First is to keep workers out of state unemployment insurance programs. These differ per state, but are often deliberately miserly and/or burdensome so that they motivate recipients to go find a new job. But we don't want the unemployed to hit the bricks. Payroll support is then a more easily-administered form of federal UI. (Plus state UI is written in COBOL, they will literally crash.)
Also, retaining workers will help to ensure a V-shaped economic recovery. Once the health crisis ends, retained workers can just go back to work. But layoffs followed by rehires means more retraining (not retaining), and a slower recovery.
The point is that we literally cannot pinch pennies now: anything we "save" will hit us twice as hard as a new entitlement cost, or a cost to the states, or in reduced tax revenue, or whatnot.
Money is a fiction; the real risk is mouldering factories and disused skills. If a year from now the US is trillions more in debt, and prices are 2% higher, YET we are healthy and working and productive, we will have been successful in countering the health and economic crisis. We should be so lucky.
It is not enough to give corporations money for payroll - in NY large part of the cost of running business is the space itself. Also I don't understand all these "lending" programs - all they do is defer an even larger payment for later - most of the businesses will not be able to repay that if they have been closed for months. You are basically taking a loan to pay the rent so you can go bankrupt later. Doesn't make any sense.
I don't know what to do but we need to give money and healthcare to people independent of work. Let businesses fail (big and small) and rebuild new ones once this blows over. Corporations will only buy back stocks and and line shareholders' pockets with dividends. Single digit percentage points of the stimulus money will reach employees.
Bankruptcies aren't that bad - usually companies are not dissolved, but go through restructuring and gain a new management team (which one, knowing there is no bailout in the future, will plan better for emergencies like this one).
What we are doing now is perpetuating corporate negligence that will now factor in 100% government bailout and run on even thinner margins and bigger stock price growth and dividends for the shareholders.
I will partially defend PPP here: the money is forgiven if "loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs." So it's more of a stipulated grant than a loan. As it should be.
The failure of PPP is administrative. Congress authorized this much money: who gets it? The Small Business Administration was supposed to administer it, but they are not equipped to do so, so they delegated it to banks, which favored businesses with existing banking relationships. That's a stupid way to distribute a stupidly-small pot of money.
I agree with "give money and healthcare to people independent of work" to the extent that this crisis continues. Congress should authorize enormous monies, and the Fed should commit to back it, until the infection rate declines to manageable levels. We can pay for it now or pay more for it later.
I do not agree that "bankruptcies aren't that bad." I do not want my hometown's businesses to be "restructured." After this crisis, we will have an economy that is massively distorted towards delivery. Amazon is going to come out of this so much stronger than my neighborhood grocery store - but there was never a problem with that grocery store.
"Corporate negligence" is a real issue: some authorized money may go to paying dividends, or executive bonuses, or other garbage, even while they impose layoffs. But if you impose oversight, you delay help to firms that really need it. One thing you can do is post-facto oversight: don't block spending, but let the American people know where the money was spent. And the CARES act sets that up pretty well.
The jobs they created will not come back for the foreseeable future in many cases. It isn’t like they can just reboot with a clean slate, much of their capital was destroyed in the process. For a lot of businesses, “pausing” them is a death sentence, and there won’t be nearly as many people stepping up to replace them.
Business that have been based on rented property anyways are much easier to restart and landlords of otherwise healthy businesses might lose less long term if they allow skipped rent in the crisis instead of enforcing it now and then go through a lot of idle months from fluctuation due țo a series of failing new tenants.
In the first days of the Italian lockdown I picked up some mentions on international news that they were intending to pause mortgages and rents for the time of the lockdown, shifting some of the economic burden on banks (who'd be far more practical to bail out) and the rentier class. Anyone able to chime in with more details about that? Was it just an announcement that was quickly subdued by well connected landlords? This approach sounds incredibly helpful and practical to me, but I could easily imagine attempts to put it in concrete legal terms to fail miserably.
Strongly disagree with the last point. If there is one lesson that I remember from the history of US -- entrepreneurial spirit is the reason this country exists in the first place. My only worry is that Google, Amazon and Facebook will use this time for huge land grabs in all niches.
Many stores that closed have already been on their last legs. And in the digital realm there can only be one winner (try beating Amazon at online sales or Google in search...) So you are right in the sense that it will be even harder for many people to step up against the tech giants - but this is a whole different issue.
Imagine if the government unilaterally destroyed your house but left you with the mortgage. What are the odds that you can buy another house at that point? Pretty slim I’d say.
You want to keep kicking the can down the road, so that someone that isn't you will hold the bag. Because someone will hold the bag for all this, and it isn't fair. So? Life isn't fair. Pandemics happen, and the government can't possibly bail out everyone.
He's right. Add a UBI and nationalize healthcare. It's not complicated; the elites just don't want it. The ones like you.
As a result I have some clarification questions...
How do they want to "keep kicking the can down the road" exactly? Your comment about the government not being able to bail out everyone only serves to reinforce the point about the risk of starting a small business.
What do you mean by "He's right"? He's right that people will line up to start new businesses and put their diminished life savings on the line after what's transpired?
Then you flippantly say "Add UBI and nationalized healthcare", as if it's just something you add to a shopping cart and "it's not complicated". So it sounds like you assume these features as part of the assumption that people will flock to starting businesses. That's not part of the discussion at all, but it's an interesting point to discuss whether that would spur the activity. It very well might as it's the "social safety net" one would need to have more confidence.
About the only thing you said that resonated with me is "the elites just don't want it". Given the growing wealth disparity and the relative flat to down real income of the average American in the last 40 years I'd say that's a fair statement.
Your final statement comes out of nowhere as you lump the commenter into this group of elites when all they were saying is "hey man, I'm not so sure people will be lining up to risk their life savings to start a small business".
Care to try again with a gentler, more constructive tone and explain how the commenter, and by extension myself, are naive with the summarized viewpoint I stated at the outset?
It's all about the money supply. The elite want to bail out because it inflates the money supply.
You can bail in instead of bail out. Bankruptcies happen and equity holders lose, but the problem is that bankruptices reduce the money supply. Money effectively disappears when debt is restructured.
