"The Market Was Made for Man, Not Man for the Market": Time to Ramp Up Direct Cash Payments
The need for large redirections of financial flows to avoid large increase in poverty during this coronavirus plague is large. The need for substantial top-ups to spending flows in view of the large jump in savings rates triggered by the arrival of coronavirus is large. The U.S. government continues to be able to borrow at unbelievable terms—terms so unbelievable that, when the accounting is done correctly, a larger national debt is not a drag on the funds the government has available for its other missions but rather a source of current cash flow.
(Why? Because in real population-adjusted terms, people are not charging the government interest on its debt but are instead paying the government to keep their money safe, but that is a discussion for another time.)
Moreover, a plan to have the government top off spending flows by whatever large amount is necessary to immediately return to full employment is moderately conservative, and the only effective way to give American businesses their proper chance to adjust and survive the coronavirus plague. It is, as John Maynard Keynes wrote back in 1936:
moderately conservative... [to] enlarge... the functions of government... [to include] the task of adjusting to one another the propensity to consume and the inducement to invest.... [It is] the condition of the successful functioning of individual [entrepreneurial] initiative. For if effective demand is deficient, not only is the public scandal of wasted resources intolerable, but the individual enterpriser who seeks to bring these resources into action is operating with the odds loaded against him. The game of hazard which he plays is furnished with many zeros, so that the players as a whole will lose if they have the energy and hope to deal all the cards.... [Success then requires] courage and initiative... supplemented by exceptional skill or unusual good fortune. But if effective demand is adequate, average skill and average good fortune will be enough... [thus] preserving [both] efficiency and freedom...
Our financial flows and property orders are a societal accounting system to guide and manage our collective societal division of labor. If dotting the i's and crossing the t's in this societal accounting system produces mass unemployment, the right response is to adjust it to produce full employment and then reconcile the accounting entries, not to watch employment fall and then sit around with our thumbs up our butts wondering what to do.
After all, the market was made for man, not man for the market—wasn't it?:
Olugbenga Ajilore, Mark Blyth, J. Bradford DeLong, Susan Dynarski, Jason Furman, Indivar Dutta-Gupta, Teresa Ghilarducci, Robert Gordon, Samuel Hammond, Darrick Hamilton, Damon Jones, Elaine Maag, Ioana Marinescu, Manuel Pastor, Robert Pollin, Claudia Sahm, & al.: Open Letter from economists on Automatic Triggers for Cash Stimulus Payments https://www.economicsecurityproject.org/wp-content/uploads/2020/07/emp_economists_letter.pdf: We urge policymakers to use all the tools at their disposal to avoid further preventable harm to people and the economy, including recurring direct stimulus payments, lasting until the economy recovers. The widespread uncertainty created by the COVID-19 pandemic and recession calls for a multifaceted response that includes automatic, ongoing programs and policies including more direct cash payments to families; extended and enhanced unemployment benefits; substantial aid to state and local governments; stronger SNAP benefits; robust child care funding and more. These programs and policies will hasten the economic recovery far more effectively if they stay in place until economic conditions warrant their phaseout. Direct cash payments are an essential tool that will boost economic security, drive consumer spending, hasten the recovery, and promote certainty at all levels of government and the economy–for as long as necessary…
The economic pain is widespread and the need for immediate, bold action is clear. The pain from this crisis is undeniable. The unemployment rate is already dwarfing peak levels from the Great Recession, with higher levels of unemployment for Black and Latinx workers; GDP is expected to shrink by 11 percent during the second quarter of this year; and 27 million Americans have likely lost their health insurance along with their jobs. Much is still unknown, but it is clear at this point this recession will require significant and sustained stimulus policies that are responsive to the health of the economy. We agree with economists from across the political spectrum that concerns about debt and deficit should not get in the way of taking appropriately strong measures to stem the downturn now.
Regular, lasting direct stimulus payments will boost consumer spending, driving the economic recovery and shortening the recession. Right now, most Americans are just trying to keep their heads above water. The first round of economic impact payments were a lifeline that helped some get by for a few weeks—early research shows that people are spending the stimulus checks quickly and on essentials—but the worst is not over. Consumer spending accounts for about two-thirds of GDP, so reviving the economy will require sustained efforts to strengthen it. Even after businesses start to re-open and jobs begin to come back, there will be significant economic fallout, and demand will continue to lag if people don’t have money to spend. Regular direct stimulus payments tied to economic indicators will help families stay afloat and drive economic activity.
Automatic stabilizers ensure relief for as long as it is needed, promoting a strong recovery and efficient government. Many economists believe our response to the Great Recession was too small and too brief, slowing the recovery and causing preventable harm particularly to low-income people. Cash assistance is an important element of economic aid, injecting resources through direct stimulus payments and refundable tax credits into low- and middle-income households that need help and are likely to spend it. That will start a chain reaction to boost local businesses and increase economic activity. Continuing recurring payments until there is reliable evidence of an economic recovery—such as low and declining unemployment—will promote certainty for all sectors of the economy and for state and local governments and federal agencies. With many unknowns, it is critical to enact policies that will help promote a robust, sustained, racially equitable recovery and will stay in place until Americans are back on their feet.
.#coronavirus #equitablegrowth #highlighted #macro #publichealth #2020-07-07
