Stockton, in California, suffered more foreclosures during the subprime crisis than any other US city and was declared bankrupt in 2012
Credit: Kim White/Telegraph
The city of Stockton in California is a little more than an hour’s drive from the gleaming Silicon Valley headquarters of Google, Apple and Facebook, but it feels light years away.
Its heyday was arguably the mid 19th century, when its direct river access to the thousands arriving in San Francisco from around the world made it a key trading outpost for the argonauts chasing riches during the Gold Rush. But in this century, its name has usually come up for the wrong reasons.
After suffering more foreclosures than any other US city during the subprime crisis, Stockton declared bankruptcy in 2012, at the time the biggest city in America to do so before Detroit followed a year later. Policing cuts followed, and the city became notorious for crime. Today, house prices remain below their 2006 peak, and unemployment and homelessness remain high.
While much of Stockton’s downtown is fading and empty, Cassidy’s Jewelry & Loan is one of its few pristine and bustling buildings. The pawnbroker, which lends at rates of around 17pc over four months, has been a fixture of the town since 1912. Proprietor Tim Cassidy, 77, is the fourth generation of Cassidy to run the place, and expects to pass it down to his son and grandson.
Cassidy’s Jewelery & Loan is one of few pristine and bustling buildings in Stockton
Credit: Kim White
But in the last year, demand for loans has dried up. “Not very long ago, before the pandemic hit, we were writing close to 150, 160 loans a day,” Cassidy says. “Now we’re writing 10 or 12.” Instead, he says sales of his unclaimed collateral — jewellery, electronics, and music equipment — have increased.
Cassidy puts this reversal in fortunes to an unprecedented level of government support for the people who typically rely on his loans. During the pandemic, the US government has committed to trillions in stimulus measures such as unemployment insurance and cash payments to Americans.
This week, Joe Biden signed a $1.9 trillion (£1.4tn) bill approving a third round of direct payments, $1,400 per person, to anyone making under $75,000 “They’re just pumping that into their checking account,” Cassidy says.
“So with all that money, they don’t need loans.” The stimulus has been felt across the US. But Stockton is unique in one way. It is ground zero for a radical experiment in government spending that supporters say could spark a movement on the scale of the 1930s New Deal.
Two years ago, 125 residents in low-income neighbourhoods were randomly selected to take part in a trial in which they were sent $500 each month with no strings attached.
Many Stockton residents lost their jobs and homes in the subprime crisis. Today, unemployment and homelessness remain high
Credit: Kim White
The privately-funded Stockton Economic Empowerment Demonstration (Seed) was one of the first real-world experiments with “guaranteed income”, the idea that the government should send large parts of the population a substantial amount of money every month, regardless of job status and without conditions on how it is spent. A related-idea, universal basic income (UBI), would involve governments sending every adult, regardless of means, the same amount each month.
The theory behind cash, rather than restricted benefits such as food vouchers, is that it would cut the bureaucracy that low-income households often struggle to manage, and that people know how best to spend cash: that poverty is solved by money. Michael Tubbs, who was mayor of Stockton when the project launched, says that at the beginning, the payments were criticised as a hand-out that would be drunk, smoked or gambled away, and would disincentivise people from getting jobs.
“They said: ‘People will spend this on alcohol and cigarettes, and people won’t work. You’re paying them to stay at home.’ I said that no, I think $500 will actually allow people to find work. They thought I was crazy.”
Residents in low-income neighbourhoods were randomly selected to take part in a trial in which they were sent $500 each month with no strings attached
Credit: Kim White
Earlier this month, it released findings on the first year of direct payments ending in February 2020. The results appear to support Tubbs’ prediction. At least 37pc of the monthly $500 — sent in the form of a debit card each month — went on food, then utility bills and car maintenance. The researchers said less than 1pc of the spending they tracked went on alcohol and tobacco.
The participants showed lower signs of depression and anxiety, and suffered lower “income volatility” — the difference in pay cheque from one month to another. More were able to pay down debt. Most importantly for those seeking to rebut critics, employment increased among those who received the money. From February 2019 to February 2020, those in full-time employment increased from 28pc to 40pc. A control group that did not receive payments also saw employment increase over the period, but by much less — from 32pc to 37pc.
The group was small, and findings have not been peer-reviewed, but anecdotes appear to support the data. Tomas Vargas was one of those who received a monthly payment. Vargas, 35, said his mental health had suffered and he had been underweight before he started receiving the cash.
A former warehouse supervisor, he said the money had allowed him to take the occasional shift off to apply for jobs and pursue interviews. He is now working full-time, including as a case manager for people on parole. “I was hustling every day. Seed gave me the chance to actually do something with my life, it gave me that reassurance.”
