A brief look at the best and worst ideas for resuscitating the economy—and at what happens when your hospital runs out of ventilators.
Empty airports and restaurants, disrupted supply chains and closed schools will have devastating effects on the economy. Is there a way to counteract the damage? Here are nine stimulus schemes: two in place, six being debated by politicians and one that is not widely discussed but probably should be.
Cut interest rates. The Federal Reserve’s recent half-point reduction in the already low short-term interest rate hasn’t had a visibly positive effect. The stock market is down 12% since the cut was announced. Evidently interest rate changes don’t get people onto cruise ships.
Lend money. The $8.3 billion antivirus legislation signed last week includes authorization for more Small Business Administration loan guarantees. A loan could tide over a retailer or restaurant that might otherwise go under. Unfortunately, SBA benefits are concentrated on the least capable entrepreneurs.
Cut payroll taxes. A reduction in Social Security tax puts money in your pocket—if you haven’t lost your job. It doesn’t open a coffee shop that closed its doors because the offices on that block have employees working from home.
The anti-recession efforts put in place after the 2008-2009 financial crisis included a two-point reduction in payroll taxes. The main effect was to increase the deficit. President Trump favors a full elimination, through the end of the year, of federal payroll taxes. This would have a more powerful effect on the deficit.
Give handouts to restaurants and hotels. That’s what the San Francisco Chamber of Commerce wants its city government to do. On Monday Trump mentioned the possibility of federal aid to hotels.
Send everybody money.This has been done before. President Gerald Ford tried to combat the 1973-1974 recession by having the U.S. Treasury send, in 1975, gifts of $100 to $200 to citizens who had paid taxes the year before. Barack Obama’s stimulus plan had similar gratuities, in the $300 to $600 range.
Give tax breaks to troubled sectors. A tax reduction for airlines and cruise operators is not going to prevent worried customers from cancelling trips. On the other hand, it might not cost much; the travel industry is probably going to wind up with loss carryforwards that will eliminate income taxes for years.
But when Congress expresses a willingness to help one industry, others line up. This is how we get 2,000-page tax bills.
Shoe retailers, for example, now say they are especially deserving of a break. Senators from North Dakota and Oklahoma say that the shale oil industry needs help.
The energy sector is indeed important to the functioning of the economy, and it employs a lot of people. But its plight is only partly attributable to the coronavirus. The immediate problem is that Saudi Arabia and Russia are engaged in a price war.
Pay for sick leave. Millions of workers don’t get paid time off for sickness. That leaves them with diminished motivation to stay home when they are coughing.
One solution, initially favored by Speaker Nancy Pelosi and Senator Charles Schumer, would be legislation mandating that employers pay for sick leave. Another would be to allow sick or quarantined workers to draw from unemployment compensation funds. Yet another is for the federal government to chip in for sick leave.
House Democrats are likely to take up sick leave and unemployment insurance today. The Republican-controlled Senate might have different ideas.
Buy food for kids. Children who rely on subsidized lunches are in trouble when their schools close. That problem could be addressed via changes to existing nutrition programs, now under debate in the House.
Not easily corrected: the permanent loss of productive capacity when the kids’ parents have to stay home.
There’s plenty of talk about those eight methods of stimulating. Now here’s one that doesn’t have much visibility yet.
Pay for ventilators. This would be a very roundabout way to help the economy. By allaying the fear of death, an ample supply of intensive-care equipment could restore people’s willingness to patronize restaurants and theaters.
This fear is not irrational, at least for those over 60. You can get a taste of it by perusing a November 2015 report from a task force reviewing ventilator supplies in New York. During a Spanish-flu-level pandemic, the authors posit, the state would see a peak demand of 18,619. There would be only 2,836 available (including 1,750 now in stockpiles). So doctors would have to come up with some algorithm, perhaps involving dice-throwing, to determine which patients would be permitted to live.
Hospitals, already under financial pressure, are disinclined to buy ventilators whose cost they might never recover. They would need a subsidy to add to their stockpile. They would need a subsidy to undertake, beginning sometime before the dice-throwing starts, emergency training of additional ventilator nurses. If the government wants ICU equipment right away, it would also need to pay manufacturers for incremental production capacity that may become useless six months from now.
A worthwhile investment? Probably more worthwhile than assistance to oil drillers.
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