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A Proposal to Reopen by First Saving America
The current debate about when and how to reopen schools and colleges misses the point. Of course we have to reopen schools. Just like we have to reopen businesses. Not only do we have to educate our kids, but parents can’t work without schools for their kids. Schools and the economy are linked: No schools, diminished economy; diminished economy, too little money for feeding, housing, and educating kids and their families. It is a downward cycle.
As businesses are pushing workers to return, helped by pressure from expiration of enhanced unemployment benefits, workers will get sick and neither be able to work nor to care for their children. And, customers will be afraid because of the sick workers, further driving business down. As more workers become ill, more customers will be afraid. Another downward cycle.
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School, business, and health are inextricably linked. You can’t solve one problem without solving them all. This may sound hopeless, but it’s not. It is a national emergency that requires bold, direct action. First save America, then reopen.
Here's my proposal in a nutshell: Implement a strict nationwide lockdown to defeat the virus and support people's needs during the lockdown with large, direct payments.
The rest is detail. (But I hope you'll read it!)
Breaking the Downward Cycle
The solution is simple, but difficult. It will take courage, real patriotism (not just the flag-waving kind), and shared purpose across the land. Here are the steps:
1. Admit that we've bungled our response to COVID
Our nation’s political leaders must admit, at least to themselves and in their hearts, that we’ve bungled our response to COVID. The disease is spreading fast, many people are dying, many more are being damaged for life, our kids aren’t being educated, and our real economy (not the stock market) is failing. Our country is being diminished by the day and we can only solve it by working together and with urgency.
Good leaders have the courage to admit error and to change course. Voters can forgive making mistakes, but they won't forgive leaders who stick their heads in the sand while awaiting a magical solution.
2. Tell the truth going forward
All of our political leaders must tell the truth going forward. Our leaders must establish credibility, which is sorely lacking now. Credibility will encourage people to follow the “tough love” needed to get through this crisis together. Lack of credibility will even make people reluctant to accept good news, like an effective and safe vaccine, because we won’t know whether the good news is true or yet another lie.
3. Implement a nationwide lockdown
We know the drill. Only “essential” businesses, or businesses where work-from-home is possible, stay open. Define “essential” narrowly, based on what’s needed to keep people fed and housed. People generally stay at home. Require masks and social distancing elsewhere.
We started this in March, but didn’t follow through nationwide and reopened too quickly. But our experience this spring and the experience in other countries shows that a lockdown will stop or nearly stop the spread of the disease, saving many lives. Moreover, reducing transmission to a low-enough level is the only way to get schools open and the economy going again.
4. Implement a massive public relations campaign
This second lockdown can’t be half-hearted like the first one. Bombard the public with specific, consistent, insistent messaging through all channels. Political leaders of all persuasions need to get on board and lead by example. Everywhere. All the time. This is what patriotism is about: shared sacrifice in service to the nation. We’ll know this is happening when we see the talking heads on both CNN and Fox News giving the same recommendations to their viewers.
5. Define criteria for reopening
Define stringent criteria for when lockdown can be eased and when it must be strengthened. Listen to the epidemiologists. Intuition from politicians doesn’t pass muster in such a complex situation. We have people who know how to model transmission and can tell us when it is safe to reopen various sectors of our economy. Listen to them.
6. Sustain people
The direct impact of a lockdown on people already living paycheck-to-paycheck is devastating. To make a lockdown feasible, the federal government must sustain such people. This is a big topic, which I discuss next.
Let’s keep in mind the goal — sustaining people — and ignore the side goals that have plagued previous COVID relief bills. We’re not trying to prop up large corporations, the stock market, or even the local pizzeria. Such goals might be laudable, but that’s not what I’m talking about here. I’m talking about how we keep people fed and housed.
Give Everyone Money
The simplest approach is to give everyone money. Yes, I said everyone. Why? Because determining who really needs support is complex, politically charged, and bureaucratic. Just look at the CARES Act Payroll Protection Program's (PPP) attempt to help small businesses: In practice, getting money required that a small business had the right kind of relationship with a bank and access to knowledgeable help from lawyers or accountants. The result was that many businesses that needed help didn't get it and many that didn't need help got it anyway. Making it simple helps make it fair.
Making it simple also eliminates the need to pay large fees to banks ⏤ PPP fees could exceed $24B.
So, let’s just bite the bullet and support everyone.
How Much Money?
Reasonable people will choose different subsidy amounts depending on their priorities. My priorities are that no one should go hungry for lack of money, people should not face eviction and homelessness, and our consumer-based economy should not totally collapse. Here’s my rationale.
Median personal income in the US was $33,700 per year in 2018. By definition, half of working-age individuals earn less than this and half earn more. Let's give each individual the median income, $2,800 per month, for the duration of the lockdown.
The lowest-earning half of individuals, those most likely to face hunger, eviction, and homelessness without help, would be better off than before, even if they lost their jobs. The lockdown would no longer throw them and their families into dire poverty. Some would even be able to accumulate some rainy-day savings or pay down high-interest debt.
The higher-earning half of individuals would be better off if they kept their jobs, but not if they lost their jobs.
What Would It Cost?
In December 2018, there were 206.7 million working-age people. So, this level of support would cost about $579B per month. Federal income tax revenue on these payments would offset some of the cost.
Can We Afford It?
Yes. As a comparison, the CARES Act is estimated to cost about $1.8 trillion, assuming that some federally-guaranteed loans are paid back, more if the loans are not repaid. If we can afford the CARES Act, we can afford to do this. A three-month lockdown would cost less than the CARES Act.