The problem we now face is that equity holders today have decided that bail outs are necessary politically. Equity is the most speculative ownership of productive capacity, but you wouldn't guess it with the way it's discussed. Wouldn't you expect that that kind of security to lose value in an unforeseen circumstance like this? The system eventually doesn't function if the government hamfistedly tries to alter price discovery to such an extent that markets stop working. That's where we are today.
So bail in. Give everyone free money. I give you an ID number and a bank account number, and I receive cash every month. That's a hell of lot simpler. Nationalize healthcare. Wouldn't a nationalized system be simpler? The lines of code per person have to be higher in a country with fifty different systems. It will cause inflation, but we don't really have a choice.
Sorry if my tone is a bit flippant, but someone has to argue for sanity here. The United States is going down a dark path in nationalizing so many USD assets. Somebody has to try to explain why.
Considering how many economists seem to disagree on what the proper response here is, I highly doubt it's just math.
And regarding nationalizing healthcare... That's a whole truck full of worms, and seems unrelated to an economic recovery. Couldn't you also argue that seeing the government nationalize an entire industry would decrease entrepreneurial spirit in other industries in fear of the same thing happening there?
It really is just math. Every dollar we waste today on unproductive capacities is a dollar that your children will never have.
I don't think it works like that.
This might be true, but I don't know that there's been an obviously wrong set of recommendations yet during the coronavirus crisis. Do you have an example?
> the realists are a good place to start
This is almost certainly false - at least if you're including yourself in "realists". Personally, I'd look at the heretical economists first.
You seem to be missing a lot of other points from your analysis.
> The elite want to bail out because it inflates the money supply...The problem we now face is that equity holders today have decided that bail outs are necessary politically.
Let's check the numbers. Collective wealth of all the billionaires in the entire world is 8.6-8.7T USD . Collective retirement and pension assets in just the US is 19.1T USD . So it seems that commoners, relying on the retirement and pension assets, would benefit much more from a stock market recovery than the elites.
> Nationalize healthcare. Wouldn't a nationalized system be simpler?
Maybe yes, maybe not? UK / France / Italy / Germany / Spain all have public healthcare and have ~320M people between them, roughly the same as the US. And yet, their COVID-19 deaths are ~100K vs ~55K for the US when both the continents had fairly similar advanced warnings. Why is this simpler (and presumably better, from your tone) system producing a far worse outcome?
Pensions are not equity. Pensions also usually fall very high on the cap table, saving them from restructuring in bankruptcy.
> Maybe yes, maybe not? UK / France / Italy / Germany / Spain all have public healthcare and have ~320M people between them, roughly the same as the US. And yet, their COVID-19 deaths are ~100K vs ~55K for the US when both the continents had fairly similar advanced warnings. Why is this simpler (and presumably better, from your tone) system producing a far worse outcome?
That's not really how pandemics work for one; the Milan fashion show arguably killed tens of thousands of people as a superspreading event. The US healthcare system is terrible, whichever way you slice it (cost, infant mortality, outcomes).
I am talking about pension funds which have to invest their money in something, with public stock market being an obvious choice for such investments.
My point is that the assumption that most small business owners will be able to reboot their businesses when the economic shutdown ends is almost certainly not true due to the mass destruction of their working capital. No one said anything about fairness or bailing them out, just about the unrealistic expectation that these people will be able to start new businesses, so that life will go back to normal for their customers, or that millions of people that have never run a small business will have a sudden desire to fill that gap. Many jobs will be disappearing as a result.
Another poster suggested what is likely to happen and I already see the wheels turning in my city: cash-rich investors/companies will swoop in to pick the carcasses of dead or distressed small businesses, acquiring the assets of the best ones at a steep discount to what would have been required pre-shutdown. That is a poor outcome for small business owners and will change their risk calculus going forward.
Not all small businesses need capital to start. And a lot that did start with capital didn't really need to (I've seen so many people rent an office as their first move, for a business they could easily run from home).
To use your analogy: imagine if the government wrecked your house, but left you with the mortgage. You can't move anywhere, can't buy another place, can't rent anywhere. You'll have to rebuild from the rubble.
But in real world terms, it just sounds like a large number of Uber drivers.
This terrifies people more than anything...and the more entitled someone is, the more they fear it.
Yes it costs maybe a couple hundred dollars to legally start a business. So you are correct in the most literal sense, that it does take some $ to start!
But if you have a mindset that it takes anything more than that, I'm here to tell you from firsthand experience that you're wrong :/
That is exactly what I was thinking of while reading the grandparent comment: that one of the worst things to fear from this crisis, is coming out of it into a world with further consolidation of global power into a handful of entities, and even more authoritarian governments.
The pieces are already being put into place, like contact tracing APIs, however well-intentioned they may be.
The stratification between the rulers (who can already still go anywhere and comfortably wait out a global crisis on private estates or islands) and the ruled, the monitors and the monitored, could end up being worse than any fictional dystopia.
I share many of the concerns you've expressed, but worrying about the contract tracing API that was recently put forward is (hopefully) unwarranted. A faithful implementation of the joint spec published by Apple and Google would preserve your anonymity until and unless you published your secret keys. Moreover, the overall design is cryptographically sound (unless I missed something recently?) and appears to be decentralized (at least in principle) so in theory you won't have to trust the behavior of any binary blobs unless you choose to do so.
For more insight into the design (and security) of such systems, you might take a look at the TCN protocol (https://github.com/TCNCoalition/TCN) or the DP-3T protocol (https://github.com/DP-3T/documents).
I don't understand what you mean by tracked here? Until and unless you release your secret keys, the numbers your phone was broadcasting are just random gibberish to anyone other than you.
If you have Bluetooth enabled in the first place, you're already broadcasting a MAC address. Many devices now rotate that specifically to prevent tracking, making it equivalent. In fact the only real differences from your device's MAC are the bit width (tracing numbers are significantly larger) and the fact that tracing numbers are cryptographically derived from an underlying secret.
As far as conditioning massive swaths of the population to be electronically tracked, I'm afraid that ship sailed quite some time ago. Cellphones inherently reveal your (coarse) location in order to operate, modern vehicles carry extensive electronics packages that phone home to the manufacturer, and a seeming majority of people voluntarily upload significant portions of their geotagged lives to various service providers.
I'm about as privacy conscious as you'll find these days, but my only concerns regarding the contract tracing API relate to battery life and the security implications of leaving Bluetooth on all the time (it seems like there's always another zero day being announced).
