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The economic fallout of the COVID-19 epidemic could be among its most severe impacts. Millions of people are losing jobs, thousands of businesses are closing, and many Americans are one paycheck away from homelessness – or they already are there. The plunging stock market is putting retirement funds of millions of Americans at risk (and some rich people’s fortunes, ho, hum), and even the White House has started to warn us that we could enter a recession by mid-year.

A number of proposals have been floated in recent days to address this economic fallout. I decided to put my economics degree to good use and analyze the proposals I’ve seen mentioned.

As any decent economist would do, I’ll be up front with my criteria for evaluating these proposals:

  1. Drive demand. The proposal should address directly the sharp, snowballing general economic slowdown – lack of buying, selling, hiring, and paying.
  2. Short up the supply side (market infrastructure). Proposals should boost the overall general confidence and sustainability of the markets and its infrastructure. NOTE: This is not, primarly, about stock markets. They are only one market among many.
  3. Sufficiency. The proposal should have positive, lasting, positive impact that averts economic catastrophe and generates enough new activity to reinvigorate ongoing activity.
  4. Fairness. The proposal should benefit as many as possible, with more relief to those more harshly affected (poor, elderly, sick).
  5. Viability. Can we actually get it done, fiscally, politically, logistically, and economically?
  6. Cost. How much will it cost, and how will we pay for it?
  7. Avoid negative repercussions. The proposal shouldn’t screw up the rest of the economy, society, or key services.

That said, the major proposals out there are:

  1. One-time cash.
    • Best example: Utah Senator Mitt Romney’s Proposal to give $1,000 to each household in the U.S.
  2. Ongoing Cash. AKA, Basic guaranteed income.
    • Best example: Andrew Yang’s $1000 per adult per month; Massachusetts Senator Elizabeth Warren’s short-term $200 per month.
  3. One-time tax holiday
    • Best example: Many have proposed delaying or canceling collection of federal income taxes due on April 15.
  4. Ongoing Tax cuts
    • Best example: Trump’s Payroll Tax Cut. Various forms of this have been floated; the initial one was to cut the federal payroll tax 10%-20%. The most recent version is a short-term 100% cut for anywhere from 6-12 months.
  5. Unemployment benefits extension
    • Best example: Washington Governor Jay Inslee’s Unemployment Benefits extension. People who lose their jobs or significant amounts of income from the fallout of the virus get extended unemployment benefits.
  6. Student Loan Forgiveness
    • Various proposals, the simplest being, some or all student loan balances are voided, presumably paid for by the federal government.
  7. Cut Interest rates
    • AKA, the Federal Reserves move to slash the federal borrowing rate to 0% (“1.5T in new money”)
  8. Rent/mortgage holiday
    • Again, various proposals, the simplest being: Rent and mortgage payments would be suspended for a short period, say, the month of April
  9. Industry bailouts
    • Best examples: loans, tax cuts, and/or deregulation of airlines, banks, and the hospitality industry

The table below summarizes the evaluation of each proposal against the seven criteria. Green shading indicates the most positive impacts; red, the most negative; yellow, somewhere in the middle or mixed.

 

Proposals
 

Criteria

$1,000 One-time Ongoing cash ($1000/mo) Tax Holiday Payroll tax cut (10%) Unemployment benefits ext. Forgive Student Loans Cut interest rates Rent/ mortgage holiday Industry bailouts
Demand Low Very High Low Low Medium High Very low Medium Low
Supply Very low Low Medium Very low Low Low Low-medium Low Low-medium
Sufficiency Low Very high Low Very low Low Medium Very low Medium
Fairness Medium-High Very High Low-medium Medium Medium Medium Very low Medium Very low/ negative
Viability Medium-high Low Low Low Very high Low Very high Low
Cost ($B) $210 $2,500 $100 $100 $400 $1,500 N/A $160 $2,000+
Negative impacts Low Low Low High Low Medium Medium Low High

 

 

Detailed analysis

 

  1. One-time cash.

Romney’s one-time $1,000 proposal would immediately infuse about $210 billion in spending power into the economy, directly in the hands of consumers. This would spike demand in the short run, particularly for necessities (and could temporarily worsen the runs on basics like groceries and toilet paper). It does little to nothing to shore up the shaky supply side of the equation, but it would prevent a lot of people from unexpected short-term dislocation and might buy a little time for leaders to think of what to do next. That said, it’s not really enough to avert economic catastrophe. It scores well on fairness, since it has a greater impact on the poor, those losing their jobs, and those with big medical bills. But why give money to everyone, including the wealthy, if they not everyone needs it?

  1. Ongoing Cash.

The basic income idea solves the short-term problems with Romney’s one-time cash proposal and would infuse over ten times more spending power into the economy, again directly in the hands of consumers. It may be the only proposal on the table that, by itself, is sufficient to avoid recession, and would go a long way to averting some of the short-term panic we’re witnessing. It still doesn’t shore up the supply side, though. Separate market reforms would be needed. Like Romney’s idea, it scores well on fairness, since it has a greater impact on the poor, those losing their jobs, and those with big medical bills; but likewise, gives money to many who don’t need it.

