Addressing Our Nation’s Ills
We are headed for a major public health disaster, much worse than what Italy is now experiencing and facing. The reasons are three-fold: (1) The U.S. has a private, and not a public, healthcare system which means that our system is only geared to handle healthcare needs that are currently profitable and is not designed to handle all likely healthcare problems. (2) The President terminated the employment of those healthcare advisors who might have guided him through this crisis. Moreover, like China, he at first sought to deny the existence of the coming crisis, leaving the country largely unprepared with inadequate hospital facilities, little or no ability to test for the existence of the virus and little in the way of protective clothing for healthcare workers. (3) The President and his team have not adopted a strategy for dealing with the crisis. Instead, the President is almost singularly focused on propping up the economy which he views as the key to his re-election, seemingly oblivious to the possibility that dealing with the problem in a rational fashion could be a path to his re-election. This has led to various remedial actions being taken by the federal, state and local governments with no overall strategy. In short, chaos will lead to disaster.
While there is no painless path available to the U.S., the best course appears to be to focus on the healthcare issues and secondarily assist individuals and businesses adversely affected by the efforts used to combat the healthcare problem. Some may criticize me, a life-long Democrat, of subordinating the health of the nation’s economy in order to increase the odds that President Trump is not re-elected in November. While my feelings for President Trump are readily apparent from what you will read in the remainder of this document, as explained below, giving top priority to supporting the nation’s economy will prove counter-productive and the President may well be rewarded at the polls if he minimizes future problems by focusing first on the health issues.
As Governor Cuomo outlined, the nation’s hospitals will not be able to even handle the minimum projections for the demand for hospital services and would only be able to accommodate roughly 50% of the maximum projected demand. Thus, under any scenario, there will be a substantial number of critically sick individuals who will simply go untreated and will remain at large until many of them actually succumb to the disease. In so doing, they will infect others including their co-workers, making a bad scenario even worse. This, in turn, will cause the adverse impact on the economy to be magnified, in addition to increasing the death-toll which will have its own adverse effect on the economy. There is also a timing consideration. I’m sure that President Trump would prefer that the adverse impact of the pandemic be postponed until after the election so as to maximize his re-election chances. By not making the health issues the primary objective, the economic fallout will not only be greater, it will be condensed over the next six to twelve months. By addressing the health issues first, the economic impact of the pandemic is likely to spread over the next two or three years.
To minimize the adverse impact on the physical health of the nation’s residents, we need to buy time in order to remediate the nation’s lack of preparedness for the current crisis. Those remedial actions must include (a) creating more hospital capacity by building more hospitals (as China did) and by making the best possible use of the hospital capacity that we currently have; (b) creating a crash program to generate testing kits and a system for determining who should be tested, administering the tests and analyzing the tests; (3) recruiting as many healthcare workers as possible and providing them with the materials with which to do their jobs in a sustainable fashion; (4) enhancing our knowledge of how the virus operates within our bodies and can be transferred to others; and (5) developing vaccines against the virus and pharmaceuticals to combat the effects of the virus.
In order to buy time the nation must take bold steps to slow the progress of the disease. This means curtailing non-essential business activity so as to minimize personal contacts and requiring those not involved in essential businesses to minimize their activities and the possibility that they may become infected by the virus or infect others if they already carry the virus. Essential services would include health and security services provided by governmental entities, healthcare services, public utilities and sanitation services, food production and distribution, limited financial services required enable individuals to acquire essential services. Some of these decisions should be made on a national basis, some on a state basis and some dictated by local governments. Irrespective of at what level of government restrictions on personal activities are imposed, millions of businesses will have to be adversely affected (or even shuttered) and the employment of millions of workers will have to be suspended, decimating economy activity. This raises the question of what can or should be done to minimize these adverse economic impacts. While there is substantial disagreement regarding the steps that should be taken to slow the spread of the virus, there is even more disagreement over what steps should be taken to mitigate the problems that will be visited upon businesses and individuals.