A minor (but absolutely essential) correction - your diagnosis keys are to be submitted to a database, not your actual location data. Only those who observed one of your previous broadcasts will be able to make the connection.
The notion of a mandatory app or device that tracks location in a centralized manner certainly does make me uneasy. Thankfully that's not (yet?) the reality, but (the same as you) I can easily imagine that an appeal to security might be made in the future to justify such a requirement being enacted.
But the current API, while correlated with that issue, isn't actually related to it in a causal manner. On it's own, the published protocol miraculously manages to yield almost no privacy whatsoever. Even better, none of this actually requires cell network connectivity. You could hypothetically manufacture a Bluetooth-only device (thus no location data leakage via the cell network) whose sole purpose was to facilitate contact tracing!
If we're able to achieve effective contact tracing without giving up our privacy, perhaps it will critically weaken any hypothetical future push for a mandatory app or device that could be used for centralized tracking?
Not all entrepreneurs are "decimated"...many are in a position to prosper :)
My business is as good as it has ever been, and I do not work in any of the obvious verticals that would benefit from COVID-19, but all evidence suggests my case is an outlier.
Other countries did not recover so well, mainly because they chose more socialist economic polices.
No, it wasn't because of the Marshall Plan. Most of the MP money went to other countries, not Germany.
Germany also had the problem of wholesale death of its men of working age. The currency was repudiated. The government at all levels had ceased to function.
The strong correlation of postwar prosperity is with how much of a free market was embraced.
It's the same with post-war Japan. They embraced the free market after being burned flat in WW2, and rose to world dominance by the 1980's.
And for Germany:
The government making your business illegal for multiple months is not an emergency businesses should have expected, or be expected to expect.
>and run on even thinner margins and bigger stock price growth and dividends for the shareholders.
Thinner margins, stock price growth, and dividends for shareholders are all good things that we want more of not less.
It's also bullshit to call financial aid from the government, that's needed because of government action, a bail out. It's compensation.
This isn't a recipe for a robust economy, it's a recipe to enrich the rich. You might want that, but the majority of the population is not benefitting from that. Employees benefit from robust companies who have some money saved up for a rainy day, and from wages that track cost of living. When a majority of workers are impoverished and can't afford a month without income, that's directly related to thinner margins and dividends for shareholders.
No it’s not bullshit and it’s because of a pandemic mostly, very little because of government action. The government will make it legal again soon to open your business but many will still need aid for time to come because there will be less demand.
Will we be subsidising empty restaurants, hotels and airplanes for an entire year or more because it is not ‘their fault’?
I agree on your second point but this is a flip side of market economy that we have all subscribed to - there are good times and bad. If capitalism is the way to go, then companies that can't survive (for whatever reason) should go under. This pandemic and government decisions affect everyone equally. Lets put our money where our mouth is. Otherwise we should switch to socialism and call it a day.
Many people will have their livelihoods and retirements destroyed and can't even restart their existing business, let alone start something brand new. And that's assuming they don't get sick with the coronavirus.
The sensible landlords should not be charging rent to their small business tenants right now. If the lose them all, then their properties will be worth considerably less when the dust settles.
Location is everything in cities like NY, especially for businesses that rely on people traffic so few hundred feet closed to rail station might be a lot more expensive so they just wait for tenant that can utilize that.
If you stop rent payments then you must also help landlords and property owners with their mortgage.
That said, I agree, we should be deferring mortgages and canceling rents.
Everyone is paying downstream until you hit the lenders.
What are the lenders’ costs? What if they pause repayment for 3 months and tack it on to the end of their loans?
Presumably if all the lenders downstream did this, we could really hit pause.
By the way this is another reason why UBI is good in a crisis. It creates a floor for people to buy food etc. while we suspend rent payments and mortgages for a few months. And with no disincentive to work like we have now.
Anyway... so who do the retired people need to pay when everything is on pause? Social Security and Medicare cover a lot of the basics. If they have investments yielding enough for them to live on, then they have savings that they can use 0.5% of in three months.
Not to mention, the stock market is down, we can pause bond yields for the retirees for a few months also. The only thing I wouldn’t pause is sovereign debt, since we can print money to service it and confidence in that is paramount.
(Another reason why McConnell’s stance on letting states go bankrupt is dangerous. I would have liked to see states and cities have the ability to issue their own complementary currencies.)
Is it now unfair that some people have saved more cash than others?
Mass bankruptcies are terrible.
One nitpick, there are two types of bankruptcy for businesses, chapter 7 and chapter 11.
Chapter 11 is for restructuring the business and keep it running, but it's very expensive (around $100k in legal fees in California), and it only really makes sense for businesses that have a decent outlook for the future, so it's mostly an option for mid/big-size businesses.
Chapter 7 implies shutting down a business for good. Assets are liquidated and the business completely terminated. There are also big legal risks for the company owners/officials of starting the same or similar business again after bankruptcy, as they can be accused of fraud (basically mis-using chapter 7 to avoid debt liability to then continue pursuing the same business).
Usually chapter 7 is the only real alternative to small businesses, and given the legal risks, it's unlikely they can come back to life afterwards.
This crisis will be truly devastating for a lot of businesses.
That is what i was thinking lately too. We have bankruptcy procedures for a reason, big companies wont disappear they will be restructured and continue to exist and shareholders can decided with their pockets if they want to refinance a certain business. Going back to its intended way that "shareholder value" is a two way street. It cant always be sunny.
Changing the incentive structure would benefit us all.
And probably the best thing to get everything back on track is pumping money through the population and not single big entities.
It's too much loss for his private "business" and of his son in law.
That's crazy. I can't imagine much demand for retail space at the moment, so why would a landlord kick out a previously good customer in order to let it go empty.
Once places open back up, nobody is going to be opening new resturants any time soon, so rents will be way down on any new tenant.
I don't think they did. If I owned a small restaurant or a book store - having been closed for a month would be devastating in itself. Seeing no light at the end of the tunnel (another month to re-open, and then probably months of very few customers, on top of a crazy unemployment rate) I'd voluntarily cut my losses and settle with landlord to end the lease early. I'd assume that what had happened.
Having to funnel it through businesses just adds dead weight. Many businesses are no longer economically viable or sustainable, and that will only continue to accelerate as time goes on. We place far too much emphasis on jobs, which doesn’t work in the age of automation as humans become, at least productivity-wise, more and more unnecessary.
