A Good OpEd on Saving the US Economy

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April 13, 2020 12:28 p.m.

I wanted to flag your attention to this oped in the Times, now a couple weeks old. It notes that other countries in Europe are not seeing the scale of job loss that we are in the US, even though they’re shutting down their economies just as much. It’s from March 30th. So it’s from eons ago in COVID terms. But it holds up pretty well. There are two points I want to focus on.

The authors, Saez and Zucman, give relatively limited play to the Payroll Protection Program, which is one of the most critical parts of the package. But their overall critique is solid. A number of countries in Europe are simply taking over payroll payments to businesses with significant, COVID-related revenue shortfalls. They also are tending to do it through their national tax services. Only tax services, our IRS, have the capacity to handle something national in scope like this. Here in the US it’s been run through the Small Business Administration, which simply has no capacity to handle anything of this scale. Unemployment insurance is similar. State unemployment systems do not have the capacity to handle this many applications at once.

I’ve been doing my small part to encourage small business owners to apply for the (forgivable) PPP loans, which are administered through banks. This is a life-saving program for many small businesses (defined under this program as fewer than 500 employees.) But it should be run through the IRS and it shouldn’t rely on people’s needing to manage often complicated applications through private banks. It’s a case where the program is good but it could be much better by being simpler and structured as a floating commitment rather than a store of money that will need to be replenished with more packages over time.

The other point is unemployment insurance. Beefed up unemployment checks are again a very good part of the bill. I have even heard some people saying that it’s better for many workers to get laid off so they can collect. This may be the case individually in some cases. But this greatly understates the importance of maintaining the connection between employees and businesses. Once that is severed the challenges of moving back to economic health becomes much greater. There’s also the psychological impact of joblessness and the inherent uncertainty about finding new employment, even if income is covered in the short-term.

I’ve used the analogy of blood flow before. Once the employees are separated from employers much of the connective tissue of economic well-being is lost. Yes, over time demand and labor availability will build things back up. But as Keynes said in a slightly different context, in the long run we’re all dead. Once this connective tissue dies it’s gone. It won’t bounce back any more than a coral reef will come back to life once the environmental conditions that killed it are removed.

My own take is that the rescue bill is actually pretty good, better than I might have expected with the need to get it through the Republican senate. But it could be greatly improved. And there’s still time to do that.

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