Fiscal policy thought exercise

Our government is dumping 80 billion into the economy to prop everyone up and I don't know what the US will spend but I guess ten times as much. This will evaporate as people try to keep mortgages, car payments, Hydro etc current while no longer working.I am sure a lot of that money will disappear into the bank accounts of people and companies who really do not need the help. Companies and financial institutions that are too big to fail will suck most of it up.

But what if we just put our economy on hold for three months? If every company in the chain stopped taking payments?  At an extreme, can all sit home and twiddle our thumbs for 90 days. The weather is getting warmer and all we really need are basic necessities. That 80 billion could ensure every Canadian had enough to eat, and the rest could go toward keeping us safe and healthy.  Then in three months we pick up where we left off. No-one has piled up penalties or interest. No-one is behind on their mortgage. Everyone goes back to work in the same situation as before the break.  

Thoughts?

In reply to bearmtnmartin :

A Lotus Elise costs about $30k, and, without going too far into personal finances, I make more than that amount in a year. 

I've wanted an Elise for years.

Why don't I just put everything into buying an Elise until I'm sitting on $30k?

The problem is I need food, rent, some fun, insurance, taxes. Everyone in my life needs that too. 

You can't really carve out those industries cleanly either. The baker making your bread needs gas and wheat and tires and insurance and a website and cloud services and packaging and heat and water and payroll and accountants and lawyers and a corporate card. So all of those people need to be producing at some level. 

With decades of every middle manager learning the Toyota production system, and industry offshoring and shuffling shipping containers around, many industries try hard to minimize stockpiling of parts. A Ford plant that closed today did so because their seat supplier closed, for example. 

I'm worried that doesn't make sense, or that I'm misunderstanding. Am I getting your question right?

In reply to Mike :

You are, but I am paring it down to a very basic level. The baker is an essential service, but everything else you mentioned can be done without for 90 days. I understand that parts of the economy would need to chug along, but at a much reduced rate. We are in fact heading that way now, but in the process we are going to hurt a lot of people who will struggle to meet monthly requirements while having zero income. So I am just thinking to take that a step further and eliminate all the payments for everyone for three months. I guess that is the idea. If you have borrowed money, you get a penalty and interest free pass for three months. 

bearmtnmartin said:

In reply to Mike :

You are, but I am paring it down to a very basic level. The baker is an essential service, but everything else you mentioned can be done without for 90 days. I understand that parts of the economy would need to chug along, but at a much reduced rate. We are in fact heading that way now, but in the process we are going to hurt a lot of people who will struggle to meet monthly requirements while having zero income. So I am just thinking to take that a step further and eliminate all the payments for everyone for three months. I guess that is the idea. If you have borrowed money, you get a penalty and interest free pass for three months. 

2 problems:

Everyone will never agree on what is an essential service. Just because you think a baker is, others won't. 

You are rewarding those who have loans and the people without them will get angry. 

I just want everyone to remember that no matter where this thread (and the government response) goes, there is no right answer. Every possibility has benefits and pitfalls. Whatever is chosen will be right for some people and wrong for others. Someone has to make choices that will help/hurt people and live with it. That's going to suck. 

In reply to mazdeuce - Seth :

Exactly- the whole point about the stimulus is to keep money actually moving.  The more people consumer, the less damage will be done to the economy.  Doing that will result in some winners and losers- just like every other policy that is done for the overall good.

If the pendulum swings from 1 being a Socialist command economy on one side to 20 being totally unfettered laissez-faire capitalism on the other side, I would say that my tendencies are typically in the range of 16-18.  In most cases, my initial reaction would be "let the market sort it out".  That said, this is definitely not most cases.  It's an interesting thought exercise.

I guess the biggest problem I have is trying to figure out what's a necessity and what's not.  For example, if you simply told the grocers that you were going to give them $X and they should just open their doors to the public, how long do the chicken livers sit on the shelf versus the standing rib roast?  Maybe opening up SNAP to everyone would make more sense and then disallow the grocers from taking any other form of payment.  I can tell you that the SNAP system isn't designed to handle the sort of fiats that our Gov is issuing here in Kentucky, so there would be a pretty big logistical delay in making that work, but since it's a thought exercise we can assume that it's do-able.  But what do you do with the people that are working at the grocery store?  Would they be allowed to get paid by the grocer?  If not, how do you get them to continue to come to work when everybody else can just stay home and not worry about the bills? 

What about other industries?  Still gotta make electricity.  That means that you need the staff to run the plant, the guys to climb poles, the people to maintain the trucks, the companies to sell parts to repair the trucks and the equipment, the crew of the tug that bring the coal, the mine that digs the coal out of the ground, etc.