Once you decouple a person’s worth from their productivity though, then you can start to better see the inherent value that exists in everyone which is both foundational and immutable.
If you remove human labor from the economy, you’re facing a 50-60% fall in GDP overnight, undermining UBI and ever other human activity.
Every person has inherent worth, but that doesn’t mean that everyone can live without being productive in the near future.
The pool of available work will never completely disappear, but as the job pool decreases in size due to being replaced by some combination of machine/computer, providing stimulus through the intermediary of businesses begins to fail as it no longer reaches people efficiently.
With UBI a similar effect is had on the demand side: If you assume a higher base of income, then consumer credit, payday loans, friends-and-family-favors, etc. become less of a necessity for low-income workers. Higher-income workers with long-term debts like mortgages and student loans become free of their debt more quickly, and face fewer consequences if their income takes a hit. The workforce is therefore disentangled from a set of predatory financial interests that chain them to needing their current job and to stay in the good graces of their financial backers. Even a very small amount of UBI will create a substantial reduction in poverty traps, domestic abuse, and labor mistreatment.
I wasn't thinking of COVID-19 when I contemplated it though. It's not a new idea of course.
How can you justify this statement given the relatively low unemployment numbers pre-Covid?
This sounds like the same refrain heard at least since the early 1900's: Productivity and automation will set us free! Redistribute capital and income!
On the more pessimistic end, some people have always roiled against labor-saving technology.
In either case, both are predicting some future where humans are less necessary. Funny how this never seems to happen.
There will always be short term pain from displaced workers, but in the long term we will always have a need for humans to work. Technology is a multiplier and supports human effort.
Without a mechanism like UBI, however, wealth will get trapped into increasingly concentrated funnels and effectively stagnate. This is bad not only for the people that get left behind, but also bad in general for the economy as a whole as an economy sustains itself on the constant flow of back and forth between buyers and sellers and consumers and suppliers.
As more and more people get replaced through automation, the available pool of money from consumers decreases. If it gets to a point where this becomes too low, the economy effectively comes to a standstill as the products and services companies can offer, even as they become increasingly cheaper to produce due to the productivity gains from automating away human labor costs, stop getting bought due to insufficient funds from consumers.
“The pool of available work will never completely disappear” - I would say there’s no evidence the pool of available work for humans will even _decrease_ in a highly automated economy. It’s possible to have a 99% automated economy with human labor many times its present level. Disappointingly–despite all of our best efforts–new work always seems to arise in this universe.
My contention about the long term prospects for UBI is that before we spend the proceeds of our massively automated economy, we should first try to create it. The challenge is awesome, and the economics uncertain.
Of course, I too would like free money when available :)
That depends on how you define "available work". Historically automation has replaced the jobs requiring the least skill with fewer jobs that required more skill. As the skill cutoff rises, the eligible labor pool shrinks. Assuming the trend continues (in fact it appears to be accelerating) at some point the vast majority of humans won't be capable of any work that might still be available.
This is a compelling narrative, but it’s not true. Technological unemployment has not historically accompanied increased levels of automation. There are some economists who project that this will change, but that would be a break with the past.
Probably worth remembering that the current wave of automation struggles to replace jobs we consider “low skilled”, because they actually require high skill (they are impossible to automate with current tech) and are performed for little money (so the capital investment in automation is uneconomic).
I never claimed that mass technological unemployment had occurred historically, only that the minimum skill level required for employment has been steadily rising over the past ~150 years at an accelerating rate. The observation that "new jobs were always created in the past" fails to take into account the fact that the new jobs have _always_ required more skill than the old jobs they replaced.
Almost by definition, automation will perpetually struggle to replace the jobs we _currently_ consider low skilled. If they were easy to replace with current technology and expertise we presumably would have done so already. Those that remain are complicated enough not to be worth automating (yet), and thus remain the bottom of the barrel (for now).
That’s more than the entire global population was in 1964. So it’s not exactly like there’s a dwindling base of extremely high skilled jobs and majority unemployment. You are right that the minimum skill level is rising for many desirable jobs in developed countries. There are still plenty of jobs to be done that can be taught in one afternoon though.
It’s true that in many sectors in developed countries–such as agriculture–fewer workers use automation to achieve a higher level of productivity than historically. However, most industrial jobs lost in developed nations are a result of outsourcing to low cost economies, not being out-competed by automatons. The people who no longer have to toil in the fields didn’t just give up on life; they ended up as hairdressers, therapists, accountants, decorators, shopkeepers, software developers etc.
We’re not remotely close to automating vast numbers of jobs, and even when we do there will be more jobs to be done. Comparative advantage tells us that even if the machines are way better than people at everything, it will still make economic sense to put people to work at what they can do best.
I've seen plenty of folks who advocate for it alongside food stamps, rent control, universal healthcare, social housing, etc.
A valuable point.
The research of others has shown that the lack of funds is due to big businesses receiving them. Seems to kinda go against the purpose.
Most small companies will be bankrupt within 3 months without any cash flow.
If the Congress had already ordered to print money, they surely can do more than that and for longer. Instead they delegated to existing programs for the rest, which aren't optimized enough to roll out that much money at this short period of time.
But you'll also have an explosion of the bugs and exceptions noone ever wanted to pay to fix that get manually sorted every morning by the two 67 year and twice retired old devs who didn't get laid off to save money.
That's why the Feds should be striving to keep workers out of the overwhelmed state UI programs. "Stimulus" now is incredibly cheap, perhaps even negative cost, because the alternative is people sitting at home on the phone for hours, hoping to reach a state UI admin. That is not an exaggeration.
To start with, the Feds should identify existing agencies with the capacity to administer payments. Like the IRS: one coarse-but-quick approach is for the Feds to instruct the IRS to eliminate SSI withholding. That makes it cheaper for every business to employ workers. Beyond that I don't know; this is where Federal leadership should step in.
The tech is definitely old and a few states are still dealing with issues preventing payments but it's rapidly getting fixed. UI is still faster for continued payments than the federal govt, as seen by the pace of the original $1200 stimulus checks which have yet to reach the majority.
"...Payroll support is then a more easily-administered form of federal UI. (Plus state UI is written in COBOL, they will literally crash.)"
