The Economic Role of the Government in a Government-Created Depression

It is important to be clear about something in this pandemic: the mass quarantines and stay-at-home orders were not put in place because otherwise everyone would die. These orders were designed to keep the current medical infrastructure in place and allow for people who get the virus to have a greater chance of survival. According to the New York Times, the current number of worldwide cases is just above 3.5 million, with 251,457 deaths, placing the death rate at 7%.  This would make it seem like getting the virus is no big deal, but that was never the risk factor. In the same way everyone was surprised when the found their grocery stores empty, none of our systems are designed to serve every single person at the same time. But because of these prudent precautions, we have also thrown our economy into something it cannot handle: a slowdown of cashflow. I could write a whole other post on the foolishness of our precarious economy which requires a majority of the population to be constantly buying, but let’s ignore that for now. This economic slowdown, with more than 10% of our citizens filing for unemployment benefits, is artificially made. There was no bank error or reckless Wall Street credit default swaps, it was people who suddenly stopped buying due to state orders to stay home and businesses to not serve customers. Dealing with this reality, what is the government’s role to support the economy while still enforcing quarantine orders?

It all essentially boils down to money, as most things do. The government needs to help those who actually need help. Congress and the states have taken a few steps in the right direction, but they must continue and expand. The first is to continue issuing small business loans with two very important conditions attached. The first is to keep at least 80% of your staff on payroll for at least another month, if they do, the loan does not need to be paid back. The second is hefty and possibly disastrous legal liability if the company takes the money, but does not keep their staff on as agreed. This punishment would be a full repayment of the the loan with 100% interest and any associated administrative fees by the end of 2021. This timeline would give the government the ability to follow up with a significant a random sampling, enough to dissuade bad actors and possibly recoup losses.

The government should also issue another check to the American people, similar to the payment in April. We should adopt a similar attitude to the virus as the unemployment rate: flattening the curve. The government is not ready to embrace something like universal basic income, although the last payment showed it was possible to execute despite those on the right claiming it would never work. This check is not about solving the problem, but about keeping the most important part of the economy supported: the people. People will have more support for possible immediate expenses like rent or groceries. Additionally, if people still have their jobs or had enough savings, it would increase the likelihood of a stronger rebound once the economy starts opening again. The check should also be calibrated to the individuals needs, rather than one blanket amount for all citizens. The US military allocates dynamic benefits based on the average rent price per zip code throughout the country, the IRS could use a similar system. Our economy requires constant buying from the middle class. The more that ability is increased, the stronger our economy is. Trickle-down economics is not real.

Lastly, the government should work with banks and other financial institutions to either slow or pause any loan payments citizens are on the hook for. Similarly to how the government paused any activity on student loans through the Department of Education, they should work to spread that effect to all loans. Whether this takes the form of the government paying for the people or negotiating down a bank's tax obligation for the following year, this would have a dramatic effect on saving our citizen's ability to spend directly into the economy when the time is right.

Since this crisis started, all of these economic struggles have been due to a dramatic change in cashflow. Some parts of the system are still working while others were literally ordered to stop. You could have no job but are still required to pay your house payments. Your business has no customers, but you are still required to pay the bank for your loan. These pieces of the economy can be paused, or the burden can be lessened by strong government action. That the average citizen is expected to pull themselves up by their bootstraps, but a giant corporation gets a bailout due to their poor economic decisions is unacceptable. The economy is an agreed upon systems that can be molded and shaped by the government as needed. Today, our people need the government to take action.

#FitzFile