Tomas Vargas was a recipient of Stockton's pilot basic income payments, which he says allowed him to take time off to find a better job
Amy Castro Baker of the University of Pennsylvania, who evaluated the trial, said the payments gave people breathing room. “There were a lot of folks out there who were eligible for full time employment, but literally could not take a single shift off of work to apply for a new job.
"When you know, to the day to the hour, the week, when your money is going to run out, you don’t have time to just stop, breathe and actually set a new goal for yourself or even in some cases, apply for a position that you know is available. Financial scarcity generates time scarcity. And that time scarcity shows up in the way that people are able to respond to things like seeking better employment.”
Results from the trial’s second year, when the pandemic disrupted daily life, will be released next year. But Stacia West of the University of Tennessee, who also studied the findings, said monthly cheques were likely to have acted as a “financial vaccine”, allowing recipients to avoid repeated community exposure.
“Behaviours that many of us engaged in, like stocking up on toilet paper. A lower income family that has a lack of predictability in paycheques. They can’t go to [bulk retailer] Costco and spend $200 on toilet paper, right?” says West. “So that means you’re going out into the community and you’re exposing yourself over and over and over to the virus.”
Pandora Crowder, the chair of a residents council for a low-income housing authority in Stockton, said Covid had meant substantial increases in the bills many residents most struggle to pay: food, electricity and internet.
“We bank on the fact that our kids are going to be at school and not trying to eat us out of house and home every day. Now our kids are at home all day long. Our energy bills are going up because we have computers and we have lights on. And then you have to have the internet. So that $500, it had to have been a godsend to them.”
More residents of Stockton found jobs after being given $500 a month
Credit: Kim White/Telegraph
Guaranteed income is not a new concept. Martin Luther King and Richard Nixon both supported UBI in the Sixties (concerns that it would discourage work, based on a largely-fabricated Royal Commission report into the “Speenhamland” poverty-relief system of 18th century England, scuttled legislation).
Alaska has sent residents an inflation-adjusted $1,600 a year, paid for by oil revenues, since 1976. But the idea has had a revival in recent years from an unlikely source: tech billionaires. Elon Musk and Mark Zuckerberg have both expressed support for UBI, as has Sam Altman, an influential investor and current head of the OpenAI lab.
Seed was funded in large part by the Economic Security Project, which is backed by Facebook co-founder Chris Hughes, as well as an organisation funded by Instagram co-founder Mike Krieger. Silicon Valley’s support for UBI is based on the belief that a coming wave of automation will render millions of jobs obsolete, requiring government support to step in.
Natalie Foster, Hughes’ co-chair at the Economic Security Project, adds that techies often have a fondness for radical ideas. “ Top folks in tech are interested in big ideas and clear solutions. And a guaranteed income is one of those things. Poverty is simply the fact of people not having money. How do you solve that problem? You give people money.”
Paying $10,000 a year to every US citizen would cost an estimated $2.5 trillion, half the Federal budget
Credit: Justin Sullivan/Getty
The idea received new attention in the race for the Democratic presidential nomination when Andrew Yang, a former entrepreneur whose key policy was support for UBI, demonstrated unexpected staying power in the race. Yang, who is now running for mayor of New York, dropped out, but the race’s eventual victor may now be paving the way for giving cash to citizens.
The direct payments in last week’s stimulus bill, as well as a one-year child tax credit deemed a “UBI for kids”, have overwhelming support among voters, although Republican politicians opposed the bill based on its cost. Recent polling from Lake Research Partners found that 61pc of US voters supported further payments during the crisis, including 42pc of Republicans.
The biggest question about UBI is how to pay for it. Paying $10,000 a year to every US citizen would cost an estimated $2.5 trillion, half the Federal budget. In the UK, giving adults £100 a week, and £50 for each child, would cost £314bn a year, 40pc more than government spending on benefits, pensions and tax credits. The cost could be lowered by introducing an income threshold at which people qualify, although proponents argue that universality would increase support for the measure.
At a glance | Universal basic income
“That’s socialism,” says Cassidy, the Stockton pawnbroker. “We’re not like Sweden. I don’t think you can just give money away.”
Supporters of a UBI might say the last year might suggest otherwise. “I think we’re laying the pipes for a very important role that the government has, which is to create an income floor for people that comes in the door each month,” says Foster, of the Economic Security Project.
After the pandemic, support for free cash from the government might subside. But then again, income tax was meant to be a temporary measure too.
Свежие комментарии