Given how PPP just played out and considering the history our government has with opacity surrounding public-private finance...do you believe that such a broad strategy in US could be done with competence and integrity? If so, how?
"The point is that we literally cannot pinch pennies now: anything we "save" will hit us twice as hard as a new entitlement cost, or a cost to the states, or in reduced tax revenue, or whatnot." Could you elaborate on this premise?
"Also, retaining workers will help to ensure a V-shaped economic recovery."
There is no ensuring of anything! Positioning it as "will help ensure" is a linguistic setup strangely reminiscent of how politicians like to manipulate words (and people).
But "Money is a fiction"...what does this even mean?
Central bank balance sheets are supernatural entities of essentially infinite capacity. We need to use them now.
We don't necessarily know how to properly measure the various economic entities and activities we care about when balance sheets are used this way- but that's an accounting problem. We can clean it up in post.
Steps would be pretty easy, business sends paperwork to the payrol company, they cut the checks, and bill the Feds.
Trying to hand out money to all small business is a nightmare which does not actually accomplish much for the money.
Some companies are suffering others and are uneffected and a few are even benefiting. Restaurants may be shut down, but farmers are still growing food, and some tiny toilet paper factories are operating at 120% capacity. Trying to subsidize everyone erodes the idea of capitalism, it’s politically expedient but that’s not to say it’s a great idea.
On it’s own, just this time, it’s no big deal. But this is the 4th black swan extraordinary event leading to bailouts in the last 20 years and they don’t stop coming. If we are giving up on the idea of capitalism, perhaps we should consider what we are replacing it with.
We should be looking at the "black swan" events as systemic failures of capitalism and be looking for ways to replace it.
Fast forward a hundred years to the early 1900s and you have things like the Kern Resolution finding peonage and unfree labor in West Virginia mines.
Another century later and today we have ~7 million people under the purview of the prison system in the US , including people in prison for debt. (And in many places, these people are used for forced labor.) We have poverty level minimum wages and many systematic failures that prevent people from participating in democracy. It's subtler now than it was a hundred years ago, but there are still plenty of people who are excluded from participating from the economic or democratic institutions in this country.
Also, even if everyone had access, we used to have a vigorous labor movement, and socialism was considered a valuable part of our society.  There are plenty of people today who would argue that our society is at least partly socialist (and should be more socialist).
You can't claim a representative democracy and capitalist economy if there are unfree people and forced labor. Or if there are unequal access to either.
So, if your argument is we where something other than a representative democracy that’s fine. But, you’re making a semantic argument.
It's confronting now because a small amount of it is going to people instead of corporations where it isn't as visible.
The lessons learned then led to the New Deal as a response to the crash of 1929, and that did include handouts.
Try charting the pandemic here: https://en.wikipedia.org/wiki/Depression_of_1920–21#/media/F.... VS. https://en.wikipedia.org/wiki/Spanish_flu#/media/File:1918_s...
The point is that we learned from that and reacted differently in 1929.
A major halt of economic activity in order combat a pandemic is not normal, and no different than similar drastic changes that have occured during world wars. Serving the people, especially in exigent circumstances, is the entire purpose of government. Keeping the commercial sector artificially afloat is in the best interests of everyone so that we have a quick recovery instead of a global depression.
So, your argument is society has become more brittle over time, but that’s hardly a reason to make companies even more dependent on government handouts. People and companies are over leveraged, based on assumptions that don’t line up with reality. The basic capitalist idea is lot let them benefit or lose their shirt when reality hits them in the face.
There is no such thing as a completely free market. There are constant regulations and oversight by government to provide a fair and stable environment to conduct business. When that changes, government again steps in to restore the balance. Again, it's there to serve the people. What exactly is the benefit of letting everything fail and plunging the country into another depression?
However, I can agree with you in principle. Let’s start with the banks though — who have received so much in subsidies over the last two economic downturns that they’ve actually made money. Oh and can’t forget investors, who have been kept afloat by the Fed pumping money into the economy. If we let them fail in practice, it is likely that large companies/hedge funds/investors would be much more careful. But of course, that would also eliminate much of the wealth held by people in tech. Probably yourself included? Are you ok with that in service of pure capitalism?
I guess this all comes down to what kind of society you want to build. Part of the myth of prosperity after the US turn towards a service economy and away for manufacturing has been the idea that scrappy entrepreneurs can build their own businesses. So much of society and economic policy has been built around that idea. If we remove that, economic inequality would probably be too much for the average person to bear — where will the jobs come from when 74 percent of the employers are gone? The unrest that would appear in our society then would surely make 2020 feel a lot more like 1918 as well.
The capitalistic approach is to say this is the 3rd major respiratory pandemic of the last 110 years. Get some https://en.wikipedia.org/wiki/Business_interruption_insuranc... if you’re at risk for a prolonged shutdown or accept the risk of failure. Governments trying to hedge business risks are a giant slippery slope that doesn’t end.
If you disagree that’s fine, but perhaps come up with a general idea of how you want the country to operate longer term for the next crisis. Or worse, as what’s considered a crisis changes over time.
And before someone links the Wimbledon, they have bargaining power beyond most companies' capabilities, and their insurance was custom written. There's no way standard businesses will ever be able to get insured against pandemics.
PathogenRX, a product it launched in 2018 to provide financial protection to companies hit by an infectious disease outbreak in the United States and Asia. The product includes a policy underwritten by Munich Re, one of the world's biggest providers of cover to protect insurers against big losses.
Sales had been slow, partly because the insurance was viewed as expensive given the risk, Christian Ryan, the head of US hospitality, sports and gaming at Marsh, told CNN Business. But the coronavirus pandemic is rapidly changing that perception, he said. https://www.cnn.com/2020/03/19/business/pandemic-insurance-c...
It was considered expensive specifically because companies where underestimate the risks.
The target industries for this product are Hospitality & Gaming, Travel & Tourism, Aviation, Public Entity, Education, Real Estate, Sports & Events and Retail/Wholesale Food & Beverage.
Well doesn’t that sound exactly like the industry’s at risk during a shutdown.
Put another way, laissez faire capitalism might be fine when the system is operating in a normal regime, but most capitalists don't take that as a prohibition on taking action when things like wars or natural disasters strike. All of the usual arguments in favor of letting the market just do its thing break down when you're temporarily in an environment that differs hugely from business as usual, and letting the market decide for itself could end up optimizing for the wrong behavior. Specifically, we probably don't want to allow a natural selection event that cuts so deep that anyone without a 12 month cash buffer goes bust, since if every company operated to maintain that it would not be optimal behavior during the steady state.
