A Radical Free-Money Experiment Became Vital When Covid-19 Hit
(Bloomberg Businessweek) -- In the summer of 2017, Tomas Vargas Jr. had a wife and two young children at home in Stockton, Calif., and a teenage son he hadn’t seen in a decade. He had a $31,000-a-year position at UPS, side jobs repairing cars and carrying groceries, friends killed by gunfire, and night terrors. He was 33 years old. “In the morning, I would look dead in the mirror and tell myself, ‘I know you hate it. I know you don’t want to keep going. But what gives you the right to just be a piece of shit like that?’ And after I looked at myself deeply in my eyes, I’d sit there and tell myself, ‘Wash your face and get started and try.’ ”
One day that autumn, Vargas heard Michael Tubbs, the new mayor of Stockton, on television talking about giving away cash to his constituents, nearly a quarter of whom live below the poverty line. Vargas just laughed. Another year of work and dread followed. Then a postcard arrived in the mail, one of 4,200 sent to randomly selected residents of neighborhoods with a median annual income below the city’s figure of $46,000. It included a request to complete an online survey of 100 questions covering such things as stress levels and the use of check-cashing services. Vargas answered them all. In January 2019 he was informed that he was one of about 125 people randomly chosen to receive a guaranteed income of $500 a month for 18 months. He’d be part of the Stockton Economic Empowerment Demonstration.
Vargas figured it had to be a con. But he went down to the SEED office near city hall, where Sukhi Samra, the program’s director, assured him it wasn’t. He would receive the money on a SEED debit card and could spend it however he chose. Researchers would record everyone’s anonymized expenditures, which would then be published on the program’s website for anyone to see. A control group of 200 people were also being studied, receiving small payments in exchange for answering questions about their financial well-being. “Damn, it’s a pretty good scam if it is,” Vargas thought. He signed up, and in mid-February $500 appeared on the debit card he’d received, as promised.
The idea of the government giving people money directly has been cycling in and out of favor in America for more than 200 years. It’s the essence of Social Security and the annual dividend paid to Alaska residents, and it was gaining adherents again in 2016 when Stockton elected Tubbs as its first Black mayor. He was 26, born on the city’s south side to a teenage mother and an incarcerated father, and educated at Stanford. A cousin’s murder had drawn him back home. He’d served a term on the city council before winning 71% of the mayoral vote. One of his priorities was finding ways to alleviate Stockton’s deep poverty and economic inequality, which saw White families earn twice as much as Black families on average.
That same year, Chris Hughes, a co-founder of Facebook Inc., had helped start an organization called the Economic Security Project. Among its policy prescriptions is a guaranteed basic income, driven by the belief that today’s economy is fundamentally unjust and frequently precarious. A guaranteed income wouldn’t have to be enough to live on. It wouldn’t fix every problem. But it could, the group hoped, make recipients less vulnerable. They were looking for a community to try out the concept and show that people could be trusted to spend money that came without restrictions.
By 2019 there was funding for the pilot, there were researchers and recipients, there were even three murals in downtown Stockton inspired by the idea. This year, the coronavirus pandemic brought hardship on a scale that both tested the experiment’s limits and made it more urgent.
As a candidate to be the first U.S. city in a generation to experiment with a basic income, Stockton made a lot of sense. A modestly sized metropolis of some 300,000, situated along the San Joaquin River in California’s Central Valley, it was founded during the gold rush, named after a commodore, and long ago became one of the country’s most diverse cities. But diversity hasn’t meant equality. The Crosstown Freeway divides the largely White and more prosperous north from the predominantly Hispanic, Asian, and Black south, where redlining, underinvestment, and aggressive policing have caused lasting harm. Life expectancy to the south is eight years lower, and the temperature is three degrees hotter. In 2007 no urban center had a higher rate of foreclosures than Stockton; five years later it became the first major U.S. city to declare bankruptcy.
When Tubbs took office, Stockton’s finances were still constrained. Its poverty rate was twice the national average. At the time, labor experts, Silicon Valley executives, and soon-to-be presidential candidate Andrew Yang were pushing universal basic income as a way to address the expected job loss from increased automation. Tubbs came at it from a different angle. “I didn’t learn this from the tech bros,” he says. He knew that Martin Luther King Jr. had advocated for some form of basic income in the last year of his life. “In a country with so much, where Jeff Bezos can make $13 billion a day, 35 million people shouldn’t be hungry. That seems like such a noncontroversial take.”