Here, they're talking about mailing out checks to people.  As much as I've always hated that concept (yes, even when the politicians that were nominally on "my side" were advocating for and actually doing that), I'm wondering if that isn't the most equitable way to try to stem the short-term economic damage and prevent it from turning into long-term damage. 

As much as it goes against my normal political leanings, I can't dismiss your general concept, though.  We have governmental decrees that are literally unemploying with little to no notice large numbers of people who were not in a position to have a large amount of savings and the effects of that are going to continue to trickle upwards.  This is happening through no fault of their own and by something that is wholly out of their control.  This isn't a pull yourself up by your bootstraps situation, or a lazy people sitting on the couch not trying to get a job situation.  How we go about fixing it, or at least taking some of the sting out of it, I have no idea.

I actually think that this is a difference between us and canada.

Canadians could probably pull off living simply on the bare minimum, while that would be much harder for americans.

One of the biggest problems with society these days is an unwillingness to accept policy mistakes. For govt to try something, see if it works, and then adjust if the attempt fails.  Some of this may be due to partisan problems. Some just due to pure human stubbornness.  But whatever the reason may be, we need to accept trying and failing because we are more likely to get it wrong the first time. Or second time. Or third... and so on.  But we have to keep trying and maybe for once not punish failure.

I can say that sending me a $1000 is a waste of resources. Honestly, sending anyone in my company cash is not money well spent. They are all still working and we are still paying them. 

I also think the $1000 is like putting a Band-Aid on a broken leg. It's a feel good gesture that won't help the people who need it most. The family that no longer has income and no savings is still screwed. They won't be able to feed themselves and pay housing and such with $1000. 

I would much rather see that money go into a state fund that could be applied for. Make it a simple process. Show up with proof of unemployment or inability to work due to the virus or government restriction, a list of your bills for 30 days, you get that much money to tide you over for a month. Then, if the government restriction on gatherings are still in place at the end of the month, reassess and extend the program for another month if necessary. It would probably cost the government less and actually help the people that need it most. 

In reply to Ian F :

I think it's also got something to do that people think they're not allowed to make mistakes, and rather do nothing instead.

I suppose activating the Defense Production Act could allow for a lot of activity that fits in well with this thought experiment.

Toyman01 said:

I can say that sending me a $1000 is a waste of resources. Honestly, sending anyone in my company cash is not money well spent. They are all still working and we are still paying them. 

I also think the $1000 is like putting a Band-Aid on a broken leg. It's a feel good gesture that won't help the people who need it most. The family that no longer has income and no savings is still screwed. They won't be able to feed themselves and pay housing and such with $1000. 

I would much rather see that money go into a state fund that could be applied for. Make it a simple process. Show up with proof of unemployment or inability to work due to the virus or government restriction, a list of your bills for 30 days, you get that much money to tide you over for a month. Then, if the government restriction on gatherings are still in place at the end of the month, reassess and extend the program for another month if necessary. It would probably cost the government less and actually help the people that need it most. 

 

That's been considered.

The "show up" part is a problem. It also adds a lot of complexity, which requires a lot more time. 

In reply to Toyman01 :

Depends a little of what the intent is - I completely agree with you on the safety net side. That said, for an economic stimulus it does make sense to put cash in the hands of the public (it's an alternative to "government as the buyer of last resort").

Unfortunately it looks like so far people are more concerned with the economic stimulus rather than having having a better safety net in place for those people who are going to be really hard hit by this massive economic contraction.

In reply to Toyman01 :

Exactly.  I already know several people who would just pass their check along to someone who needs it more.  But wholesale sending out of checks just isn't gonna get the right amount to the right hands.

I think part of the issue to pair down to essential services is very, very hard. There are some obvious ones that are needed first responders, food and drug production and distribution, etc. There are about a thousand more subtle ones for each obvious one. For example the company I work for is a manufacturer or medical supplies, makes sense to keep that running. We also make gaskets for chemical equipment to contain some of the world's most aggressive chemicals. A leaky gasket that can't get replaced due to lack of supply doesn't seem like a huge issue, right until Chemours spills a couple million gallons of fuming sulfuric acid into the Delaware river because they couldn't fix a leak. 

Even with those who can do *some* work from home, productivity is sure to drop. I can't do many of the customer interactions I usually do, and this will have long term impacts on the projects that get done this year. Not hitting the bottom line now, but in 3-9 months. Where's the recoup for that?