For instance, environmental externalities could justify an endless list of regulations, a massive carbon tax and/or cap-and-trade policies, as well as tariffs for countries not complying with environmental regulations. Because the markets does not work. Yet this is clearly not something everyone agrees with, despite being a market drive the economy but intervene to keep them spinning until the (climate) crisis passes.
I do not mean to enagage in politics and suggest the example I gave is what we should or should not do.
My point is that most people beliefs about the economy are a lot more specific than "markets with some intervention".
I agree that when and how we intervene is important to discuss, it's just important to argue the details, not "but muh capitalism" as a way to argue against every government action ever.
2. For landlords who cannot sustain the loss of cash flow, offer to buy them out at market price and then hire them as property managers for their previously owned properties.
With essentially zero overhead, you've eliminated small business's first or second largest expense (payroll and rent). If they still can't make payroll, it's not a super huge deal since those employees also have their rent frozen.
Now the economy can hibernate.
When we're ready to resuscitate it, do a direct stimulus check as you reopen businesses. Let money start flowing without any component going to rent for some amount of time until we're back on solid footing.
Then you suggest the government can just buy him out at market rates. Who decides what the market rate is? What if the government decides to value the property for $50,000 less than it is worth?
Well suddenly he has just had $150,000 taken from him by the government. When things restabiloxe what do we do then? The government owns tons of housing? Who is going to manage and administer that? If they dump them than all that you've done is transferred the properties from small owners to massive multi-million dollar firms that managed to take the hit. What about people who got laid off and still don't have a job after it is over? Because it was a result of the coronavirus do we just continue to say it's okay don't pay rent? If we do that guarantee a year from now tons of properties won't be paying rent still.
It sounds like an easy and simple fix but it is usually more complicated than that and drastic decisions made will often have downsteam effect for years and decades that we can't see now.
This isn’t an anti-millionaire plot, so it doesn’t matter much what he earns. This is a hibernate-then-stimulate plot.
We cannot hibernate if businesses and individuals are getting absolutely gutted at the end of each month.
We cannot stimulate if stimulus checks are going directly into landlords’ pockets.
After this is over, yes, either the government can keep it (as Singapore does) or even sell them back, giving preference to the original owners at the original price (who had been kept employed throughout the hibernation).
The land itself is not charging landlords to hold it, so landlords don’t need to be charging tenants to exist on it (except mortgages/taxes, which would be frozen).
The only caveat is that ownership of financial assets including real estate is inherently risky. A monthly rent to retain the right to use a financial asset is in many ways the opposite, both for the reasons of not being liable for the underlying asset in addition to the variety of tenant rights in this county. Your guy assumed these risks when he purchased his 3 properties.
An abhorrent attitude is emerging in the United States among the ownership class. They feel they are entitled to steady, eternal returns on their financial assets, equity, real estate or otherwise. Concurrently the labor class has no guarantee of a right to steady, eternal income through sale of their time and energy.
In nature, ownership of anything is no guarantee of receiving from it productive benefits. We would be wise as Americans to remember this when we expect anything more from the civil society we inhabit.
Not that I think that idea is 100% feasible (I don't think states and counties can function without property taxes), but losing an investment seems like a better option than losing where you live.
Ideally, "the market" would fix itself. Nobody has leverage here. It's not like there are new tenants waiting to move in and pay rent. So everyone is motivated to renegotiate--unfortunately, the volume of renegotiations often means enforcing silly policies like "evict everyone immediately" might get used. This happened in 2008.
I, too, am worried about consolidation. I know that will happen without any action, and will likely happy if the government does.
If you have a bad portfolio (100% real estate) and you’re highly leveraged, you’re going to have a bad time.
One would hope that mortgages are the largest cost and other services could be negotiated with.
I think eliminating property tax is infeasible for almost all areas. Depending on the area, that's where a majority of the local government's income comes from and most local governments are not allowed to run a deficit. However, like income taxes, many areas are delaying the due date.
Why? Why does some particular type of business get a free pass to profit from this scenario?
My point is: why ya’ll keep saying that?
Just freeze the loans. Should be a simple as fuck to implement.
I would assume a deferment would be open to anyone and in exchange you would pay an extra few months 15 years from now--or pay it off early if you're able to sooner.
At least in the U.S. I'm not sure if the government could mandate any of this...although they often find creative ways to implement things after they decide they'll act.
Why not? If they're not paying interest to the Fed to borrow the money, it doesn't cost them anything to just leave the loans sit and not collect interest.
The insolvency case would be if everyone stopped paying their mortgage for a few months because there's no penalty or filtering process. They'd borrow money, but there's no "making it back up" because now they're servicing the loan for a longer period of time and have to pay salaries, rent, etc.
If they deferred, they'd still need to float that money for ~15 years until those deferred payments were made. Any extra interest would go towards paying the costs of servicing the loan for longer.
I'm not opposed to freezing, but it does cost the bank something.
If there is a lesson to be learnt from this crisis and the 2008 housing crash, it is to invest in real estate as a risk free investment. Housing is too big to fail.
Banks have been bailed out for lending money as mortgages for people who couldn't have ever paid up.
This is something I'm confused about. The US government goes through great lengths to support constituents with an array of welfare programs, but goes through equally great lengths to take a lot of that money back from people. It seems awfully inefficient, and supporting those diametric systems seems like an awful waste of time, energy, and money.
It is simply not how this incredibly enormous, incredibly complex system has been set up. What is underappreciated is that in contrast to 2008, which was a financial system crisis- what we have now is implicitly a legal system crisis, on top of obviously a medical system crisis.
1. The flows of money are contractual
Every flow is a contract. Rent, mortgage, other kinds of loans, expenses for utilities, internet, the entire food supply chain, Whatever. All contracts. Nearly all are private contracts- person to person, person to business, business to business.
We are talking- hundreds of billions of individual contracts just in the US. At least.
2. Ending a flow means breaking a contract
Many of those contracts have termination conditions and remedies and so forth. Many of those conditions are bespoke. Various kinds of courts have authority to handle contract termination and enforcement. We are about a billion courts short of the number needed to deal with this at scale. And the court system simply does not scale- there are no procedures, no mechanisms to deal with these kinds of systemic consequences.