Tubbs is speaking from his second-floor office at City Hall. Painted on the walls are Isaiah 1:17 (“Learn to do right; seek justice”) and a lyric from the rapper J. Cole (“Dream like you never seen obstacles”). Tubbs is sporting a blue mask flecked with white polka dots. He’s got an hour.
In 2017, during his first months as mayor, Tubbs met Natalie Foster, co-chair of the Economic Security Project, at a tech conference in San Francisco. When he learned she was seeking a city for a basic income pilot, he pitched Stockton. Foster was intrigued, but Hughes had to be convinced, and so did other potential funders. “It was, ‘I’ve never heard of Stockton. He’s only been mayor for a year. There’s a bunch of mayors and a bunch of cities with a lot more cachet,’ ” Tubbs says.
He told Foster about programs already under way to help kids graduate from high school and go to college, to reduce homelessness, and to curb crime. Tubbs, by virtue of his age, background, and ambition, had also been attracting some cachet of his own—a documentary about his city council run had premiered at the Tribeca Film Festival. (In 2018 he graduated from a Harvard mayoral training program sponsored by Michael Bloomberg, founder and majority owner of Bloomberg LP, which owns Bloomberg Businessweek. The next year Bloomberg’s foundation donated $500,000 to a Stockton education reform group. In 2020, Tubbs endorsed Bloomberg’s bid to become the Democratic candidate for president.)
One July day in 2017, Hughes arrived at a cul-de-sac on a quiet street on Stockton’s south side to meet residents from a low-income housing complex. He introduced himself as Chris and asked what they thought of a guaranteed income. It wasn’t until after he left that anyone figured out who he was. That August the Economic Security Project contributed $1 million to Stockton’s guaranteed income pilot, and over the next six months Foster and Tubbs persuaded a dozen other organizations and individuals to contribute an additional $2 million. They finally had enough to back the pledge Tubbs had made on TV.
Tubbs says he’s imagined what extra money would have meant for his own mother, who worked retail and fast-food jobs while raising him. Less overtime and weekend work. Less stress. More breathing space. “I think it really would have meant a better parenting and adulthood experience for her,” Tubbs says.
It had been almost five decades since the government last tested the benefits of no-strings-attached cash. In the late ’60s and early ’70s, following some failed gestures by the Nixon administration toward welfare reform, several local experiments in “income maintenance”—essentially a form of negative income tax, which guaranteed money to people below a certain income threshold—were launched in cities such as Denver, Seattle, Gary, Ind., and Trenton, N.J. Researchers combined cash payments and job-training programs, aiming to test the effects of a negative income tax on physical and mental health, family planning, and purchasing habits—but mostly to see whether recipients worked, and how much.
The experiments produced unintended effects. While the money helped keep some couples together, it also allowed some women to leave their husbands, which many people didn’t think was a good thing. Even more ambiguous were the effects on employment. Some recipients worked more, while some, often mothers and college-age adults, worked less. Data from a more robust program that ran in Dauphin, Manitoba, from 1974 to 1979 showed more definitively that most recipients didn’t stop working.
Eventually, priorities changed, the pilots were abandoned, and, in the U.S., welfare requirements grew ever more stringent. The first significant guaranteed income pilot during the current renaissance of interest took place in Finland, where 2,000 unemployed people were given the equivalent of $600 a month for two years starting in 2017. Again, the money didn’t decisively appear to help people find work, though it didn’t keep them from looking, either. Perhaps the most interesting finding was that participants reported being happier.
To Samra, SEED’s director, that’s proof enough of the idea’s worth. “I think the government’s job is to care for the well-being of its people,” she says. When SEED was being designed, Amy Castro Baker, an assistant professor at the University of Pennsylvania, and Stacia Martin-West, an assistant professor at the University of Tennessee, involved Stockton residents in discussions about how it should work. The researchers asked how best to select recipients, disburse the money, and present the results.
The experiment wasn’t set up to encourage work—it assumed most residents were already working hard enough. And because only 125 people from Stockton’s poorest communities were selected, the participants weren’t expected to be representative of the city as a whole. Its population is 11% Black, while 28% of the recipients are; 28% of residents and 37% of recipients identify as Hispanic. Almost 70% of the participants were women (who apparently open the mail more regularly than men do). The breakdowns of employed to unemployed aren’t perfectly representative, either: When the project began, just over 55% of Stockton’s working-age population had jobs outside the home, while 43% of SEED recipients did.
