Friday, March 20, 2020

The Coronavirus Economic Crisis - How to Fix It?


I believe we are doing this all wrong.  Not the medical part.  I think the world is getting that right as evidenced by the success of gene mapping, vaccines, chloroquine,  azithromycin, anti-virals, etc.  The medical crisis might be a supply chain problem at this point.  Still deadly serious, but there's a light at the end of the tunnel.  However, the economic crisis is an unfolding disaster.  

The current approach looks like the Dutch boy with his finger in the dyke.  Except he's trying to plug a million holes with ten fingers.  It's simply not possible and doomed to failure.

The government is talking about bailing out every individual industry involved, well, at least the big ones with lobbyists.  Airlines, cruise ships (yeah, there's an essential industry!) automobiles, chain restaurants, banks, planes, hotels, etc. will all get generous bailouts in the trillions.  And these industries were the ones who for years have been blowing trillions in stock buybacks to enrich their execs!  Why should they get a blank check?  What could possibly go wrong?  Answer: everything.

And to do this we would have to pass a 2000 page bill worth trillions that no one will ever read, except for the lobbyists who write it!   

Meanwhile, massage therapists, wait staff, carpenters, bartenders, yoga instructors, musicians, small businesses, restaurants, bars, and people like YOU are completely out of work and on their own.  

Believe it or not, this is NOT a MONEY problem.  It IS a TIME problem.  

We don't need a BAILOUT.  We need a TIMEOUT!

Going back to the dyke analogy, what if there was a way to freeze the ocean?   

The idea is similar to the sci -fi concept of suspended animation.  During long journeys through space, travellers are frozen to pause life, and  when they reach their destination they are thawed and re-animated.  That's what we need to do with the economy.    

The problem is that while suspending a huge chunk of economic activity, people and businesses still have major expenses.  We can just stop those expenses for a time.  

The expenses to put in timeout are all those not essential to support life.  These include debt, taxes, rents, leases, insurance, etc.  In other words, any recurring expense that was committed to in normal times, but which cannot be paid during a shutdown.      

Of course individuals still need to eat, drink, get medicine, and use energy.  These are the life sustaining expenses.      

To deal with these issues I propose two remedies:

Suspend all debt, taxes, rents, leases, insurance, etc. until this is over.  We simply go into timeout for the shutdown weeks or months and add that time to the end.  The timeout would freeze bank loans, the entire bond market, municipal market, mortgages, rents auto leases, loans, insurance, and all taxes.  Nobody would be obliged to pay anything, and nobody would be able to demand anything regarding these obligations.  Bankruptcies, evictions, lawsuits, etc would all be in timeout.  

To deal with the need to eat and live, everyone who needs money in the U.S. could go on the existing food stamp program (SNAP), which would be increased to encompass other essential expenses like energy, gas, and drugs.    

SNAP is an existing program so it wouldn't require much modification to scale up for the entire population.  (Alternatively, checks could be sent to everyone, but what could go wrong with that?)  

No company would need a giant bailout under this scenario because no company would have these non-essential expenses during a time of no revenue.  Any company that could continue operations would do so and would continue paying their debts, taxes, rents, and leases. Those that cannot though, would not go bankrupt simply because of a pandemic.

The timeout bill would be short and cheap.  The only money spent would be for citizens to sustain life.  No money would go to businesses and corporations. None.  

Let's freeze this ocean of economic woe until this nightmare clears up.  When it's over, we can thaw the economy and bring it back to life.  Everyone who had a job before would have one after.  Voila!

[Update: However, the government will never do this.  Why?  First, freezing the economy would be a huge statistical hit to GDP and the unemployment numbers.  Pumping trillions into a bailout will flow directly to GDP and paying employees who can't work will keep unemployment numbers low!  Trump can't have bad headlines!  Second, Democrats see this as an opportunity to blackmail Trump to sign their agenda.   That's why we will spend trillions of dollars we don't have for pork in a 2000 page bill that no one will read.  Sad!]  


1 comment:

Behave.