3. There is no legal authority to break them at scale
There is simply no legal authority by which those contracts can be terminated. Not Mayors, not Governors, not the President, not the Supreme Court, not Congress- can say- "rent is cancelled" at scale.
This is the absolute essence of the American system. It is a system of laws, not of men, our criminal President to the contrary.
That is why individual localities are passing "no eviction" laws and so forth that prevent certain kinds of remedies, without impacting the payment requirement itself.
4. There are almost no "terminal" transactions.
Even if there was some legal way to nullify those billions of contracts, and there was some way by which the entire legal system did not itself become compromised- so then those flows could be stopped- what then?
The reality is that there are no "terminal" transactions.
Most rent payments become mortgage payments. Most mortgage payments become interest payments to investors, around the world. Even money that "stops" to sit in a bank account is used as regulatory collateral by the bank in which it sits to create more money. If flows stop into those accounts, the bank falls out of regulatory compliance, has to stop doing its business.
Money is like oxygen, like blood. It HAS to circulate for this body public to survive. Stopping the flows means death.
The solution to this problem is what Japan is doing- maintain the legal fictions by which society operates using the financial machinery the Bank of Japan knows how to operate. Its balance sheet- which for all intents and purposes is an entity with infinite capacity- can maintain flows indefinitely until the medical system can master this enemy and then everyone can return to their regular business.
It is a leap for everyone to understand this- to appreciate this aspect of money that runs contrary to everything we have been told and experience on a personal level. It is not your money, or my money. It is not even our money.
For societies of humans, the flow of money is an ecological assumption that we created and have to maintain.
We are in need of the Einstein to write the Special Relativity paper that demonstrates that our Newtonian physics understanding of money, as an asset and so forth, while convenient in our ordinary every day lives, is wrong at societal scale.
But who's going to decide on the value? And pay for it? If the goal is to help US population, why not just use that money and give to others with less wealth? Because money given to those without savings will definitely be put back into the economy.
A big chunk of money given to one person will most likely sit in a savings acct or something like it...
This would cost nowhere close to the trillions of dollars that we’re printing to hand out to large corporations, banks in transaction fees, and then, of the little money that does make its way to consumers, the vast majority of that going straight to landlords.
My main point is that the government has done little on the demand side. I think it will be very weak coming out of this.
That assumption is wrong in this context. The employees most affected aren't the ones providing the least value under normal circumstances, they're the ones providing the least value during a quarantine (presumably because they're not working at all), which isn't strongly correlated with providing low value in general. For example, a hotel may have to do layoffs, but that doesn't mean hotels are unproductive/unprofitable in the general case when there isn't a quarantine.
And the likes of hotels may not be the quickest to rebound either. A lot of people are using their vacation time right now, and will have a ton of work to catch up on when they go back and not be in a position to take more time off to travel. Even after people go back to work, they're going to be wary about traveling to hang out in a huge venue with a bunch of strangers for a while.
So what you want is to create a lot of general demand so that former hotel workers can find work doing something else until demand for travel comes back, on top of the workers who had been doing those things already.
The QE / money printing is complicated, but it's worth nothing that Japan has been "printing money" for a long, long time, and QE is a mainstay of Abe-nomics (so the Japan subsidy here is absolutely coupled with aggressive QE). Battling deflation to hit inflation goals is a reasonable goal for a central bank, IMO, but obviously it's not cut and dry.
The way for the money to have been issued is that each Social Security enrollee be sent funds from the Federal government, irrespective of income or employment status.
Those who have immediate needs would immediately spend. Those that do not would either be forced to invest/deposit the funds or otherwise continue economic consumption by spending.
Either way, the issuing of funds would have been much more efficient and fast than the mishmash of state UI programs and the IRS.
What was the alternative? Existing unemployment benefits are insufficient for households to pay bills and the PP program at best would have saved a small portion of the overall jobs lost.
Banks have zero incentive to monitor these companies because it’s all guaranteed by the government and they’ve all been overpaid for doing simple paperwork.
This is the equivalent of all the workers from the top 20-30+ companies in Japan no longer working.
It’s like all the convenience store and restaurant staff suddenly being halved.
If people are banned from working the crisis isn't avoidable in any real sense.
Without shoring up the demand side I’m not seeing how we get to this rosy V shaped recovery the stock market seems to be predicting.
I know people who have not left their homes for weeks. Consumer confidence is at absolute historic lows with no clear path to restoring it. This means there is likewise no clear path to a restoration of the parts of the economy which are currently disappearing.
The tools of economic policymakers are mostly ineffective in the current situation. The only way a recovery of any kind will happen, and it will likely be slow, is if people start venturing out of their houses again and looking for places to spend money. The government's role has to start with literally encouraging people to step outside of their front doors and walk around.
Some governments may (involuntarily) do the exact opposite and scare people even more.
In Italy there are countless of rumors amplified by the media that there will be strict and onerous requirements for most activities to be done (such as, clothing shops having to disinfect every single piece that has been tried on, no air conditioning at all costs, use of plexiglas visors in addition to masks for many close-to-face activities...) that will likely a. not restart businesses (because they're on top of all other regulations) and b. scare people so much that they will not like going out of their house (would you even go to buy clothes knowing you can be contaminated by the "plague"?).
The 2 trillion bill included:
$425 for large corporations = 25% of the money
$377 for small businesses = 20% of the money (originally excluding the another $484 billion)
$377 + $484 from yesterday = $861 billion for small businesses which is more than double the money for large corporations. Also the large corporations includes $58 billion for airline industry.
I don't see how this is a bad thing at all? Also considering the large corporation includes companies which operate cruise industry, airline industry, travel etc which employs millions of people, should they not be given help?
$861 billion for small businesses and $425 for large is very fair.
1. Cruise companies are registered off shore, do not pay US taxes and do not employ US taxpayers. Their "industry" is exploitative, polluting, and dangerous to public health.
2. Airlines have spent the last 10 years using excess cash to do share buybacks, thus "juicing" their share price and providing tax effective "dividends" to their shareholders while literally not saving for a rainy day.
3. These bailouts have not been tied to the government receiving equity or to any sacrifices/haircuts by existing equity or debt holders. This is unconscionable expenditure of taxpayer funds, socializing losses while privatizing gains.