The intent isn’t to cure anyone’s poverty or unemployment or housing insecurity, Castro Baker says. It’s to help build resilience. The real question is: “To what degree does guaranteed income serve as a financial vaccine?”
Dentures, car repairs, prom dresses, birthday dinners, rent, and groceries—especially groceries. That was how Stockton’s basic income recipients were spending their money in 2019. They reported that their stress was reduced, that they could work more easily and stay healthier, and that they had more time with their families. There was one caveat to the spending data: Each month about two-fifths of the money, on average, was withdrawn as cash, in part because of recipients’ unfounded fears the program would end and they would no longer be able to access the funds. Information about how the cash was spent isn’t yet available, but of the money that was tracked, people typically spent 40% on food each month and only about 2% on “self-care or recreation.”
In March, as California was under lockdown, food came to account for 46.5% of spending as recipients tried to stock up as best they could. “You’re talking about low-income people who were then able to prioritize the health of themselves and their families, and they wouldn’t have been able to otherwise,” Castro Baker says. She and her colleagues don’t regard the pandemic as a confounding variable in the experiment, but rather a clarifying one. (They expect to release their analysis of the pre-pandemic months early next year and the results of the entire experiment in 2022.) “This is the third serious economic crisis in 12 years,” Castro Baker says. “So understanding how people use cash in the context of shock is really, really key.”
Zohna Everett’s life started to come apart in 2018 when she found herself unemployed after eight years working in logistics for the Department of Defense. Her husband drove trucks on contract, and when he didn’t have a job, they didn’t have enough money to cover their expenses. She started driving for DoorDash, but that required cash for gas to deliver takeout orders, which sometimes meant delaying bill payments. She also took out loans to study accounting online at Grand Canyon University, a Christian school based in Phoenix.
And she received the postcard from SEED. Months later she was in the Phoenix airport, returning from a school-sponsored visit, when she got the call letting her know she’d been selected for the pilot. “I was sitting there trying to be all nonchalant, but everything in me was jumping up for joy,” she says. “Later, I just cried and cried. It was so much of a relief. You don’t know how hard it is to hustle like that.” She cries again, sitting in the SEED office, remembering. She’s wearing a black Puma hat and a pink mask, often tapping her long, pink-polished nails on the table as she talks. In her silver backpack is a Bible, thick with notes, that she carries with her everywhere.
With the SEED money, Everett was able to get a new checking account and stop using a check-cashing service. She arranged for her monthly bills to be paid automatically. She quit DoorDash and focused on her studies. She was able to tithe 10% of the $500 to her church. “Bam, bam, bam, bam, bam. It was just like, ‘I can breathe,’ ” she says. “This is what freedom feels like.”
At the start of the year she accepted a full-time job building cars at Tesla Inc.’s factory in Fremont. She figured that when the guaranteed income experiment ended, she’d be all set. There would be savings, maybe even a house at long last. That spring she left her husband and began divorce proceedings. She got sick with Covid-19. The job went on hold. And SEED was set to run out in July.
In late May, though, Tubbs and Samra called to tell her that SEED would continue through January 2021. Everett thanked them, thanked God, clasped her hands, pumped her fists, and said, “This is amazing.” She was also able to keep her job at Tesla, going on unpaid leave and collecting unemployment as she continued to suffer shortness of breath and a persistent cough.
Vargas’s experience of basic income, too, was marked by pre- and post-Covid periods. As the experiment began, he kept his job at UPS. He spent less time hustling for other work, though, and more time with his kids. He also bought himself some art materials so he could start etching glass and putting decals on shirts.
Eventually, he decided to look for a new job. “Before SEED, I would have stuck it out at UPS, being stressed out with no opportunities to advance after two years,” he says. At the end of last year he applied to work as a freight supervisor at the local airport. He took the drug test and passed the background check—just in time for the pandemic to all but shut down the airport. “From January to April, I didn’t have any income, only the SEED payment,” he says. “That money gave me so much reassurance.” His first unemployment check took months to arrive.
