The Three Best and Worst Ideas of the Crisis
The Three Best and Worst Ideas of the Crisis by Veronique de Rugy for American Institute for Economic Research
In typical fashion, politicians in Washington already are talking about passing, before the August recess, another COVID-19 bill. Never mind that between the Federal Reserve and the spending, the sum injected into the economy now exceeds $10 trillion. Overlook also the fact that we don’t know what the economy will look like when businesses are allowed fully to reopen. And forget that only half of it has been spent so far, so there is still a lot of money to go around. Yet, they still want to spend more.
But in the spirit of being constructive, let’s actually look at what are likely the three best policies Congress should consider going forward. And then let’s compare these policies to the worst ones that have already been implemented. That’s the challenge that I was given at a recent Webinar for the Mercatus Center. Here are my answers.
I picked as my three best policies ones that target America’s most significant looming issues. (Some of these issues, unsurprisingly, were created by government interventions in the first place.) Good policies, of course, should allow for flexibility and innovation without bankrupting future generations, which I think these do. And the ones I picked also capitalize on the many deregulations that were implemented in the last few months.
The first policy comes from an idea proposed originally by Arnold Kling. It was put forward as an alternative to the Payroll Protection Program (“PPP”). Rather than inject more money, as does the PPP, into businesses through agencies like the Small Business Administration, a better policy would be to extend a line of credit to every checking account in the country, individual and business alike (You can find the details here).
The individual part matters because 81 percent of small businesses are sole proprietors that do not exist as businesses in the eyes of the federal government and, thus, have a hard time getting loans through programs such as PPP. The money could be used for whatever individuals and businesses need, because if most people stay on top of their rents and car payments, it will help businesses but also reduce large distortions to the economy.
The key part of this plan is that these loans are repayable. This requirement creates all the correct incentives needed to inject liquidity into the market and firms without having to worry about the debt and about abuses. This is not a silver bullet for an economy that would continue to be frozen for many more months—nothing can save us from that—but it could help as the economy recovers and people return to work and consumers return to their post-COVID lives at different speeds. It doesn’t require an entire bureaucracy and shouldn’t cost as much as alternatives aimed at achieving the same goal.
The second worthy idea for policy is to continue to free civil society from all the rules, regulations, and bad incentives that get in the way of us as individuals helping one another not only through the market process but also through charitable giving, churches, and other nonprofits. The most moving of the many different responses to this pandemic are the ways thatpeople and companies went the extra mile – or two! – to help one another.