How can we protect economies during massive public health crises?
post by kithpendragon · 2020-03-18T18:56:21.933Z · LW · GW · No commentsThis is a question post.
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Answers 1 RedMan 1 Stuart Anderson 1 lc None No comments
Without the economic knock-on effects, telling people to all close up shop and stay home during a massive health crisis would be a no-brainer. Unfortunately, the risk of a nasty economic shock seems to be weighing heavily in the decisions of our leadership here in the USA at every level of government.
We already have certain economic safeties installed from previous shocks, like the safeguards that stop trade in the stock market under certain conditions so we don't easily get a repeat of the crash of 1929. Or the foundations and laws that are designed to swoop into action after a hurricane. Seems like the COVID-19 crisis is providing us with information that could help us build new safeties.
Health crises are different from (other) natural disasters because infrastructure is generally not affected. The two are similar because each can cause people become unable or less able to participate in driving the economy. In both, economy can resume once the crisis is over, but a natural disaster tends to have a much smaller footprint and longer economic reboot time than a health crisis might.
The U.S. federal government is too slow (by design) and apparently quite unprepared to react effectively to a disaster on the scale of COVID-19. Even if they were faster, handing over control of large portions of the economy to the federal government always leaves a bad taste and could easily have consequences just as dire as doing nothing.
I tend to think of the economy as an information entity driven by the movement of value among various actors like individuals, companies and corporations, states and so on up to world-scale organizations. Since actors on all levels are affected in a health crisis, it makes sense for actors on all levels to have access to safety mechanisms that protect various interests.
What kinds of systems could we put in place on each of these levels to allow the relevant slices of economy to go on hold for at least a few weeks as needed? To put it another way: What would we need to do to install economic pause buttons at various scales, and to minimize the effects of any given entity actually using those buttons?
Answers
Here's the squeeze. Jobs slow down, people are told to quarantine, people who are paycheck to paycheck fail to make rent. People renting to them have mortgages, they don't get rent, they miss their mortgage payment.
That happens enough, bank is now a landlord, bank does not want to be a landlord, house rots, tenant is booted.
Same for a business, business operates on margin, customers stop paying, margin debts not paid, bank now owns failing business. Bank does firesale, functioning business is now a pile of auctioned off crap.
Monetary policy tools (zero interest rate overnight loans, no reserve requirement) don't trickle down to the masses. I can't get a zero interest loan, neither can anyone who is paycheck to paycheck, but I sure can get extortionate rates from a payday lender or a credit card! I also can't negotiate my existing rates to zero interest.
If someone wants a new loan for a new venture, now is a great time, maybe.
If you are the Fed and want to intervene to protect banks margins, do what you're doing. The banks now own a bunch of small businesses and houses. If you want to help small business owners and homeowners, maybe buy soon to be delinquent debt from the banks at a deep discount, forgive portions of it, sell it back to the banks at a profit later. Is this quantitative easing?
If you want to protect everyone...I have this idea and need to be told why it is dumb (seriously, not an economist, pretty sure this sucks just don't see why)
Use IRS estimates of income from the previous year, create 'universal economic manipulation fund'. Every month, everyone, based on tax bracket gets either a check or a bill, the amount is unknown prior to the end of the month. In fat years, everyone pays, in bad times when the Fed needs to "drop $100s from helicopters" the check is big, biggest at the bottom. Nobody can rely on it as a source of living expenses and become 'welfare or UBI dependent', but a sudden windfall gets spent instantly by people at the bottom and lets people do things like make rent, pay utility bills, and go grocery shopping.
Again, I'm sure this is stupid, I just don't see why. If it isn't stupid, please call someone wth access to Mnuchin and tell him.
I think Robin Hanson's idea about being able to sue people who get you infected ought to do a lot to help prevent the spread of disease in general. It might have even prevented this entire disaster if it was instilled enough on a cultural level.
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