This week’s post is either late or early, depending on how you think of it. I originally started this as a regular “this week in AFEE” post for March 13, but it soon became a much bigger post that I was having to go back and update constantly while I was working on it over the next few days. So, here is the official AFEE master post on COVID-19, as up to date as possible at the time of posting.
First and foremost, COVID-19 is undoubtedly an economic crisis as well as a public health one. With millions of workers in retail, food service, hospitality, and personal care industries effectively out of work, it’s estimated that 27 million of the US economy’s 153 million jobs are at high risk and 52 million are at moderate risk, as of March 16. March 16 also saw the second-largest one-day percentage drop in the Dow Jones Industrial Average in history, while March 12 had the fifth-largest. Several states across the US have effected shelter-in-place ordinances and other social distancing protocols in varying degrees of stringency, using both legislative and gubernatorial actions, which has forced many local and national businesses to close and others to limit the number of people (both staff and customers) that can be inside at a given moment.
As a result of these actions, people are understandably panicked. The effect on grocery stores has been well-documented, and one only has to go to a grocery store to see the empty shelves for themselves - toilet paper, in particular, has become the hottest-selling item in the US, but dry goods in general (including pasta, canned goods, and cereal) are also harder than usual to come by. Grocery stores have been labeled as essential businesses and remain open; many have enacted new policies to cope with the stress on their businesses. These include reducing their hours, limiting how many of a particular item one customer can buy, and providing times in which only those deemed part of the “high-risk” population can shop (namely, seniors and immunocompromised people).
This panic, however, extends far beyond grocery store supply chains. The millions out of work are faced with a much more existential threat: bills. While the federal government announced on March 18 a mortgage freeze and immediate halt on foreclosures and evictions, this freeze has not been extended to renters at the federal level. Considering that renters are likely to be in lower-wage occupations that have had their hours cut, this is a gross oversight that cannot stand. Some states and municipalities have enacted localized plans for renters, but there is no federal protection. As one Twitter user pointed out, “a freeze on mortgage payments but not rent is a poverty tax, and/or a generational tax on millennials.” France has suspended rent, utility, and mortgage payments for the time being; the US would do well to do the same.
These relief proposals and ideas have been a hot button issue in the AFEE email list, as well. This last week or so has inspired quite spirited debate among our members regarding what should be done to support Americans during this time. Below are some highlights, all edited for length, though I hope I have been able to accurately represent each person’s position.
Board member Tim Wunder proposed the following open letter to Congress:
In this time of fear and distress, households across the United States face not just the threat of severe illness, but also the prospect of financial ruin. If the current pandemic bankrupts millions of households, America's social fabric will suffer catastrophic damage. The Trump administration supports an emergency stimulus package of $850 billion dollars. We, the undersigned economists, urge you to promptly enact such a stimulus—and ensure that the vast majority of its funds are sent to American families in the form of direct household relief.
The amount of $850 billion is enough to provide everyone in the country with a check of $2,500. It is not enough to have aid coming through unemployment insurance or sick leave at some unspecified future date. Instead families need aid now, in the form of direct payments based upon the size of the household. During this time of widespread "sheltering in place," an emergency payment of $10,000 would provide vital and timely assistance to countless four-person families.
Direct aid would go far in helping those now out of work, worrying how they will pay for food, rent, and other essentials—and assist parents struggling to pay for childcare now that schools are closed.
The nation might not have been able to prevent the arrival of COVID-19, but a household financial crisis is avertable. Millions of households are on the edge of financial chaos. They are counting on you for bold and decisive leadership.
The time to act is now, and that action must come in the form of emergency financial assistance for America’s households.
Another member, Randall Wray, advocated a more structural approach, focusing in on medical funding, debt relief, expanded unemployment and SNAP programs, and paid sick leave, rather than cash payments:
A small BIG is not the answer. As the virus spreads, infecting perhaps 2/3 or 3/4 of the population, putting cash into everyone's hands is not the answer.
It is the "free market" solution favored by Silicon Valley and others who think we will eliminate most workers and just turn them into consumers who are otherwise detached from the economy and the political system. As Naomi Klein put it, this is shock doctrine--and the virus is the perfect shock to implement the doctrine.
More cash indiscriminately handed out + loss of maybe half or more of the labor force + disruption of global supply chains = significant fall of output = ???
This is a REAL crisis, not a situation of insufficient aggregate demand. More cash will not get more people onto airlines or into restaurants. We are a service sector economy. Much of that requires physical proximity.
Erik Dean jumped in to address the central points of both arguments:
Many on the left are criticizing Democratic leadership right now for what they see as an unnecessary insistence on means-testing--a staple of the neoliberal wing of the party (which, surely, is almost the whole of it)…. I've been impressed by how rapidly mainstream political discourse has taken up what only (and practically literally) yesterday I would've considered far from mainstream. Trump indicated this morning that he would entertain restrictions on buybacks for companies receiving bailouts. Who would've guessed? Likewise for a moratorium on evictions and foreclosures. Considering the politics of the past 5 years in this country, and the unprecedented nature of this crisis, maybe this is the point where we see surprising things--of the sort that we thought were impossible--actually getting done.
