The Cost of the Cure
In order for people to survive the crisis created by the Coronavirus pandemic, the Federal government will have to spend trillions of dollars. Yes, trillions. But not as checks to everyone in order to goose the economy (as the Republicans want to do) because the economy is tanking on government orders to close not from a lack of demand. Also, not to fund abortion or other social justice initiatives (as the Democrats prefer) because we are not facing a problem of social justice but a disease.
Just think about it. It is estimated that the measures being taken to stop the spread of the virus will slash ten percent of 2020 GDP. That’s about $2 trillion right there. $2 trillion in lost wages. $2 trillion in lost revenue. I am not talking about the $11.5 trillion that the stock market has lost in less than a month. Or huge corporations like Boeing where the revenue has sunk to zero. I am talking about minimum wage workers at restaurants and bars that have closed. I am talking about small mom and pop shops in strip malls scattered around suburbia. These people are losing a paycheck that they need in order to feed their children. These people are losing their life savings of sweat equity that they built up with twenty years of 80-hour workweeks. Those are the people that need help and the government needs to step up and start writing checks to them.
For workers that have lost their jobs, I would propose that the government pay for the lost wages beginning at $15an hour for a 40-hour work week. That is $600 a week ($2400 per month) to pay for food and diapers and other essentials. For workers earning more than $15/hour, I would propose that they receive compensation equal to 50% of their pre-crisis income above $15 an hour up to a cap at $30 an hour ($4800 per month). The government would also credit the accounts of such workers at Social Security and Medicare as if it had been withheld in the form of payroll taxes.
For those people who continue working at critical jobs such as healthcare workers and first responders but also grocery store clerks and gas station attendants, electric and water utility workers, et cetera, I would propose that they receive a tax holiday for the duration of the crisis. These people are risking their lives and health to provide Americans with the critical services they need, and they should be compensated as well.
These payments will not provide all the relief needed to weather this crisis. I would further propose, that foreclosures and repossessions be stopped during the crisis and that all loans (including student debt and credit card debt) and mortgages be charged zero percent interest and that no principal payments be required, and no penalties or fees charged. Lenders that need this revenue for business operations would also receive the zero-interest benefit. The Federal Reserve must be empowered to provide liquidity as lender of last resort during the crisis. This will require legislative action to change some of the provisions of the Dodd-Frank Act.
Large companies and corporations will also need assistance. Although some industries will be hit harder than others, everybody will be hurt by the pandemic. It may not be possible to make sure that the pain is felt equally, but we must make sure that everyone shares part of the burden. Many companies will be asking the government for assistance, but the government must ask for some things in return. Companies could be compensated for keeping people on the payroll instead dumping them on the unemployment rolls. In return company executives would temporarily reduce their salaries to help in this effort. All bonus and stock option programs must be suspended.
(It is interesting to note that during the crisis, income inequality will be greatly reduced, just as predicted by Walter Scheidel in his book, The Great Leveler. I wrote about this in my commentary, I Dream of Gini (March 22, 2017). However, let’s hope that this leveling is not permanent, which Dr. Scheidel says would require a huge number of deaths from the pandemic in order to have a lasting effect.)
All assistance should be applied as equally as possible across the entire economy. If anything, assistance must be tilted toward those most affected by this pandemic, the sick and the poor unemployed. Americans can endure great sacrifice – as long as they know that everyone is sacrificing. These are emergency actions in response to a crisis and must be considered temporary even though there will many who will want to make them permanent. Time for that later.
The stock market should not receive any assistance. The stock market crash is mostly psychological. The impact of the pandemic on companies is unknown so there is no mechanism to establish a price for their stocks. Thus, the impulse is to sell. But, in time, that impact will become known and it will be possible to price the stocks. And once we are through this pandemic, the US economy will rebound. So, sit tight and don’t look at your 401(k) statements for a year.
Many people will oppose the trillions of dollars needed to supply this assistance. But the need is real, and many people will be hurt by this pandemic even with this assistance.
The trillions of dollars of debt that the government will take on to offset the effects of the pandemic will add to the already huge amount of over $22 trillion in debt we already have. But this crisis is the reason we must have the ability to borrow money. Historically, the only debts the US government had were debts to fund wars that constituted existential threats to the United States (the Revolutionary War, the War of 1812, the Civil War and the World Wars One and Two). And this pandemic constitutes another such existential threat. Our forefathers and ancestors did not blanche at the cost of saving the nation and our current leaders have that same responsibility.
But after those previous existential threats had passed, our forefathers and ancestors paid down that debt as fast as they could. They paid it down for two reasons: 1) the country needed to rebuild its financial strength to have the necessary reserves to confront future existential threats, and 2) they believed that the payments of interest and principal on the debt should not be a burden to future generations.
The $22 trillion of government debt that we had prior to this pandemic was not incurred to confront existential threats. It was incurred to pay for the mounting costs of entitlement programs that now constitute more than half of our country’s annual budget and is projected to keep on increasing. Many people say they want and even deserve these and other entitlement programs. The cost of the new programs being be proposed by the current crop of presidential candidates will add many more trillions to the national debt.
Fine, I say. If the American people want entitlement programs, they should have them. But they should also pay for them. In the Nordic countries that are proffered as shining examples of a social welfare state, the people pay for their benefits in the form of high taxes. Not just taxes on the wealthy. Taxes on everybody as detailed in my commentary, A Nordic Fantasy (November 19, 2019).
Assuming that we get through this current pandemic, we must then proceed to get our fiscal and financial house in order so that we are prepared for the next existential threat. A trillion dollar deficit, as proposed by President Trump prior to the pandemic, was an abomination for a country that had record low unemployment and a growing economy. The coronavirus is not the only existential threat this country will face in the near future and we must begin preparing for the next crisis as soon as we have overcome this one.