We could get into a political argument about whether it is good for the US to increase its deficit spending. For 40 years, Republican dogma has been that deficits cause inflation, yet when Republicans are in power they increase deficit spending, primarily to help corporations and the very wealthy, giving us many data points about deficit spending and inflation. There’s no evidence that deficit spending in the US causes inflation.
This is especially so now, when the Federal Reserve has been "printing money” by making huge bond purchases. These bond purchases prop up the economy by keeping interest rates at historic lows (around .5% for 10-year Treasuries). Most of that printed money is flowing into the stock market, not helping people. If we can “afford” to spend money for that purpose, we can afford to spend money to help people directly.
Can We Afford Not to Do It?
We must stop the pandemic. If we continue to let it fester, it will destroy our country, much like other plagues and cataclysmic events throughout time have destroyed past empires. Self-preservation demands that we take action and the only action we can take now is to follow public health recommendations for a lockdown.
But we can only implement a lockdown if we reduce its devastating impact on much of the populace. If we fail to help people through the lockdown, we will not be able to sustain it for long enough to defeat the pandemic, which will again send the economy into a tailspin.
Moreover, we have to keep services provided by local and state governments alive. Taxes, mostly sales and property taxes, fund these services. If people are not earning, they're not spending and paying sales taxes. If people are not able to pay their rent or their mortgages, they're not paying property taxes. Putting money in the hands of the populace not only keeps them fed and housed, but keeps critical services funded. (Further help to state and local governments may nevertheless be necessary.)
There is no other choice if we want to save America.
What About the Politics?
The political issue is whether Congress is willing to spend money to directly help people as opposed to the usual indirect approach of funneling money to banks and well-connected large corporations, and hoping it trickles down. The CARES Act shows that there is some hope for the more direct approach: About a quarter of CARES Act money went directly to people (see a breakdown here), so there's some willingness to spend money to help people.
But, the news is not all good. Republicans in Congress are now worrying out loud that enhanced unemployment benefits cause recipients to be lazy and not want to work. Even if their worry were justified (there's evidence that it is not), so what? When the lockdown is over, people will need to return to work.
Importantly, we need to recognize that during the lockdown we want most people to stay at home, not showing up at work while possibly infected because they need money to pay the rent and feed their family. That's why generous, direct funding of households is essential.
We Ignore Need for Corporations So Why Not for People?
Congress (both parties) seems happy to send huge amounts of money to large corporations that don't really need it. Why would we do that but at the same time only help people who "need" it?
One rationale politicians use is to preserve jobs. But large corporations have access to private sources of funding. Corporate borrowing is as cheap as it has ever been. Besides, it would be good if some corporations restructure through bankruptcy: Maybe corporate leaders would learn to keep adequate cash reserves rather than spending too much of their earnings on stock buybacks.
Importantly, the absence of strong opposition to the CARES Act's Economic Impact Payments to most households ($1200 per adult earning $99,000 or less, $500 per child), regardless of income level under $99,000 or employment status, gives hope that members of Congress could be comfortable that their electorate would perceive this proposed program as fair.
What About Businesses?
Businesses only survive if they have products or services to sell that attract customers with money to spend. Consumers drive large parts of our economy. Ensuring that consumers have money to spend will help most of our businesses. And, ultimately, no subsidy will help businesses that don't have customers willing and able to buy. One way to support local businesses during the lockdown is for households who don't need their whole subsidy to give money to support local businesses that are important to them. This seems preferable than the bureaucracy-heavy PPP approach.
There will still be people who believe in the (discredited) trickledown theory of economics, that the best way to help others is to give money to corporations and the wealthy. Such people, especially those in high-income households who will receive but not need the subsidy, should put their money where their mouth is by donating their household subsidy to their favorite businesses or corporations.
Will Essential Workers Be Willing to Work?
Since everyone will be receiving a subsidy payment, why would anyone want to work in an "essential" job? There are several reasons. First, employees will know that they'll need employment post-lockdown, which might provide incentive to keep working. Second, and more importantly, essential businesses that need more employees during the lockdown will raise wages to attract them. Individuals will balance extra earnings against risk, with workers in different risk categories possibly making different decisions.
Likewise, essential businesses will make varying decisions about how they operate during the lockdown. Some may cut back products and services that they provide to avoid needing to hire more workers; others may raise wages to attract more workers so they can maintain their usual services. Among those that raise wages, some may raise prices to maintain or increase profits, while others will absorb the temporarily increased labor costs as a way to endear customers to them post-lockdown.
What About the Financial System?
In the 2007 recession, banks were pummeled by inadequate capital with which to withstand the deluge of loan defaults. Supposedly, they're in better shape now, but we shouldn't count on them having adequate capital to withstand massive defaults. This proposal puts money into the hands of people with credit card and mortgage debt, which will reduce the risk of bank failures or the need for federal government bank rescues.
This is a two-step proposal to save America: (1) Defeat the virus by a serious lockdown and (2) help people through it by giving them plenty of money to meet their needs (and possibly more) during the lockdown.
It gives money directly to the people and it gives every working-age person the same amount regardless of whether or not they "need" it. This keeps the program simple, free of excessive bureaucracy, and fair. It costs a lot but delivers a lot. It puts decision-making about what businesses to support in the hands of the people who know best, not in the hands of lobbyists and campaign contributors. Both Democrats and Republicans should like parts of it.
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