s Owen Jones writing in the Guardian, explaining why UBI is needed in the UK:

Yes, in the best of times, UBI would build a financial floor through which no citizen could fall below, and cement a decent standard of living in good times or bad for the precarious and self-employed. In a time of national emergency, it is surely a necessity: not least given that 47% of the self-employed and more than half in precarious work such as zero-hour contracts would feel they had no option but to work if ill, spreading the virus. The failure to bail them out will have other knock-on effects. If self-employed people feel they have no choice but to cut back expenditure even after the lockdown has ended, such is the hit to their livelihoods, then they will reduce their spending, sucking demand from the economy, and leading bosses to cut more incomes and more jobs.

A universal basic income could also help prevent famine in countries such as India, where people simply cannot afford to stay at home.