We are entering a financial crisis unlike any we have faced as a country. Whether one agrees or not with the decisions being made in regards to reducing/eliminating most economic activity, the dye has been cast. We are going into an “intentional” recession and cannot rule out a depression. To be blunt, we’ve never shed upwards of 20% of the US work force in 30 days. Not in the financial crisis, not in the Great Depression. The speed is breathtaking and frightening. And any economist or politician that tells you how bad this is likely to be, is lying or misguided. No one knows.
The scale of the problem means any set of solutions will cost in the Trillions of Dollars and while well intentioned the initial legislation agreed to last night by the US Government is but a down payment. The truth is, at this point, we have no idea when we’re going back to work and how much work there will be to go back to. So, we need a flexible solution that gets to the heart of the problem. And the heart of the problem is tens of millions of unemployed Americans.
One-time payments as contemplated in current legislation are a well-meaning step in the right direction, but fall well short. The twelve hundred dollars per adult simply won’t cover the rent, groceries and utilities for many. And then what the next month? And month after? Rent moratoriums sound good and certainly are compassionate. But how does the interest on your landlord’s mortgage loan get paid? OK, we’ll have a moratorium on that too. So, what about the pension funds no longer receiving interest to pay their retirees? It’s impossible to fix all the second order effects of this and other well-intentioned policies that treat the symptoms, not the disease itself.
So, what to do? Tackle the problem at the source. We have unemployment insurance which is designed for this. It just needs to be super charged. The reality is current levels of insurance are too low to live on for most of America that barely scrapes by every month. Change three rules:
- It can take 4-6 weeks to verify a claim. Eliminate the waiting period, verify after the fact. Sure, there will be some fraud. No fast system will be perfect. Get over it–this is a crisis.
- Insurance should cover 90-95% of previous income, up to a cap. The typical 50-60% won’t allow people to pay the bills. Will a few quit jobs to get these “benefits”? I doubt many. In this environment giving up a job to get benefits knowing they end with a back to work order, does not seem likely on a large scale. Will this encourage some companies to let go their employees, as they feel they will be “protected”? Probably some. But most will go down the path they’re already on. Keep mission-critical people as long as you can, but there is only so much you can do with no revenue coming in. And we’ll need companies to have some liquidity and resources to get the majority back to work, so if they “husband” their resources because of this program, that’s not as bad an outcome as it sounds.
- The increased level of payment will continue until 30 days after a local “go back to work” order. Then it will gradually ratchet back month by month, say 5% per month until it gets to previous levels. We want to encourage people to go back to work, while acknowledging not every job is going to be waiting for them when this is “over”.
The Federal Government will reimburse states for the increase in claims over the base programs. This approach has several advantages over current proposals:
- It self-regulates depending on how long the stay at home orders and social distancing are in place
- It does not require a new government bureaucracy
- It gets money to those who need it, rather than blanket checks to all, many of whom, like government and medical workers, are not losing their jobs.
- It tackles the heart of the problem without creating second order effects.
- Perhaps most importantly, it provides confidence to Americans that there is a plan in place for the duration of the problem, not a series of crisis stop gap measures. We need some confidence.
Problems should always be tackled as close to the source and as simply as possible. This proposal does that.