In June, Vargas became a facilitator at Fathers and Families of San Joaquin, a nonprofit that works with formerly incarcerated men and their children. He’d been introduced to the director, Sammy Nuñez, at a meeting where Vargas had agreed to discuss basic income with California Governor Gavin Newsom. Vargas loves pretty much everything about his new job. “Everybody is working together to try to help people in need. What better cause can you work for?” he says. With his monthly salary of about $3,200 and the extra $500, he’s been able to keep his bills paid and his refrigerator full. He sent pizzas to a co-worker in distress. “There’s a big-ass difference between when I first came here to where I am now,” he says.
Few wanted to see the Stockton program end in the middle of a pandemic. The $400,000 to extend it came from Carol Tolan, a philanthropist in New York City who co-owns her family’s food business. She met Tubbs in 2014 at a showing of that documentary about his first campaign. (Another film about Tubbs, Stockton on My Mind, aired on HBO this summer.) Tolan had provided some money to help publicize SEED early on, and she was motivated by the growing crisis to keep it going. “We have huge income inequality in this country,” she says. “I don’t have a platform. They are my platform.”
Tolan also encouraged Tubbs to help spread the idea beyond Stockton. In July he announced the formation of the Mayors for a Guaranteed Income coalition, a group of leaders aiming to launch direct guaranteed income projects in their communities and advocate for policy change at the state and national level. The coalition started with 11 members; it now has 25. Jack Dorsey, chief executive officer of Twitter Inc., has pledged $3 million in support. Next year there could be three or more new pilots under way. Samra says they’re even exploring a second one in Stockton. Protests against the country’s persistent racism have heightened the sense of urgency, Tubbs says. “All these mayors would not have signed on without both Covid-19 and the George Floyd civil unrest, hearing from the people that we want real opportunity, real hope.”
The country’s interest in direct cash payments seems to have grown more urgent, too. In late March, Congress passed the Coronavirus Aid, Relief, and Economic Security Act—essentially a guaranteed income, albeit a finite one. Unemployment benefits increased, but the system was also exposed as bureaucratic, slow, and inequitable; Black applicants were granted assistance around half as often as White ones. Even given the drawbacks, studies suggest that the stimulus package prevented an estimated 12 million people from sliding into poverty. Six bills to extend or expand cash assistance have been introduced in Congress. If any pass, support for more permanent payments—with no applications required and no conditions attached—could increase. “When we have something and see it as our right, it’s a lot harder to take that away,” says Madeline Neighly, who oversees the Economic Security Project’s work on guaranteed income.
Supporters of a permanent guaranteed income say it’s something the country can afford. It could be paid for by a wealth tax, a financial transaction tax, a carbon tax, or a data dividend. And poverty itself costs a lot of money, they say, in terms of health care and crime and lost opportunity. There isn’t yet a single calculation of how much a guaranteed income designed for poorer Americans would cost. Instead, there’s an estimate that relies on extending the earned income tax credit, which effectively serves as a guaranteed basic income. The nonpartisan Tax Policy Center figures it would cost about $2.5 trillion over 10 years to loosen eligibility requirements for the credit and increase it to as much as $4,000 annually for single workers and twice that for married couples.
Those who’ve done the math for a more expansive program, a truly universal basic income, have predictably produced even more challenging numbers: The cost of a $1,000 monthly dividend to every adult would exceed $3 trillion a year. Paying for that, skeptics note, would inevitably mean cuts to other safety net programs. And maybe that money would be better spent on providing good jobs, establishing universal health and child care, managing climate change, or properly funding Social Security and Medicare. “I love the spirit and philosophy behind UBI,” says Robert Greenstein, president of the nonpartisan Center on Budget and Policy Priorities. But he argues there’s not enough political will to make it happen. He doesn’t believe that even a smaller guaranteed income program would get much attention in Washington. Stockton’s program could be helpful in showing that people will continue to work, he says, but he thinks advocates would do better to focus on increasing the federal minimum wage and expanding compatible programs such as the earned income tax credit, the child tax credit, Social Security, and the Supplemental Nutrition Assistance Program. Changes like these could be implemented as soon as next year, he says.
As for the people who might object even to that—who believe the welfare system is already too generous, that the poor are undeserving, that any amount of free money would be misspent—the coronavirus has made it clear just how many Americans are vulnerable to sudden shocks. Everett saw it firsthand in Stockton. Some of the very same people who didn’t believe it made sense to give out money suddenly had their hands extended. “That’s my argument for a guaranteed income,” she says. “What if it was you?” Jobs can disappear. Trouble can come. And money, well, “as quick as it’s there, it can be gone. It can be gone just like that.”
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