Far and away the best policy solution I’ve seen to the economic hardships created by our response to the Covid-19 pandemic is a proposal by economist Arnold Kling.
That is Tom Giovanetti, of the Institute for Policy Innovation. He continues with an excellent write-up of the credit-line proposal and its rationale.
UPDATE: Following a trail from Tyler Cowen, I got to this post by Miles Kimball.
Instead of mailing $1000 check to each person as is being discussed, mail each adult a government credit card with a $5000 line of credit. Mail similar government credit cards with lines of credit that are a certain percentage of previous revenue to small businesses that would be most strongly affected by the coronavirus.
He wrote that on March 19. So I think he had the idea before I did.
On March 22nd, Senators Booker and Brown introduced, S.3566, “to prohibit depository institutions from assessing overdraft and non-sufficient fund fees …”
Introduction is not the same as delivering an actual text, and so far there isn’t one and it looks like the attempt didn’t go anywhere and was mostly performative in nature.
Before the crisis, Booker had been involved in a few previous attempts at reigning in overdraft fee charging practices.
Now you just need to get him to write about your proposal on the masks and random testing.
Congrats on the shoutout!
I re-read your proposal. Why not subsidize the private credit card industry instead?
Quick question for anyone/everyone ….
What would YOU spend the money (e.g., $5,000) on at this time?
(Given what we know now [not very much])
You know what people living paycheck to paycheck really need right now.
To come out of the lockdown $5,000 in debt.
Jeez, can’t we just give these people MONEY.
“Jeez, can’t we just give these people MONEY.”
—
No, actually. The problem is we have an equilibrium, we all agreed to the shutdown, both business, homes and government. Thus, there is no shifting of the costs, in this equilibrium people eventually pay their own costs. The best government can do is add chaos to the process.
At the risk of sounding offensive, asdf, I asked what YOU would do with the money. NOT what “people” might do with it. If YOU are living “paycheck to paycheck”, as you are projecting “people” are, that’s okay, just let me know what YOU would be spending it on.
I’ve got a house I’m supposed to close on and part of the down payment I was counting on for my parents that are moving in isn’t coming anymore. My wife will probably be out of work soon. Of course if construction stops where its being built I get the privilege of paying for my parents to stay in a hotel for months on end. Oh and we are high risk individuals so I’m super happy about them staying with a bunch of transients, us being stuck in the city, and our daycare being closed and everyone cramming into our little space everyday.
Down payment. Mortgage payments. Diapers. Take your pick.
I won’t get much of a check because “we earn too much” (ignoring that my wife will be out of work soon). Shouldn’t have worked so hard for that promotion.
If we’ve got $2T for corporations, I think regular old citizens can get a tiny tiny slice of that, huh. Too much to ask.
Cool, asdf. Thanks.
By God’s grace, I’m in fine shape. Here are my reactions if you gave me:
1. Cash: Bank it as an unexpected windfall. Same goes for payroll tax holiday.
2. $5,000 line of credit, government card: Cut it up.
3. Lower interest rates: Refinance my mortgage.
For people thrown out of work, typical “reservation wage” logic doesn’t apply during lockdown. Generous unemployment insurance checks and subsidies for “COBRA” continuation of health care would be targeted and help keep a lot of desperate people afloat as close to normalcy as possible for the duration of the crisis.
If the government is going to absolutely insist on giving me money, then it would be nice if it were possible to so in the form of gift cards only usable at the businesses which were hardest hit.
That might have been a better way to save the airlines – everybody gets vouchers or some miles to use afterwards. If the government gave me stimulus in the form of a free flight, so long as I traveled within a year of the “all clear”, I would do it.
You really want the whole vacation package. Have you seen one of those complicated “triple bank shot” coupons in the grocery store lately? “If you buy two of this, and one of that, then you get a dollar off four cans of another thing.” “If you fly, book a hotel, rental car, and go to participating restaurants, then, when everybody has punched your digital card, we give you $1,000”.
Thanks, Handle. I suspect we’re “like-minded” with regards your points 1 and 2. I don’t have a mortgage so #3 wasn’t relevant for me.
Interestingly, you mentioned “gift cards” about mid-way in your answer. As it happens, I’m already doing that – sort of.
There are about a half-dozen or so small (“Mom and Pop” type) businesses I patronize fairly often. Several are restaurants. I’ve already been in contact with them to see if they are doing “take away” services through this, and I’ve already bought from them on those terms.
And I’m intentionally paying 5 times the “bill” for the take out. Of course they asked why, and I told them I’m effectively buying a “gift card” now (to help their current cash flow needs) and I may (or may not) “redeem” those sometime in the future when things return to some semblance of normalcy.
