Policymakers need to figure out which sectors we wish to keep up and running (food, health care), which sectors we want to contract rapidly but bounce back rapidly as well (education), and which sectors we do not want to protect at all and would be willing to see perish.
We need a series of policies to achieve some rather complex ends, and in conjunction. Other than the obvious goals (“minimize human suffering”), these ends are:
1. Scale down economic activity in a rapid way to keep people at home, but without devastating the physical, cultural, or organizational capital that will be needed to restore growth and normality
2. Boost the confidence of markets—both retail and financial markets—by showing progress in limiting the spread of the disease. (But note that merely slowing the spread of the disease may not help the economy, as uncertainty would linger for longer periods of time.)
3. Keep business in a position to rebound.
4. Create incentives for production to bounce back once that is appropriate.
You will notice a tension between #1 and #2-4, which is what makes this policy issue so difficult. The ideal policy mix should both lower and raise output, and at just the right speed. No one ever taught us how to do that.
Furthermore, policymakers need to figure out which sectors a) we wish to keep up and running (food, health care), b) which sectors we want to contract rapidly but bounce back rapidly as well (education), and c) which sectors we do not want to protect at all and would be willing to see perish (e.g., cruise ships; note that most operate under foreign flags and employ mainly non-Americans).
Those classes of sector may require very different economic policies, most of all we should not waste aid on the latter class of sectors. Be nervous of general proposals for “the economy.”
Most of the ideas that follow are designed to bring a contraction followed by a very elastic rebound. As to exactly when that rebound should come, that is a question for public health and better data gathering will be needed to make that judgment. I do not consider that question in this article, though we do recognize its urgency. I also do not consider how to improve the micro-organization of hospitals and other health care institutions, see here.
Here are the best ideas we have seen, ruling out laws already enacted. I rank them in order of “most no-brainer” to “most complicated.” In other words, the items toward the top of the list have simple, hard to contest arguments in their favor. It still may be the case, however, that the more complicated and possibly riskier items toward the bottom of the list have higher expected returns. We hope to start with consensus and see how far we can maintain such agreement.
Relax Occupational Licensing for Medical Professionals
Make it easier for nurses, doctors, and indeed all health care practitioners to work anywhere in the United States. Many states already have taken moves in this direction, transferring licenses within one day for out of state health care workers.
Labor Supply
Bring back doctors and nurses from retirement if they are willing, and give them accelerated approval to work in any state. Accelerate degree completion for medical aides in their last phases of study, as has been done in Italy.
Basically give those individuals the degree now so they may get to work. Find other ways of allowing current medical students to contribute to the effort.
Limit the Costs of the Trade War
Remove all recent tariffs on goods and services placed on China and Europe, and abolish all tariffs and trade restrictions on medical equipment. Freer trade will generate more revenue for American businesses and help keep jobs in place. And what if it is China that first develops a usable vaccine or other cure? We do not want to be in a trade war with them under those circumstances.
The American government should not stop its campaign to keep hostile foreign companies out of our communications systems, however.
Prizes
The Federal government should create prizes for medical breakthroughs related to the coronavirus. This could include a prize for the production of rapidly scalable ventilator and oxygen delivery technologies (effective for patients experiencing ARDS), a prize for a working vaccine, and a prize for finding off-label cures or partial cures. Foreign nationals should be eligible for these prizes, which could be run out of the NIH, the NSF, and ARPA.
Unemployment Insurance
“In states experiencing severe outbreaks, Congress should waive the requirement that people receiving unemployment insurance payments look for work. Better that such unemployed workers receive financial assistance for rent, mortgages and groceries than to risk spreading the virus by applying and interviewing for jobs. Congress should also waive work requirements in the food-stamp program.” Link here.
Also, make it easier for individuals to get unemployment insurance temporarily if they are laid off temporarily but still tied to their firms. Eligibility should be eased, filing periods eliminated, and speed accelerated, and at the expense of the federal government, not the states.
Protect Returns on Innovation Investments
The Federal government should promise to protect the patents and copyrights of major innovators in this area. That said, the government should (if necessary) stand ready to buy those rights at an auction and then distribute the cures or palliative measures at relatively low cost.
For instance, the federal government may wish to buy up the patent rights for potentially scalable ventilators and release them into the public domain, thus ensuring a lower price for the product. If those same patent rights are confiscated, the incentives for future innovation will be lower. That is especially problematic if this crisis lasts for some period of time.