4. Large corporations already have sufficient lines of credit and other sources of funds. Small businesses are both the primary employers of the majority of the workforce and also the primary location of both supply and demand of consumption in the economy.
Given that Japanese quality of life has barely moved in decades despite the economic hardships perhaps it's time for regulators to stop focusing on the arbitrary 2-3% inflation metric which causes so much distortion in monetary policy?
Why exactly can the inflation range targeted by Central Banks never change?
And when I say Japan here, that's Japan, the government, and more importantly what is called "Japan, Inc." Corporate Japan has amassed an absolutely staggering amount of money over the past 10/20 years, they haven't done enough with it, and Abenomics (though I think they honestly know it's an issue, and have tried to address it) hasn't managed to crack that nut.
Now, as to the second point concerning inflation, I maybe naively think that's easier to talk to. I think the first idea isn't that you want inflation, it's that you don't want deflation. Prices have to do something, and deflation tends be be very unfun, and has proven tricky to get along with. It's just that societies have found it easier to fight excessive inflation than any amount deflation, so you end up with 'price stability' being interpreted as 'inflation, but not that much'. Ideally imo you're running above 0 with some headroom.
I also think inflation is sort of is Darwinian-ly helpful (though it may be very uncomfortable/destructive) in that it kind of naturally gives a mechanism where everything is being constantly re-evaluated over time. In a world where everything gets more expensive over time, if you can't get more efficient, or maintain your pricing power, you're being compressed. And again, that's not very fun in the context of wage growth, it's people's lives and livelyhood. Debts also become nominally cheaper to service over time. A lot of stuff works out cleaner when you have inflation vs deflation, but there's still unfun aspects.
One thought experiment I have is a little about investment/consumption, and debt.
If you want to go buy something you need, and tomorrow the price will be higher (inflation ad infinitum), when is the best time to buy it? Now.
If you want to go buy something you need, and tomorrow the price will be lower (deflation ad infinitum), when is the best time to buy it? Never? How long do you wait?
Japan has in its economy a large number of small family business in sector like retail, crafting, Ryokan (hotels) or restaurants.
Some of them are two centuries old and still surviving from generations to generations.
They are part of soul of Japan and its cultural identity. Loosing them would be such a waste, not only socially but also culturally.
Many of them have seen their income going to close to Zero due to COVID19. Without government help, many of them would die and never recover.
It gives both employees and businesses the ability to survive the period and come out of the other end able to get straight back into work.
But who knows how long that lasts whilst there is a likely recession on the cards next.
And so the government takes on 100 years of debt by giving future taxes to lenders.
I feel like most countries have not intention of paying their debt ever, the politicians are just kicking the can down the road until one day all this explodes and all this debt is forgotten, maybe?
There's probably something I'm missing since I am not an economist.
The debt of the worlds countries will explode if and only if money goes to hell.
I'm not an expert, so I'd encourage you to do some your own research.
when it comes to the US injecting 2 trillion dollars, that's from quantitative easing which is not 'borrowed', it's just generated by the central bank of the country directly to increase liquidity. it's similar to a stock split, but for a country. The total 'value' in the economy stays the same, but the additional liquidity creates an increase in economic activity for some time which may allow investors to switch investments from short to longer term. I've seen a lot of people online who think the US had $2T lying around somewhere but it's quite the opposite.
slightly unrelated to your comment particularly but -- I wish the analysis of governments being able to spend like this from the average person wasn't either 'governments are going more into debt than they should' or 'governments have money but don't use it on their people', but 'governments have access to spending powers that individuals do not, which can massively benefit an economy in the way no other entity's spending can'.
What you are missing is that these countries are leveraging their positions as reserve currencies both for global corporations and also other countries.
This crisis strongly benefited the USD, EUR and JPY. The demand for these currencies (especially the USD) is in the trillions. In the unfortunate event that the European Union is dissolved and countries like Italy/Spain decides to switch to their own, most people/companies holding EUR will decide to switch to ... probably USD/JPY as they don't really trust their home currencies much.
That's why the U.S. has an (or multiple) air carrier around the world to project power.
The wait time on this seems very long. I wonder why? Lack of staff? I guess its good that they already had a program going, instead of having to build one from scratch or do what the US has done and partner with banks (Which seems to have also been plagued with hurtles)
No, it is not.
In Canada the application process takes 2.5 minutes and the money is deposited 2 days later. Many people have already had $4000 deposited in their account (two payments), and will get another $2000 deposit in the 9th of May.
Just because something is terribly broken in one country, don't make the mistake of assuming it's universal
It's something I find a lot of UBI proponents miss. Sure you "save money" by cutting bureaucracy, but that bureaucracy is employed people. The savings probably aren't as considerable when you have to lay off a ton of people in order to put them on UBI.
And sure, for the private sector, bureaucracy is generally something they try to quash (with varying effectiveness), but in the public sector it's almost a desired outcome because it means more jobs, more metrics, more budget.
1) Shovel money into businesses essentially free of charge, taking over responsibility for their payroll, giving generous low percentage loans or even free grants, and anything else that can simply be considered "free money" for company owners.
2) See this for what it is, which is an extremely high-risk investment that no-one else is willing to make. If a company was able to find a better deal on the market, they would take it. If companies are forced to apply for help from the state to survive, the state should get a (minority) share of the company and reap any potential future benefits until the owners have the money to buy their shares back.
The way I see it, in #1 we do our best to halt the crisis, but we essentially do it by giving away free money to corporations and small companies. In #2, we still do the same thing (because there's in most cases not much difference between a high-risk investment and a gift), but at least in this case the tax payer may get something for it in the future.
If public money goes to bailing out private companies, the public deserves a share of future profits, until those companies can buy the shares back at market value. I don't see a loser in this scenario, and in fact, it would be refreshing to see and end to this constant policy of "privatize profit, socialize loss".
Grassroots money instead of helicopter money.
The government directly intervening to support employees sounds like a better effort to influence widespread impact than propping up employers to trickle down the money with vague guidelines and questionable oversight.
Businesses, in particular SMBs still need financial help, but that help should be separate from the public support help for PTEs and FTEs.
The US still clings on to the top-down approach to solve these problems, counter to Japan (not that Japan is perfect either).
They subsidise salaries at a flat rate of $1500/fortnight.