This proposal’s big drawback is the cost, which makes it politically unviable in 2020, particularly with a Republican president and Senate. Might be a great long-term solution, but its short term viability is about zero.

  1. One-time tax holiday

This one sounds great to a lot of people, but in reality, it’s a very weak idea, and it treats people very unequally based on some rather random factors. About 75% of the 210 million adult Americans who pay taxes get refunds, averaging about $2,000 in 2019. Over 40% pay no taxes on net, according to MarketWatch. Estimates of the average amount due are hard to come by, but let’s estimate it at about $2,000, the same as the average refund. This computes to about $100 Billion, making it one of the most anemic of all initiatives proposed in terms of economic impact.

Who benefits? People who owe on their taxes come April. Most are nonpayroll workers such as the self-employed, retirees, or gig workers; since they’re often among the hardest hit, that helps with fairness, but it does nothing to those already unemployed or who get refunds in April.

  1. Payroll Tax cuts

For someone earning $50,000 per year, the payroll tax amounts to about $500 per month. A 10% cut yields a whopping $50 per month in benefits…if you’re a payroll employee. Self-employed, unemployed, retired, and gig workers get no benefit. And the even bigger downside is that it defunds Social Security and Medicare at a time when many people will depend on them more than ever. This one stinks — lots of pain for almost no benefit. It’s almost as if it were part of an ongoing Republican plot to kill Social Security, or something.

  1. Unemployment benefits extension

This one has the great advantage of being very easy to do (it’s already being done in Washington and other states), and also has the great disadvantage of not helping enough. Too many people get left out, and it doesn’t help fix market infrastructure. However, it does target some of the most financially impacted people, and it could be a small part of a larger plan to spare us some of the worst economic impacts of the virus scare.

  1. Student Loan Forgiveness

If this one feels a little opportunistic to you, you wouldn’t be alone. It’s an idea that got a lot of play in the early Democratic presidential primaries, not least because of the boost it would give to the economy and to the fortunes of young, financially strapped vot—er, workers. Its $1.5 trillion impact would jolt the demand side like a case of energy drinks to a gym rat, but it carries an equally large price tag. Unless it comes with the necessary reforms to regulate tuition and future loans, it also has the feel of a very temporary “fix” that we’d have to address again in ten years. It also is unequal in impact – lots of people who are hurting right now from the virus’s impact would see no relief.

  1. Cut Interest rates

The Federal Reserve has already done this, so its viability is 100%. The problem is, the Fed is now out of tools. Interest rates can’t go lower…but the economy can. It targets the supply side, particularly the financial sector, but it also benefits any opportunistic capitalist willing to go deep into debt at no cost to swoop in and buy out businesses, real estate, and other key assets while everyone else panics. In other words, it helps the rich and screws over the rest of us, without doing much to save the economy from collapse. The problem is that the Fed has few other tools remaining, either, largely because it’s exhausted its options trying to keep the economy juiced over the past few years when a more cautious approach might have seemed prudent, at least in hindsight.

  1. Rent/mortgage holiday

There are 128 million households in the U.S., with an average rent of $1,260; average mortgage payments are in the same rough neighborhood. A one-month deferral of these payments computes to about $160 billion. The first question is who would pay for this, and depending on how that’s answered, a slew of other questions follow. Rent and mortgage payments are part of a long chain of transactions in our economy, at the end of which is someone who gets stuck holding the (empty) bag. If it’s banks, we then worsen and hasten the looming banking collapse. If it’s landlords, we’re looking at another real estate panic. If it’s the government, we balloon the deficit. Fun, fun.

The best feature of this idea is that it prevents a lot of defaults and evictions in the short term, and puts spending power in the hands of consumers—or at least, doesn’t drain their resources. It’s very unequal in impact, however. The elderly are the least helped by this one: many have paid off their mortgages, or live in assisted-living facilities whose monthly fees probably don’t qualify as “rent.” But the elderly are among the most impacted by the virus. That seems really wrong to me.

Again, this one seems like a feature that might have to be paired up with some other options to make it workable and fair.

  1. Industry bailouts

These proposals target industries like banks and airlines that, the argument goes, may fail without some sort of relief. That claim may be true, and there’s no doubt that these proposals are among the most viable of all. After all, there is nothing so politically viable in America as a proposal for politicians to give more money to rich people who donate to their campaigns. And while they do little to nothing to boost demand for goods and services, they are the only ones with much potential for fixing infrastructure issues on the supply side.

But will that potential be realized? Only if the cash relief is coupled with reforms, including tougher regulation and restructuring of the industries (breaking up of monopolies, for example). I won’t hold my breath waiting for that to happen, though.

I won’t waste your time talking about whether these proposals help many people or are in any way fair to taxpayers.

Conclusion

Among the demand-side stimulus options, only the Basic Income option is potentially sufficient to avoid recession, fair, and avoids serious side effects. It’s probably politically inviable, though. Among the more viable options, only a generous extension of unemployment benefits stands to do enough to boost the economy to avoid the worst of a recession’s impacts. On the supply side, while some industry help might be a necessary evil as part of the solution, bailouts don’t stand alone as strong cures, and would need to be paired with one of the strong demand-side options strong reforms to have any lasting impact.

 

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