Note: Things are moving at a fast pace so some of these ideas are already starting to happen. Hopefully, more of them will soon.
The problem with the current approach is it’s too one size fits all and is taking an intolerable economic cost. Before someone suggests it is crass to put a price on saving lives, a) healthcare ethicists do this every day and b) recessions kill people too.
Spending trillions to save a few thousand lives is not something we would normally do as evidenced by the lack of spending to eliminate vehicle deaths or overdose deaths or other causes of death that are preventable.
I’m not making a moral statement about whether we should or shouldn’t spend that much but am pointing out the inconsistency, as well as, more importantly, the opportunity to spend more efficiently to bring that cost per life metric down.
While there is a lot of focus on restaurants and hotels, there are so many more people who are suffering. Doctors (who still have private practices) and dentists don’t have any patients showing up. Nobody is asking the plumber into their house. Who is going to get a haircut or go to yoga class?
There is a long, long list of businesses that may go away that the government hasn’t even thought about yet. They shouldn’t have to declare bankruptcy because the government didn’t consider the burden they have to bear due to policy decisions.
With that, I present a list of ideas to reduce the impact of the virus on the economy. In some cases, they are directed to increasing economic activity, while others are to help people survive financially while they wait to return to work or re-open their business.
Seniors Shop First
This is already starting. A friend suggested the idea to me last week, so I’m guessing he heard it from someone else promoting it, so I’m not going to claim any credit.
The premise is that since we know seniors have the most risk of complications they should get to shop early in the morning while the stores are clean and when they don’t have to be around other potentially sick people.
These are the kind of creative solutions we need rather than broad inefficient mandates. If you’re a reader over 60, here’s a list of stores where you can shop early.
Create More Hospital Beds
The more I read between the lines of comments from health officials, the more clear it’s become that the fear is lack of hospital beds if the virus spreads too fast. To make sure we have enough beds, we have chosen to cripple the economy.
Instead, why don’t we come up with a cheaper way to create hospital beds? Some of this is already starting to happen. When you hear about there only being 100K open beds nationwide, that assumes normal capacity utilization where most beds are occupied.
One obvious solution is to move routine patients to other facilities. This could easily double the capacity for a virus surge. How do we do this? Delay elective procedures or move them to outpatient facilities. Move stable patients to pop up hospitals in vacant hotels or convention centers.
We have tons of surge capacity with a little bit of creativity. We shouldn’t be letting that shut down the economy.
Encourage Consumer Savings
If people aren’t going to be able to spend on normal activities, they hopefully will be saving more rather than spending on frivolous things. There should be a lot of pent-up demand when economic activity returns, but that assumes people improve their personal balance sheet.
It would help for Mnuchin or Kudlow to remind people who are still getting paychecks to pay down credit cards or auto loans or save money for a down payment on a house. It’s not just the right thing to do, but will also enable a stronger recovery.
Deploy the Military Domestically
We need more resources to monitor people’s behavior. The quickest way to get stores to open is to create confidence that sick people won’t enter. One way to do that is to take temperatures when people enter. Another is to have “hall monitors” making sure distancing is being practiced and that customers aren’t touching goods unnecessarily.
The obvious problem with that (aside from asymptomatic “shedders”) is what employee is going to want to take on that responsibility? We could ask our first responders to do that, but they probably don’t have enough capacity. Thus, we should deploy soldiers as domestic helpers to restore confidence.
Yes, there is a chance they can get sick, but a) when you enter the military you realize you are subjecting yourself to risk and b) the best pool of people we have that are likely able to tolerate the virus are those who are young, fit, and have passed military physicals.
Create Child Care Alternatives
It’s pretty dumb that we mandate all these school closures, but leave open day care centers. The problem with school closures is it’s another one of these clumsy broad brush approaches that works well generally but has some major holes.
We all know e-learning isn’t going to work for everyone. There are disparities in internet access, ability of parents to monitor compliance, etc. A better approach is to have students who can effectively do e-learning to do so. Then, let the remaining students come to school and make sure no desk is within 6 feet of another and have rules about how you move in the halls.
Teachers who are older would teach remotely or have other teachers assume their classes. Colleges should have done this too. The students will likely be asymptomatic if they get it. Let them stay on campus and keep older professors away. Instead, we have them returning home and infecting their parents.
Limited Restaurant and Movie Openings
Do we really want to put every restaurant out of business? If not, how can we creatively allow them to have some business?
My proposal is any restaurant that doesn’t have a drive thru or where takeout is <20% of revenue can be open for limited seating. Obviously, tables would be safely spaced. Guests would have to put their names on a register in case there is a positive case at the location.