Even if not, we can be useful as economists by sussing out the best policies and how to get them done. For instance, what would need to happen to extend unemployment benefits to gig workers? Perhaps recognizing them as employees of their 'platforms'--something that should've been done nationally already? To Tim's point about pushing an agenda in a crisis, I think it's worth considering that any response is going to part of some agenda--wittingly or otherwise--, and will ultimately contribute to how things work post-crisis. For what it's worth, some of Randy's arguments and proposals might not just be feasible in the present moment, but they may make us better prepared to face the next crisis (which I assume starts tomorrow).
Michael Kearney cited examples from history to support policy arguments:
What happens after that thousand dollar check is spent? Another thousand dollar check? It will take time (and possibly many needless deaths) for the political class, wonks and commentariat (= purveyors and guarantors of conventional wisdom), backed by their corporate sponsors, to come round to the new reality, but already those of us with time and relevant experience should be engaging in this kind of work, both imagining forward and conducting historical research. Many lessons of the Second World War are likely to be relearnt, and institutionalism and much else of heterodoxy are in a stronger position to benefit from this given their fitness for purpose.
The comparison with the shock therapy “administered” to Russia is instructive only insofar as that experiment in the most grotesque social Darwinism contrasts mightily with what has been suggested here, which is a comprehensive reconstruction of the US political economy and associated regulatory regime with a view to avoiding exactly that outcome, which the present conjuncture in many respects already resembles. The tragedy is that it is likely to take a great deal more suffering and death before there is a more generalised recognition of the scale of the necessary work now lying before us.
Collectively, we are all going to learn just how dangerous it is to adhere to models premised on atomised, homogenised, fully functional working age adults free of all social commitments and other “imperfections”. Just as the New Right was in the 1970s with the collapse of the Fordist paradigm, we must also be prepared to provide a logically coherent and persuasive alternative to the prevailing orthodoxy as this inevitably crumbles. Unlike the New Right, however, we have the advantage of starting from a much stronger basis in reality, in conditions that demonstrate very powerfully the futility of invidious distinction borne of material privilege. This kind of argument was much more difficult to make 40 years ago. Our chief disadvantage is that we are not offering “pie in the sky” utopias or excusing predatory behaviour as somehow integral to our nature and even laudable because functional or “rational”. But ruthless criticism of all that exists combined with practical strategies and policies for their implementation will have their effect, over time (much longer than it takes to spend a thousand dollar check), especially as the situation becomes more desperate. A particularly sad aspect of this is just how often it is demonstrated that human solidarity is most effectively forged in adversity, as we are being reminded once more.
Finally, this afternoon, Wunder sent an analysis of the current Senate plan, which was blocked by the Senate Democrats for not doing enough to actually help out households (this situation is changing so quickly, I’m linking the New York Times’ COVID-19 live update page for the latest news). From Wunder:
Some math on the fiscal boondoggle. 2 trillion is enough to give every man woman and child in America around 6,000 dollars. A family of four could get roughly $24,000. A family of 3 could get roughly $18,000. Yes those numbers are accurate. Instead the plan is to give ONLY the adults $1200 and 500 for children, BUT ONLY if you are above or below certain incomes. Low income people would get nearly 0. Incomes above 75k would have it tapered off. Further the money in the senate plan would not be money to you, it would be your tax return from next year sent early NOT a payment from the government. Simply put this plan is a 2 trillion dollar wealth give away to the very rich.
To put this in context I published a paper in 2018 where I simulated a 3 trillion dollar package where the money went to payoff household debts. That simulation showed that for the mean households in the bottom 60% of income quintiles had nearly all of their debt (besides mortgages) eliminated. Below are the conclusions from the paper. (Wunder 2018 JEI June)
"The current household debt in the US is $12.96 trillion dollars. This debt has many negative social consequences and the economic growth of the last forty years was predicated on the creation of this debt. A lump sum payment at the household level would serve to significantly lower real debt levels. Such a payment would eliminate most credit card balances, as well as eliminate many of the debts currently associated with auto lending, personal loans, education loans, and medical bills. Furthermore, such a policy would give millions of households a cash payment that they could use to stimulate broader economic activity. The cost of this payment would increase outstanding government debt by $3 trillion, a roughly 19-percent increase in the current government debt levels."
The discussion remains ongoing, but it has been fascinating to see these arguments and proposals, all of which have merit. While we cannot know at present what kind of stimulus bill will ultimately be enacted, it’s safe to say that we at AFEE will have a lot to say about it.
Finally, before I conclude this monster post, your millennial blogger-in-chief would like to lighten the mood just a little bit by sharing some of the best COVID-19 memes because if we can’t laugh a little, we will go nuts. And hey, if you come across any particularly funny ones (like my personal favorite), submit them to scientific researchers at the University of Amsterdam and KU Leuven - they’re doing very important work and don’t have time to find their own memes, so the least we can do is help them out.
Best of luck to all as we social distance, learn how to teach online classes, navigate Zoom, and comb through every grocery store in search of the elusive roll of toilet paper. Stay safe, and I will update as needed and (hopefully) start sharing non-virus-related news soon.