The Efficiency of Cash Payments is a Conservative Principle

Jennifer Burns, The Hill

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The Republican support for emergency cash payments as a central part of CARES Act, the recently passed coronavirus relief package, surprised many. What could possibly be conservative about free money? In fact, the idea of direct government cash payments to the needy — even on a non-emergency basis — has a long lineage among conservative thinkers and policymakers. Its reappearance signifies a larger rethinking of economic policy on the right.

Today, cash grants or universal basic income (UBI) seems a classic Democratic Party idea, associated with upstart presidential contender Andrew Yang. But the first president who embraced the idea was Republican Richard Nixon. The name most associated with the reform was Milton Friedman, the face of free market economics for his generation.

Friedman came up with the idea of “a minimum income” during a crisis many liken to coronavirus: the Great Depression. As a young economist, Friedman struggled to reconcile his belief in markets with the suffering he saw all around him. A conversation with Swedish socialist Gunnar Myrdal suggested a way forward: a plan for guaranteeing “a minimum income for all.”

The idea of setting a “floor” under each member of society resolved several problems. First was the basic support to those who couldn’t make a living, even if they worked. More broadly, the idea could ameliorate the failings of capitalism without deconstructing capitalism itself. Markets would remain intact. They’d even be strengthened, by giving the poor money to spend.

Over time, Friedman’s commitment to the idea grew. Originally conceived during hard times, Friedman maintained his support of the basic concept even during the prosperous 1960s. He came up with a new twist — send the money through the IRS — and called it a “negative income tax.”  The proposal was widely debated among conservatives and liberals.

President Nixon seized upon the idea when he came into office, calling it the Family Assistance Plan (FAP). Supporters inside the administration included George Shultz, who later headed the Treasury Department and the State Department under President Ronald Reagan. But conservatives were not unanimous in their support. Although the FAP was carefully designed to avoid penalizing work, some conservatives worried it was an unearned handout. Joining them in opposition were liberals who felt the benefit was too stingy. FAP made it into Congress, but didn’t make it out.

In the aftermath, Republicans came up with a modified version of the idea: the Earned Income Tax Credit (EITC). The name spoke volumes: the benefit was linked to earnings, eliminating the worry about handouts. This structure enabled the EITC to emerge as a conservative favorite, with Reagan pushing for an expansion during his presidency. Decades of social science research have found the EITC — the closest the United States came to a cash grant before the passage of the CARES Act — reduces poverty and increases the health of recipients and their families, particularly children.

Are today’s populist conservatives aware of this history?

Strikingly, it was the newer wave of conservatives, tied closely to President Trump, who led the push for immediate and universal cash support. Unknowingly they repeated Friedman’s classic argument that the best way to increase purchasing power was getting cash into the hands of individuals and families immediately. While populists invoked low-wage workers living paycheck to paycheck, cash payments also appealed to business-oriented Republicans like Sen. Mitt Romney (R-Utah), an early advocate of the idea. Romney’s support echoed another Friedman theme: efficiency. In a crisis, fine tuning policy could cause unacceptable delay.

Cash bridged conservative generations because it put an individualist spin on a collective emergency. Cash payments are a way to acknowledge the importance of the crisis without growing the government in ways conservatives consider misguided. Although they seem like a big spending liberal program, they rest upon a fundamental belief in individual decision making and the power of spontaneous order over top-down planning.

True, the final CARES bill set aside a key element of UBI: universality. Instead of sending money to everyone, CARES set up a more targeted system, phasing out the $1,200 payments as incomes climb. Amid crisis, lawmakers proved wary not so much of giving money to the poor, but giving money to the rich.

Yet, even this represents a huge transformation of the debate around cash. For the first time, Republican lawmakers debated the pros and cons of universal cash grants. They pointed out the good points of universal programs: efficiency, simplicity and speed. They did it without the usual invocations of unearned or undeserved aid that have crippled previous efforts.

Most significantly, the relief program could stimulate interest in cash as part of conservative industrial policy — a deliberate program of economic development keyed to the needs of Republican voters and incorporating traditional Republican principles. Trump’s populist economics — at least on the campaign trail — was the first blow against free market thinking on the right. Since then, populist conservatives have struggled to operationalize their new loyalties to working class voters. Under pressure, they returned unexpectedly to the new old idea of cash.

Both the coronavirus crisis and the long history of UBI show how cash grants can resonate with conservative principles of individualism, efficiency and government doing more with less. In the long recovery that lies ahead, ideas like cash that can bridge both partisan and intra-party divides should be taken out of the archive and put to work.

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