Toyman01 said:

I would much rather see that money go into a state fund that could be applied for. Make it a simple process. Show up with proof of unemployment or inability to work due to the virus or government restriction, a list of your bills for 30 days, you get that much money to tide you over for a month. Then, if the government restriction on gatherings are still in place at the end of the month, reassess and extend the program for another month if necessary. It would probably cost the government less and actually help the people that need it most. 

My wife works for the state office that does the application for SNAP, Medicaid, KTAP, and childcare benefits here in Kentucky.  Our gov has made announcements and changes to policy as to who can get SNAP.  One of those changes involves allowing people who had broken the rules previously and were disqualified from receiving benefits to get an emergency re-instatement for 30 days or some other short period of time.  A good thing, right?  The problem is that the system that they use for processing the benefits is somewhat awful to begin with and has no way to put in a temporary disqual suspension:  You are either disqualed or you are not disqualed so the people that are getting their disqual lifted right now are likely to have that remain lifted after the crisis is over.  And that's just one area that isn't working quite right with all the new rules that they're making.

I bring that up simply as an illustration that while I like that idea - I don't think it would actually work because there is no system in place to be able to process that type of claim and it will take the state months to build that.  And it still won't work right.  Now, if you could get an emergency order allowing the state to use a system that was developed by a tech firm that could actually do that sort of rapid app development, I think you're on to something.

As it stands right now, my family and I don't need any extra money because I'm still working and getting paid and my wife is actually going to start working massive overtime (they've gone phones-only and are talking about being open from 7am to 7pm and having weekend hours as well).  But, it's a good point made by Tim that if I had an extra $1000, I might push that back into the economy via one of the businesses that are still open.  Or I might donate it, or I might save it for when the crisis is over and take a vacation, or something like that.

As far as I can tell, the current plan in the US is income based (haven't seen specific details). The max amount is $1000 per adult and $500 per child.There will likely be a second round sometime in May which should tell people about what kind of timeline the Feds think we're looking at.

I'd really encourage those who don't need the money to try and find somebody they know that does need that money.

Restaurant/bar workers, parent's who might have to chose between going to work or watching a child, etc.

In reply to STM317 :

Honest question, because I do not know:  For someone that doesn't need the cash to cover expenses in the short term, is it better to cash the check and give it to a StVdP conference so they can provide food and/or pay bills for people in need, give the cash to individuals that we know that might have lost their income, or to use it to order carryout from local restaurants/bars that we wouldn't ordinarily buy and that ordinarily don't do much of their business via carry-out? 

In reply to wae :

I wondered the same things, and I don't have a definite answer, but I don't think there's a wrong answer either. So here's where I currently stand. I think it comes down to specifically helping an individual that you know, or generally helping to attack a large (regional, societal) problem.

I feel like this will impact enough people that either option works, but personally I always lean toward making a direct impact close to home over donating to a large charity organization. That's not based on any real data, just my feel good-o-meter. I just think it's more direct to give a person in need that you know the full amount of funds rather than donating to an organization with some level of overhead and hoping that the needy person receives a portion of my donation.

Small businesses seem like they'd need cash to pay employees and pay rent/utilities more than they'd need jobs that would require them to spend money on overhead, etc so if I were going with the restaurant example I think I'd just give them the money rather than making them spend some money on preparing, packaging and delivering food on my behalf. Instead of giving the pizza place $30 to make me a pizza (where they'd end up with $30 -- the cost of ingredients, packaging, utilities, etc) I'd just donate that $30 so they can pocket the full amount and use it for whatever their needs happen to be. But we've all gotta eat too, so obviously don't feel bad about patronizing a place that you like.

If you can't find somebody you know in need (unlikely) or you want to attack the larger scale problem, then a homeless shelter or food bank might be able to stretch your dollar a little further with their scale.

Ian F brought up Partisan politics as being apart of the issue and I totally agree.

Man, there's so many things I want to talk about here and honestly, I'm probably not smart enough to really do so. Right now, I'll also have to take extra hours because my housemate has been essentially furloughed (their company is terrible; I think it's illegal to suddenly make someone part-time, but as much as I love them they aren't gonna research if that's illegal or not) and there's been no rent or mortgage protections from this.

