Andrew Yang was right about cash relief
This is the web version of The Ledger, Fortune’s weekly newsletter covering financial technology and cryptocurrency. Sign up here to receive future editions.
How times have changed.
In February, when Democratic candidate Andrew Yang folded his Presidential campaign, his signature plan of giving every American $1000—a so-called “Freedom Dividend”—remained a fringe idea. Now it’s March, and both Democrats and Republicans in Congress are scrambling to do just that.
Yang’s plan was inspired by economic disruption posed by mass automation, not the coronavirus. But Yang, whose advocacy for cryptocurrency made him a popular candidate in the blockchain community, sees a similar reason to act. “What the pandemic has done is accelerate those circumstances in an incredibly compressed timeframe where it has literally sent tens of millions of Americans home all at once,” Yang told Politico.
For those Americans, the impending arrival of $1000 would alleviate some of the awful dread that comes with sudden employment. The question is whether the cash would become a permanent form of monthly income, as Yang envisions, or be limited to the one-off payment Senator Mitt Romney has called for.
In the short term, the answer will be something in between. It’s obvious the coronavirus is not going away soon, and that many people will be just as desperate in April as they are in March. Congress is likely to renew the payments—whether you want to call them a stimulus or a Freedom Dividend—for several months at least.
As the payments become a temporary feature of American life, they will spur more serious discussion about the idea of Universal Basic Income, or UBI. On his campaign page Yang points out, correctly, that direct cash transfers would be more helpful than a spate of programs run by federal bureaucracies, and that the risk of people blowing the money on things like booze is overstated.
The harder questions for UBI involve how to pay for it—Yang says it can be done with money saved from other social programs, along with a new Value Added Tax—as well as whether it makes sense to give $1000 to people who don’t need it. On the latter question, Yang says universal payments are more efficient than the government means-testing individuals. It’s also likely that the well-off would donate their allotments to those who aren’t and, indeed, people are already calling for a campaign to do just that during the current crisis. In any case, many would see UBI as a superior form of government redistribution than the last round of corporate tax cuts, which saw CEOs plough cash into share buybacks to goose share prices—and their own compensation.
One final observation: politicians and many in the media are describing the impending stimulus as “sending checks” to Americans. This is what occurred twice under the Bush administration, which used a combination of direct deposit and mailing paper checks (an anachronism increasingly found only in the U.S.) to mete out the moolah.
But given the incredible innovations in fintech since then, surely there are more efficient ways to distribute such funds? Ledger readers, please share any ideas on the latter issue, or your thoughts on Yang-style UBI initiatives in general. I can be reached at email@example.com. Thanks for reading.
Jeff John Roberts
The Federal Reserve cuts interest rates to nearly 0% ... U.S. postpones April 15 tax payments ... The Fed will relaunch its Primary Dealer Credit Facility, a crisis-mitigating liquidity measure rolled out in 2008 ... Bakkt, which creates cryptocurrency-based financial products, raises $300m in a series B funding round ... Experts say a Fed bailout would strengthen bitcoin, in a couple of possible ways ... Ex-PayPal CEO founds neobank for struggling families ... Lower interest rates could help student loan borrowers.
Lower Fed interest rates are forcing fintechs to cut savings-account interest ... Retailer and crypto-dabbler Overstock.com was subpoenaed by the SEC last year ... Crypto mega-conference Consensus goes online-only for this year ... Offshore crypto exchange BitMEX claims that DDoS attacks caused trading halts ... The Steem blockchain will fork to push back against a takeover by Justin Sun of Tron.
FOMO NO MO'
"If we were a centralized system we would have a dictator and know what to do."
Rich Brown, head of community for the MakerDAO Foundation, during a call about the future of the "decentralized finance" system.
MakerDAO is broadly considered the most important test case for 'decentralized finance,' the push to build loans and other products using cryptocurrency and blockchains. And the experiment is in turmoil. The instability was triggered, primarily, by a huge drop in the price of Ether, the underlying crypto-asset used to back the system's DAI token. DAI was envisioned as a 'decentralized stablecoin,' which would track the price of a dollar without a hard peg. But Ether's drop effectively broke the automated mechanisms by which MakerDAO's system stabilizes the price of DAI. Now, players in MakerDAO are working to stabilize the system, including by adding USDC, a dollar-backed stablecoin. MakerDAO may pose a crypto-systemic risk: if it were to collapse, as much as $211 million worth of Ether would flood into an already-cratering crypto market.
MakerDAO is a smallish experiment, but it provides a preview of the coming days and weeks, not just in crypto, but in the broader financial system. Complex, leveraged systems don't tend to perform well under massive external stress, and complexity and leverage have become characteristic of much of the global economy.
The decline in the price of bitcoin between early Saturday, March 7, and the morning of March 18. That’s substantially worse than the performance of major U.S. stock indexes during this troubled period.
Over the last five-odd years, there has been significant chatter among crypto advocates that bitcoin is uncorrelated with broader markets because of its disconnection from legacy financial systems. It has also been touted as a ‘store of value’ akin to gold, and even a safe haven from broader market instability.
As our Robert Hackett unpacks here, in the face of the first true economic crisis bitcoin has ever faced, none of those narratives held up.
THE LEDGER'S LATEST
Bitcoin tanks on coronavirus fears - Chris Morris
If Bitcoin is a safe haven, why does it tank in times of trouble? - Robert Hackett
Bitcoin bloodbath: What people are saying about the crypto collapse - Jeff John Roberts
Trillions in stimulus spending fail to rally global markets - Bernhard Warner
MEMES AND MUMBLES
This edition of The Ledger was curated by David Z. Morris. Contact him at firstname.lastname@example.org.