The coronavirus stimulus package will be doomed to fail if it can’t pass this simple 3-question test

The coronavirus stimulus package will be doomed to fail if it can’t pass this simple 3-question test
  • Paul Constant is a writer at Civic Ventures, a cofounder of the Seattle Review of Books, and a frequent cohost of the “Pitchfork Economics” podcast with Nick Hanauer.
  • He acknowledges that we’re in uncharted territory — never before have we experienced such a complete economic full-stop.
  • When it comes to a coronavirus stimulus package, it needs to pass a three-question test: Is the policy immediate, impactful, and inclusive?
  • Visit Business Insider’s homepage for more stories.

As federal and state officials continue to debate the proper economic relief response to the coronavirus pandemic, we have to accept the disturbing fact that we are living through a unique moment in history. Literally nobody has ever, in the history of the world, had to respond to an economic full-stop at this scale before. The path ahead is uncharted.

That said, this crisis has proven that certain economic principles are just as true now as they’ve always been, and those principles provide guideposts for how we should address the crisis. We know these widespread layoffs and business closures were caused because the true drivers of the economy — the consumers who generate economic demand and create jobs — have to stop participating in the economy to protect public health. 

In the latest episode of “Pitchfork Economics,” Nick Hanauer and David Goldstein argue that to get the economy back on track — indeed, to make the economy stronger and more durable than ever before — we have to do everything we can to increase consumer demand, to circulate money through the economy. And we have to make sure that Main Street, not Wall Street, is restored as quickly as possible.

To do that, here’s a simple three-question test that we should apply to every proposed policy and stimulus package. If it doesn’t meet these three standards, the policy should be scrapped:

  1. Does the policy offer immediate relief to the American working class?
  2. Is the policy impactful on a scale that meets the size of the problem?
  3. Is the policy as inclusive as possible, helping Americans who have been left in the margins and broadly encouraging participation in the economy?

Running a policy through the “three i” test provides instantaneous clarity to a policy’s effectiveness.

For instance, it was obvious that the failed Senate Republican plan to give half a trillion dollars to Treasury Secretary Steven Mnuchin to hand out to corporations in secret, at his own discretion, and with no protections for workers, failed both the inclusivity and immediacy portions of the test. While the Mnuchin plan was very large in scale, its trickle-down mechanism doesn’t do anything immediate to benefit the source of the economic collapse and its eventual recovery — everyday people.

In the coming days, as the Senate’s initial stimulus package rolls out, we’ll be able to run its details against our “three i” test. For now, let’s look at another relief program that’s gaining popularity across Europe.

Governments in the United Kingdom, France, Denmark, and the Netherlands are guaranteeing anywhere from 60 to 90% of median workers’ pay for up to three months in a hugely expanded unemployment insurance program, essentially taking over the payrolls of employers who have suffered cataclysmic loss of revenue during the pandemic. This plan has the endorsement of economist Eric Beinhocker, whose revolutionary economic treatise “The Origin of Wealth” is required reading for everyone here at Civic Ventures.

In a new memo, Beinhocker says that of all the potential economic responses the United States might take, he believes that a federal payroll guarantee is “the most important, urgent, and most likely to be effective” at fending off a second Great Depression. He projects that it would save businesses from bankruptcy, stop the waves of layoffs that have already staggered the economy, offer families something close to their regular income for the duration of the shutdown, and allow businesses to resume right where they left off as soon as the quarantine has been lifted.

Economists Emmanuel Saez and Gabriel Zucman have also supported the payroll guarantee plan, which they say would allow businesses to “hibernate without bleeding cash and hence without risking bankruptcy” while ensuring that employers and workers alike “can re-emerge almost intact after the hibernation due to social distancing ends, rather than loaded with a heavy coronavirus debt burden.” 

(And for those of you who are concerned about costs, Beinhocker also projects in a FAQ document accompanying his memo that the federal government would spend less on a payroll guarantee than the proposed half-trillion that Senate Republicans wanted to hand Secretary Mnuchin.)

So how does a payroll guarantee measure up under our “three i” test? Let’s run it through:

Does a payroll guarantee offer immediate relief to Americans on Main Street? Assuming the government can expand their existing unemployment programs to absorb at-risk workers, it would. “As most company payroll systems are automated and already linked to IRS systems,” Beinhocker writes, “it is likely that a system could be quickly created to feed in payroll data and taxpayer ID numbers to then trigger the payments to companies who would then route the funds to workers through their payroll systems.” It certainly would take less time than creating a new system, or forcing everyone to apply for unemployment individually.

Is a payroll guarantee impactful on a scale that meets the size of the problem? Largely, yes. It would staunch the waves of layoffs that have inspired panic in Wall Street, containing unemployment numbers and maintaining consumer confidence. It’s certainly a more appropriate response than just dumping a huge wheelbarrow of money on a CEOs desk and hoping that they’ll respond by doing the right thing.

Is a payroll guarantee as inclusive as possible, broadly encouraging participation in the economy? Here’s where we run into a problem. As Matt Apuzzo and Monika Pronczuk noted in their excellent overview of international economic responses to the pandemic for the New York Times, payroll guarantees “come too late for workers who have already been laid off,” and they do nothing to protect “part-time workers, contractors, and the self-employed.” So that’s a huge portion of the economy, from gig economy workers to artists and consultants, who see no benefit at all from the program. As Beinhocker notes, a payroll guarantee would only succeed in combination with a suite of other programs that would provide assistance for those who fall outside the protections.

It should be abundantly clear that there is no single perfect solution for this moment. But the “three i” test at least provides us with a quick and easy critical assessment for each of them, pointing out their weaknesses and strengths and helping us choose the most beneficial solutions for our unique historical moment.  

Best of all, the test disqualifies any policy that benefits the wealthiest Americans at the expense of everyone else. A trickle-down stimulus like the one we saw in 2008 would not only fail to revive the economy, it would likely make the recession even worse by stunting consumer demand and creating a negative feedback loop that would cause even more layoffs. If this recovery doesn’t quickly benefit every single American in tangible ways, we’ll be lost in the wilderness for a long time to come.

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