The UBI $1,000 is a band-aid; it'll absolutely be helpful, but you're problem is that A. You can't get it to people fast enough to make a great difference (remember when UnitedHealthCare went live? Even with good management it couldn't handle the MILLIONS signing up at once) and B. you hit the brakes on capitalism, but only in some areas. Again, we have no rent/mortgage protections right now, and the fed was trying (and I think succeeded) to slash food stamps just a week ago. I really think everyone's gonna be wowed by the free $1,000 until they realize how little it goes, or if it's just not ready for the sheer number of people whom need it. Like dropping the interest rates, it might make a blip in the market but we're kinda hitting a "Keep Calm and Carry On" scenario here and it's made all the worse by us running out of transportation and stretching the rest just for "essentials". I won't doubt that soon things like the National Guard are going to be activated just to move products.

Know what? This is a WACKY idea, but maybe its worth discussing: if you could somehow secure that this system would stop when the "emergency" was over, "emergency" communism. It sounds meme worthy, but we already have a growing number of people whom are loosing homes and livelihoods because they've been ordered to not work and can't pay due rent, and even after just 2 weeks the sheer scale of things for us to bail out is staggering- my hospital's overhead is saying this will likely last another 6 weeks before we can allow people to resume something like their lives from before, and even then how long will it be before things are anything like our normal now? Should we- as a society- just blank-check people's debts until actual experts can give the okay to resume free markets and we can sort through the ashes? Or can you even just "pause" the market despite something like this?

GIRTHQUAKE said:

The UBI $1,000 is a band-aid; it'll absolutely be helpful, but you're problem is that A. You can't get it to people fast enough to make a great difference (remember when UnitedHealthCare went live? Even with good management it couldn't handle the MILLIONS signing up at once) and B. you hit the brakes on capitalism, but only in some areas. Again, we have no rent/mortgage protections right now, and the fed was trying (and I think succeeded) to slash food stamps just a week ago. I really think everyone's gonna be wowed by the free $1,000 until they realize how little it goes, or if it's just not ready for the sheer number of people whom need it.

I've read the goal is to have checks in the mail within a couple of weeks. Obviously, the sooner the better for the most financially strapped segment of the population.

Also, aren't they halting all evictions and foreclosures for at least a month?

https://kfor.com/health/coronavirus/president-trump-says-hud-is-suspending-foreclosures-evictions/

Maybe longer than that in some places.

And I've gotten emails from all of my utility companies in the last week that say they won't be shutting anybody's lights/gas/internet off for non-payment.

One consideration for the $1000 to everyone thought:  

There is a story related to me by another GRM'er (sorry can't find reference to it).  I think it was Chicago, they had a serious cold / heating issue and needed to get coal for heating to all the citizens (obviously this was a while ago). In trying to figure out how to distribute all the coal and get it to those that need it, they figured the most efficient and effective way of doing it was to simply dump mounds of coal on the street corners and let the citizens figure it out. 

Sure there will be profiteers / abuse, but the amount of time, work and inefficiency of trying to set up some sort of equitable system would have certainly resulted in deaths. It's not like there would not have been abuse in a "system" anyway, this just cuts the overhead to almost zero,

Sometimes it's just more efficient to dump it on the streets.

In reply to aircooled :

Agreed. I could go into the details if someone REALLY wanted to but personally, I think there's a lot of merit to simply giving someone cash in the UBI YangGang sort of way, though you run into the issue of your politics twisting and folding around it like Alaska now. Still tho, it's one of the few methods of getting healthcare support without affecting insurance markets heavily while ALSO being a huge boon to all hospitals and pharmacies- liquid cash is always nice. I even paid an ER Bill in all cash a little while ago, and when I did I only paid 40% of the total bill.

Halting evictions is great for the tenants, but what about the guy who's renting out his parents old house because that's the only way he could afford to keep it when they died? Is he going to have to keep paying his mortgage? What about utilities? What about his taxes, or insurance? Does his credit score take a hit because of it? 

What about a terrible tenant? Do they get a free pass to continue trashing his house and stealing the copper wire and pipes for another month to fund their meth problem? Can't evict anyone...

On utilities, can't turn off power during the event, but who's going to pay for the power being used during that time? Is the local CO-OP going to have to eat the costs of the power they buy and the maintenance they have to do, and the wages they are paying, or is everyone going to get a big bill at the end of this? Sure, greedy corporations and all that BS, but I am a shareholder in my local CO-OP by virtue of being a member; we are not a greedy corporation.  One spring storm can deplete the annual emergency fund, there's no way we could afford to write off a month or more worth of income. 

And then, what about that spring storm? How do crews of linemen practice social distancing in a bucket truck? Who gets sued if a linemen responds to an emergency, catches something he had avoided so far, and then passes it on to his immuno-challenged wife and kills her? Same for a fireman, or cop, or me? 

The bill has to come due, for everything, and we're going to be sorting this out for the rest of my lifetime.