Maybe it’s only enough to generate 20% of normal revenue, but it will allow some people to get paid. Same goes for movies. Theaters all (or mostly) make seats available on their apps. They can easily limit inventory to 20% of capacity to ensure adequate spacing. Maybe an AMC doesn’t need to do that, but there are still independent theater groups that aren’t going to survive without some revenue.
No Interest Consumer Loans
OK, now it’s time to jump to fiscal policy. One advantage of 0% interest rates is the government can advance a lot of bridge money to the public.
Instead of giving free money out, offer individuals $2000 in loans or $5000 a family. Terms are 0% for 3 years. You can use it for anything you want. If you don’t need the cash and want to use it to pay down debt, great. If you buy something stupid you can’t afford, that’s on you, but you do have to pay off the debt and Treasury could take it out of your tax refund or garnish wages if necessary.
The advantage of this approach is it costs the government a lot less than pure handouts and gets people more in immediate cash than $1000 handouts. Treasury could give out $500B in cash borrowed at close to 0% and the total cost would be the default rate which, even accounting for fraud, should be no more than 5% = $25B.
No Interest Small Business Loans
Treasury can take a similar approach for businesses. The two places businesses are most challenged are making payroll and paying rent. Give 0% loans to cover 50% of payroll and rent. Now, given the $ at stake and potential for fraud as well as funding businesses that won’t make it even with help, there needs to be more vetting here.
Obviously, there isn’t time for extensive vetting given the urgency. Thus, we need to create some simple criteria. Eligibility can be tied to tax returns. Companies needs to show a track record of profitability or at least sustained revenue. There probably needs to be three years of tax returns to be eligible. Anything below that would require a higher interest rate.
Banks Need To Use The Discount Window
I have a feeling one of the stories of this crisis will be how banks went from being a weakness to a strength. Yes, there is some potential for banks to take large losses and cause another run. However, given the strong capital base they are starting with, they have the potential to stem the deleveraging taking place in the economy.
One of the reasons we have recessions is the collapse of leverage within the economy as everyone retrenches. A strong banking system can counter this by providing liquidity. Think back to JP Morgan 100 some years ago guaranteeing the system. Bank runs are basically delevering events. They force banks to counter the natural multiplier effect that comes from lending.
What we have now is the system naturally delevering as consumers spend less putting stores out of business who then put their suppliers out of business. Because the banks couldn’t step up twelve years ago, the Fed had to. This time, the Fed and banks should be able to work together to provide liquidity so firms can make payroll until revenue returns.
The mechanism for this is the discount window. While banks view borrowing from the window as taboo because it signals weakness, now is the proper time to use it as it increases the multiplier potential.
The Fed needs to bully the banks into borrowing from the window. The reason is this will let banks honor all credit lines, if not expand them. If banks know that these lines will be money good once activity returns, then they shouldn’t hesitate to offer them.
The only reason not to do so is they can potentially consume too much capital. This is where the Fed comes in. If the Fed destigmatizes using the discount window to provide capital for banks to make bridge loans, then we can significantly decrease the number of business failures. The banks will be seen as saviors instead of villains.
This is probably largely forgotten by now, but the event that marked the bottom of the financial crisis was the TALF program. TALF was basically a way for the government to encourage distressed investors to start buying bad mortgages. It changed the psychology from fear to bargain hunting.
Distressed investing is about to make a big comeback. The administration is floating the idea of a new TALF. Instead of buying marked down securities, my guess is it will provide capital to restaurants and retailers. It could also be used to buy things like receivables from companies worried about their customers ability to pay. There are a lot of details to work out, but I suspect we will something positive here that will help companies get back on their feet.
Optimize Lives AND Jobs
To sum up, my main critique of current policy is it is solely focused on minimizing loss of life. While admirable, that ignores the reality that we don’t have unlimited resources.
Just like how the Fed has a dual mandate of minimizing unemployment and inflation, the government now should have a dual mandate of minimizing loss of life AND economic distress. If we truly believe this is a one or two month episode, then what we largely have is a liquidity crisis, not unlike a bank run. Otherwise strong companies need bridge financing to keep their doors open.
In addition to financing, they need some visibility on when revenue returns. This is why I suggested ideas for limited openings of retail rather than a complete shutdown. Our priority should be keeping seniors away from sick people, rather than keeping everyone away from everyone.
Will there be some younger people who have serious cases if we resume limited economic activity? Certainly, but they will be few and far between. About 500 children die every year from the flu. We can’t stop every casualty.
If we don’t do something to let the economy start to function, we are going to end up in a very dark place as a country. While fiscal policy can help as a bridge, there aren’t unlimited resources. We need to also think about creative ways to resume economic activity in a low risk way.