You see, these little businesses I patronize make MY life better by their very existence. And me being the self-interested sot that I am, I want to do all I can do NOW to make certain they’ll be around to make MY life better in the future.
It occurs to me that gift cards are just another form of credit. Businesses which are shut down could be getting liquidity by selling “Corona Crisis Cards” at a steep discount now, to pay the bills, redeemable after the all-clear.
The state could stimulate by subsidizing the discounts, but on the condition that the card be used within a year. That would keep average consumption on track, but bring forward a lot of cash from the people who have it now to the places that need it now.
Our government structure has not changed. That structure has a history, mainly bailouts about every eight years if one looks backwards. We should start believing, accept a unsustainable government programs, expect periodic bailouts.
How does the alternative fantasy help at all? We can all derive the perfect program, assuming Godot is arriving. But Godot is not arriving, accept the government foul ups we voted for. Lower our expectations of government.
You say if we focus on banks now, we are not putting relief where it is most directly needed, but your idea is to guarantee lines of credit for every person and every business. Sounds like the largest financial services giveaway in human history.
Arnold, I was happy to draw attention to your excellent idea. I would have given you a heads up except I couldn’t find your email address or any other way to contact you on your blog.
I think a valid argument could be made that allowing people to keep more of their money by reducing/eliminated items like gas, sales, capital gains, real estate taxes is more effective and efficient than giving them money in any format. For state and/or local taxes, the Feds could reimburse the state if appropriate.
The recession will save 60,000 of us from certain death:
https://www.npr.org/2018/01/09/576669311/hidden-brain-great-recession-deaths
SHANKAR VEDANTAM, BYLINE: Hey, David.
GREENE: So recessions can be good in some ways?
VEDANTAM: In some ways, David, recessions seem to change the mortality rate, and not in the direction you might expect. I was speaking with the economist Erin Strumpf at McGill University. Along with Thomas Charters, Sam Harper and Ari Nandi, she studied the effect of the Great Recession a decade ago by looking at 366 metropolitan areas in the United States, which cover about 80 percent of the U.S. population.
ERIN STRUMPF: We find that in areas where the unemployment rate is growing faster, mortality rates decline faster. So during the Great Recession in the U.S., we saw increases in the unemployment rate of about 4-5 percentage points, so that translates to about 50,000 to 60,000 fewer deaths per year, the same order of magnitude as the number of people who die from influenza and pneumonia every year.
—-
Thus we timed the bailout perfectly. We save sixty thousand by just having our regularly scheduled recession. So far the virus has killed 1,000.
What timing, the virus arrived just in time for bailouts. Or were the bailout scheduled for Q2? Most of us planned for a Q1 recession anyway but it looked like the recession was moved up to Q2, then along came the virus and set the schedule correct. Boy we missed a bullet on that!
Past recessions are examples of where total “deaths” is a very good metric to use as an indicator. Unfortunately, very smart economists and epidemiologists are clinging to this metric when the critical variable has changed. In the COVID-19 epidemic, the critical economic variable to track is Hospital Capacity.
The Flatten the Curve strategy tries to keep the Infected Bell Curve under Hospital Capacity. It takes enormous socio-economic effort to increase Hospital Capacity at a rate that matches the steep upside of an uncontrolled Infected Bell Curve. It is much cheaper to Suppress the Spread but if/when chained Community Transmission is sustained we are sailing in uncharted waters.
The Canadian numbers are consistent. The PCR Testing has targeted symptomatic travellers or close contacts. In this population of tested individuals, 6% end up hospitalized, 2% end up in ICU, and 1% die.
If you don’t support the infected people self-isolating at home, many with flu-like symptoms will panic and seek treatment and testing at hospital. The anecdotal evidence is that it often “feels like I’ve been hit by a truck” and you think/wish you were dead but unless the infection moves to the Lower Respiratory Tract (bronchitis or pneumonia) you will recover. The joke among sailors is that there are two stages to sea sickness: 1. You feel like you are going to die, and 2. You wish you were dead.
Isolate but Support should be our motto.
Canada’s Dr. Theresa Tam update on COVID-19 Severity: 7% Hospitalized, 3% ICU, 1% Death (YouTube Mar 28)
what are the administrative costs of setting up overdraft protections?
the price tag of the trump check is about a trillion and a half (1200 x #adult citizens)
is this really cheaper?
Sadly, lenders are acting completely rationally and cutting back on lending in the face of falling revenue and creditworthiness among potential borrowers, according to the Wall Street Journal’s exclusive Saturday linked below. Far better for the Fed/Treasury/Congress to give banks incentives to lend under your plan.
https://www.wsj.com/articles/people-need-loans-as-coronavirus-spreads-lenders-are-making-them-tougher-to-get-11585357440?mod=hp_lead_pos3