Let the Economy Gear Up Again
Lift restrictions on hours, overtime, and working on weekends. When the time for recovery comes, employers may wish to ask for more hours from able workers to accelerate recovery and rebuilding. This may be especially important for running public infrastructure such as subways. Be prepared to open public schools over the summer or other closed times, if need be, to help parents get back to work. It does not matter if the teachers simply are acting as de facto babysitters.
Keeping People at Home
Voluntary clearinghouses, at state and local levels, should be set up to help allocate the labors of Americans wishing to volunteer. How about one-on-one volunteer tutors on Skype? In addition to filling in educational gaps, this would help keep Americans at home and boost their morale. A verbal nudge to the non-profit sector could go a long way here.
The government also should raise the idea of entertainment companies offering temporary free streaming services, or various sporting events (e.g., the NBA playoffs) being held on a limited, quarantine basis, if only to keep television viewers at home and away from public spaces. Do not let such games be shown in crowded bars.
Cash Payments in the Hands of Americans
Send every American a $1,000 check asap. If nothing else, it will make it easier for sick individuals to stay at home. It also will help low-wealth individuals stock up on necessary supplies. The easiest and quickest ways to do this are to lower federal tax withholding, extend the deadline for tax payments, and also boost the value of food stamp and TANF allocations to help reach lower-income groups.
Increase the Federal Matching Rate for Medicaid
“Currently the federal government pays about 60 percent of the cost of Medicaid, over 70 percent of the cost of the Children’s Health Insurance Program, and 90 percent of the cost of the Medicaid expansion population, with the remaining costs paid by states.” Raise the federal share here, if only temporarily, and suspend work requirements for Medicaid, as those will be increasingly difficult for many people to meet.
Send direct federal aid to the states as well, noting that collapsing equity returns may mean that many state pension plans are insolvent over time. In the short run, states will be pressed to keep local infrastructure up and running, one problem of many being dealing with coronavirus in prisons.
Small Business Bankruptcy Reform
Grant businesses a temporary moratorium on loan principal repayment, and extend due dates for trade finance bills. If need be, the moratorium can be extended, but with a potentially high penalty interest rate on repayments, to encourage businesses with cash to repay their debts promptly.
The Fed, through its role as lender of last resort to banks, would in essence be picking up some of the potential liability here, should some banks come close to insolvency.
Consumer and Homeowner Loan Forbearance
Give consumers greater default forbearance on their loans, including their home mortgages.
Bank Capital Forbearance
Arnold Kling wrote: “I believe that the best macroeconomic response to the virus crisis would be what I call forbearance. Bank regulators would tell banks that they will be allowed to fall below minimum capital requirements. They will be allowed to write down the value of loans without having to raise capital as a result. They will be encouraged to in turn offer forbearance to borrowers, provided that there is a reasonable prospect that borrowers will be able to get repayments back on track once the crisis has passed.”
Relax Price Gouging Laws
Relax state and local laws against price gouging. Although the practice is unpopular, higher prices give suppliers an incentive to keep goods on the shelves.
Higher prices also discourage panic buying and increase the chance that the people who truly need particular goods and services have a greater chance of getting them. In any case, speculation should not be the law enforcement priority moving forward.
Payroll Tax Cut for the Employer-Side Only, for small and Medium-Sized Enterprises
Make it easier for liquidity-strapped small and medium-sized businesses to keep workers on the payroll.
Pay People to Work at Home and Also Self-Quarantine
Push employers to reward employees for staying at home. Fiscal policy might enter as well: “Instead of paying people to dig and fill ditches we could pay people to help train machine-learning apps, enter data, subtitle videos. take surveys, maybe even fold proteins to disrupt viruses.”
Another option is to pay younger people small sums of money — less than the minimum wage — to stay at home for extended periods of time.
Induce Wage and/or Hour Reductions for Damaged Sectors
Government-recommended (but not mandated) nominal wage reductions of 5 percent in sectors that are likely to come back. This can take the form of pay cuts or hours reduction with work-sharing. For most jobs, this amounts to the government offering a nudge/recommendation in favor of a German-like system of shared reductions in hours rather than terminations. The goal is to limit unemployment and stress, and also to maintain consumer spending.
It is understood that these proposals, in sum, will mean a much higher budget deficit and higher inflation rate, the latter at least temporarily. A separate discussion would be required to present the best possible fiscal and monetary policy responses.
Tyler Cowen is Holbert L. Harris Chair of Economics at George Mason University.
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