I should have put this on my last post. The alternatives are:
1. Loans to people and businesses who need help paying bills like rent or utilities. If you don’t know how I have proposed to do this, then you haven’t been following this blog long enough.
2. Raising taxes or cutting other government spending to pay for relief measures, including paying welfare to households that suffer unusually large or long-term losses.
There is no need to foster the sort of ethical breakdown that comes with people feeling entitled to renege on their obligations to landlords, utilities, automobile finance firms, mortgage lenders, and so on. There is no need to foster the sort of ethical breakdown in which every dime of government spending is financed by printing money. There is no need to foster the sort of ethical breakdown in which every asset market that the New York Fed deems essential (which is all of them, as far as I can tell) gets a full 100 percent bailout, ultimately paid for by the dupes who think they are being helped with their $1000 “stimulus checks.”
I don’t mind coming across as cranky. Every time I think about what the Federal government is doing, I get crankier.
Cranky! Me too! I guess cranky better than becoming despondent !
What lesson do you want people to learn from this crisis?
In the 2008 crash, the moral hazard was clear. If we bail them out, they might do something similar again. The error was clearly identified and either purposeful or at a minimum criminally negligent.
What is the moral hazard here?
What is a person whose job was made illegal supposed to learn from getting evicted from their apartment? Horde cash? How long is this thing supposed to go on? Should they have 18 months savings on hand? Can they even do that in the system we’ve built?
What is a corporation supposed to learn? I should sit on a pile of treasuries rather than reinvesting in my business in case a random plague happens? That I should fork over money to a pandemic reinsurance fund so they can sit on a pile of cash?
What are the airlines supposed to learn? That they shouldn’t exist? I can buy that there should be a strong signal to reallocate a lot of those resources, but it’s not clear to what. If a creditor repossessed a 737, what exactly would they re-allocate it to? Were Airlines negligent in not predicting the plague? Is there a single airline in any country that did? Would anyone invest in airlines if they thought there was going to be a plague?
What does someone with a restaurant need with loans? How are they going to repay those loans? So they are going to do almost no business for the length of the lockdown and then “open up” at 1/3 capacity? When they were on razor thing margins to begin with? Who the heck is going to be able to pay back these loans? I’ve assumed they are forgivable grants they get in exchange for maintaining payrolls and not flooding the unemployment system. Eventually they will stop and a lot of these places will go under.
What are all those people that did oil fracking supposed to learn? Thank you for developing this latest greatest technology that gave the USA energy independence. Please go broke and forget all your skills, we’ll never need those again.
ultimately paid for by the dupes who think they are being helped with their $1000 “stimulus checks.”
I don’t think they are dupes. Everyone sees what’s going on. If anything it was foolish to oppose the checks. You should be all in on the checks. Most of the money that went into other programs should have gone into the checks. That would be about as fair and efficient an option as possible.
2. Raising taxes or cutting other government spending to pay for relief measures, including paying welfare to households that suffer unusually large or long-term losses
How do you think people would respond to the announcement of a large tax increase right now? Responding for myself I would take it as an indication that the economy and prices were going further down, and I would pull back from whatever economic activity I could. Walk away from the house I’m building. Not invest in my wife’s firm. Whatever else we could cut. I suspect others would do the same.
“What lesson do you want people to learn from this crisis?”
I dunno…maybe something like save for a rainy day?
That’s the point. Saving a little if your out of work for a little while is prudent. Having enough cash flow for a recession is prudent. It having enough reserves to handle a long depression prudent? Is that the message we are sending? Horde cash in huge sums and don’t take any chances? Can everyone do that? I don’t think that’s how the accounting relationship works.
Is it too much to ask for people to have 6 months of savings available? Is that just too unreasonable?
If we don’t have six months of consumables in stock, which we don’t, what are they supposed to spend it on? Where are they supposed to spend it, if the stores are closed? Money is a token of economic value, not the thing itself. While the labor theory of value is clearly wrong, nearly all value creation involves labor at some point and most of it stops if we all go home.
And that’s for the relatively well off. Plenty of people were barely scraping by even in pre-covid times. For most service industry employees, one month of savings is a ludicrous dream.
Let’s not get over philosophical…jeez. Just set some money aside for the unforeseen. Not that complicated.
How about this: if you choose not to save, and that turns out to be a very bad decision, you are not entitled to the earnings which accrued from that decision (looking at you CEOs)?
“I don’t mind coming across as cranky. Every time I think about what the Federal government is doing, I get crankier.”
Keep cranking away! Well justified! But, you supported the lockdowns and now you are doing to have to live with the government response.
Aren’t the cheques token UBI?
IMO your (Arnold’s) stance is a plea for honesty in fiscal and monetary policies (and in economics). Alas, political rhetoric plays to what sounds good, and to group-status anxieties.. Ample reason to get cranky when the stakes are high and bootleggers are on a rampage.
The politicians are packed with issues and calls at the moment. Transparency is unavailable, the transmission system clogged.
When the inflation ultimately hits (probably not for another decade) it will be blamed on a dozen “unforeseeable” factors…not on printing money. Our system simply has no accountability.
The issue of savings is a huge one.
I was not alive during the Depression, but I suspect that savings became ingrained in the most graphic way possible. Those who had no savings became homeless or could even die of starvation. Those who survived became good savers, regardless of their incomes.
There might be a gentler way to do this, of course. Mandatory payroll withholding is what I have in mind. Would this be paternalism? Heck yes, and not a moment too soon. Paternalism can reflect wisdom.
Loans? No! Why aren’t non-essential workers and business firms are entitled to just compensation under the takings clause? See my op-ed “Kelo and the coronavirus”: https://priorprobability.com/2020/04/27/kelo-and-coronavirus/