In the coming weeks and months, many Americans will be forced to turn to the social safety net for help in getting through the economic collapse caused by the coronavirus. They are in for a rude awakening.
The United States has far and away the weakest welfare state among the wealthy industrialized countries. Beginning with the 1980 election of Ronald Reagan, the safety net has been under constant attack and retrenchment. Programs such as unemployment insurance, Temporary Assistance for Needy Families, food stamps and Medicaid have seen their eligibility tightened and benefits sharply reduced. Although designed to protect families during periods of economic downturn and distress, their ability to do so has been severely damaged over time.
This erosion is part of a much broader change that has taken place in the United States over the past 50 years. Economic risk, which had once been largely absorbed by one’s employer and the government, has been transferred onto the backs of individuals and families. Pensions have been replaced by 401(k) plans. Job security has vanished. Health insurance is a privilege not a right. The result is millions of low-wage workers one paycheck away from disaster.
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But this growing economic insecurity also extends higher up the income ladder. A recent report from the Federal Reserve finds that 39% of Americans do not have enough savings to cover a $400 emergency. Other studies show that during any 10-year period across adulthood, a majority of Americans will experience at least one year of significant economic distress. The massive layoffs that we are likely to see in the months ahead do not bode well for these families.
The investment in a social safety net might be thought of as analogous to why we purchase automobile insurance. No one anticipates having a car crash in the next 24 hours, but we recognize that we might have an accident at some point in the years ahead. Therefore, we are willing to pay a price today to ameliorate the risk that may lie down the road.
Similar to a car crash, the current economic collapse should serve as a wake-up call to the risks that lie within our global economy. A strong safety net is needed to protect families from the downturns inherent in capitalism. This was recognized during the Great Depression in the 1930s with the advent of the New Deal and the Social Security Act. Policymakers were forced to think outside the box in dealing with that crisis.
Such innovative thinking is needed today. One policy proposal gaining traction is a universal basic income. Most recently championed by Democratic presidential candidate Andrew Yang, the idea is to provide all adults with a minimum amount of cash on a monthly basis. This income would provide a much needed cushion for when economic emergencies happen such as the one we are currently experiencing.
Interestingly, this idea has been proposed at various points in our history. Thomas Paine, the author of Common Sense in 1776, was an early proponent. Finland is currently analyzing data on the effect of such a policy with the expectation of implementation on a national level.
Another idea is expanding programs that enable Americans to build up their personal savings, so they can provide rainy-day protection. Many states around the country have been experimenting with such policies. They allow individuals to put aside a percentage of their monthly income with a generous match from the state, in much the same way that employers contribute to employees’ 401(k) accounts. These funds can then be used to address future concerns and expenses. Ramping up such a policy on a federal level could provide an important reservoir for families in need.
There is no doubt that significant economic destruction lies ahead. But we can use this time of upheaval to rethink the importance of a social safety net that provides protection to all Americans, including the most vulnerable. One-time financial packages passed by Congress are important but insufficient. Rather, a reshaping of how we approach the entire social safety net is called for. Such a reshaping must be built on the basic principle of strengthening the economic security that is so badly lacking in the United States.
Mark R. Rank is the Herbert S. Hadley professor of social welfare at Washington University.