The Congress has already begun to address the problem of employed workers having to miss work because of having contracted COVID-19. That legislation, because of the exemptions embodied within it, does not even cover half of the potentially affected workers. It does, however, transfer the cost of testing for the virus to the federal government and gives some relief to those who must miss work to stay home to care for family members. Addressing the economic burdens of those directly affected by the virus is a good first step. The legislation, however, does not address the cost of hospitalization of infected individuals or compensate workers who are laid off because the demand for their services has been eroded or eliminated by the virus or the restrictions designed to retard the spread of the disease (a subject to be addressed below).
The Trump administration has announced a plan to issue two monthly checks of $1,000 each to individuals, totaling roughly $500 billion. Aside from the sticky questions of which individuals are to be eligible to receive these checks, such an indiscriminate issuance of funds seems more designed to aid the economy as a whole than those individuals most affected by the virus. This is not necessarily a bad thing because, if this money is spent to purchase essential goods and services, there is (in economists’ terms) a multiplier effect because it benefits both the recipient of the checks and the persons generating the goods and services so purchased as well as the persons generating the goods and services that might be purchased with the earnings of the secondary beneficiaries. The key to this multiplier effect is that the original recipients of the government’s grant has no choice but to immediately spend the funds so received for their personal or family needs. Providing those funds to those whose family incomes are well above the poverty line and whose employment has not been interrupted would not only not address a personal hardship, but would have a limited benefit for secondary and tertiary beneficiaries.
The most vexing issues involve stimulus funds going to businesses. In the aftermath of the market collapse in 2008, the federal government handed out an aggregate of $800 billion to financial institutions and another $80 billion to bail out General Motors and Chrysler. While these funds were eventually returned to the federal government (mostly with interest), they were widely criticized in part because the Federal Reserve provided the financial institutions with untold additional amounts in the form of low interest loans and partly because the government did not impose behavioral changes in return for having rescued these companies from their own mismanagement. All of this occurred while millions of individuals who had lost their homes received no help from the government. In addition to the general ill-feeling against government bailouts for businesses arising out of the experience of the Great Recession, there is the added factor that the 2017 tax act drastically cut corporate taxes on the representation that the resulting tax savings would be used to expand job creation and the effect of the tax-cut would not reduce tax revenues. In reality, those tax cuts were anything but revenue neutral and approximately 70% of the corporate tax savings was used to fund dividends, stock buy-backs and add to corporate liquidity. Thus, it is not difficult to understand why financial assistance to businesses adversely affected by the virus is likely to be unpopular. In addition, virtually every business is likely to be adversely affected, raising questions as to why some businesses will be selected for assistance while other aren’t.
Aside from the public’s general dislike of business bailouts, there are the sticky questions of what should be the criteria for selecting industries to be assisted. Should the government focus on those with large numbers of employees who have been or would be laid off? Should the business’ role in supporting national security be a factor? Should the government focus on how directly its efforts to curtail the spread of the virus are adversely affecting the business? Should the government consider whether the business is essential to everyday life (such as a public utility), as opposed to an entity which simply provides public amusement (such as an amusement park).
My personal preference would be to limit corporate assistance to those entities that can supply the government with goods and/or services that will help mitigate the health effects of the virus. This might include rental of hotel or cruise ship rooms that could house quarantined individuals or purchases of equipment that could be used to assist virus victims or those tending to virus victims. To be sure there will be not scores, but millions, of business bankruptcies arising out of the COVID-19 pandemic. Some will be the direct result of government regulations and orders designed to fight the spread of the virus and others will be result of a general slow-down in the national or world economy and still others will be the result of bad business planning as many companies have been carrying an excessive amount of debt. These problems should not be addressed by the federal government but rather by the nation’s financial institutions supported by an easy credit policy from the Federal Reserve system. These are financing issues which are best handled by financial institutions and the courts.