What are the correct economic tools?

[TooSteep + 142]

I cannot shake the feeling that the economic fallout from this is going to be much worse for public health than the direct viral impact. Because it feels like the tools that governments are fighting this with, are mismatched to the problem.

Recent economic downturns have been triggered by asset class bubbles that quickly deflate (residential real estate, dot-com startups). The bubble popping had negative effects on financial markets (Mortgage Backed Securities, stocks), which in turn had negative effects on the general economy. In both cases, the effect on the economy was a sudden, sharp drop in demand. To deal with the demand drop, governments engaged in both monetary stimulus(lowering interest rates, printing money) and fiscal stimulus(cash bailouts, buying distressed bonds).

Now we are here in our surreal pandemic landscape. One can argue we were in a debt-fueled 'everything bubble' that was inevitably going to pop, and I wouldn't disagree. And that's how governments are treating this ... but it does not address the problem. The immediate problem is that governments mandated a collapse in revenue/income. Traditional monetary and fiscal 'stimulus' is going to do little. 40% of small businesses face insolvency in the next 6 weeks, regardless of the bailout minutiae . 30% of consumers face insolvency in the next few months. There are too many people and small businesses who have been living check-to-check for this not be a near existential problem. 

So what are the right tools for dealing with a government mandated shutdown of revenue? It seems obvious to me that it must be accompanied by a government mandated shutdown of expenses. For example, since rent is the biggest cost of many at-risk people and businesses, why not freeze/eliminate all rent, mortgage, lease payments, property tax, utility and interest payments for the next 3 months? Extend bond/lease/rental maturities out 3 months, and pretend as if the current 3-month shutdown months never existed. Just eliminate that flow of money altogether for 3 months. There is no moral hazard here, as these businesses were not shut down by something they could control.  The government wouldn't have to spend or print money to make this happen, so they wouldn't have to risk national insolvency in order to address the problem. The total dollar amounts would dwarf anything the government could possible offer in cash bailouts, and it would be mostly targeted at helping help the most affected parties. The parties most disrupted would be well-capitalized, who are in the best position to survive the current crisis in the first place.

What am I missing here? Shouldn't the shutdown of economic flow be addressed by minimizing the total economic flow? Isn't that better than having the government print money and try to replace, piecemeal, the missing economic flow? I feel as if nobody in government has thought this through beforehand. What were they thinking would happen if their public health officials demanded an overnight shutdown of the economy? What was the economic plan that was to go along with enforced social distancing?

Edited March 27, 2020 by TooSteep

[Yoshiro Kamamura + 274]

Modern computer systems are sophisticated and powerful enough to control the production and distribution than the obsolete so called "free market" that sends everyone at once for a roll of toilet paper. During the Middle Ages, 97 percent of people worked in agriculture, and there was only just enough food to go by. Today, only about 3 percent of people are needed to produce enough food for the population. That is also true for other necessities - energy, mining, industry, etc. Only a fraction of the world's production capacity produce actually useful things, the rest is marketing that forces each other the "fifty shades of iPhone" nobody really wants. Vast majority of poeple is doing non-essential things. So, the procedure would be.

1) Identify the essential production chains

2) Shut down everything non-essential, with large enough safety margin for other disasters

3) Distribute the food and other necessities so that everyone has just about enough to go by plus something bit extra to make it endurable (something similar to wartime ration system)

4) Throw every highly educated asset (scientists, engineers, doctors, energy and agricultural experts) towards solving the current epidemy and the pressing challenges - sustainable economy, preserving enough environment and biodiversity not to endanger the future, researching new sources of energy, new antibiotics we will need for bacterial outbreaks, etc. 

In other words, dismantle the profit driven economic system that is driving us into extinction. People are tired working to the limit so that few super rich can enrich themselves further, while the reward is only chains made out of debt. 

Edited March 28, 2020 by Yoshiro Kamamura

[Douglas Buckland + 6,308]

Yep, those small business owners are damn tired of looking for a profit while somehow enriching a few ‘super rich’.

The people employed by small business are also annoyed with having a job and making those small business owners ‘rich’.

Just when will this insanity stop!😂

[specinho + 470]

On 3/28/2020 at 3:16 AM, TooSteep said:

The immediate problem is that governments mandated a collapse in revenue/income. Traditional monetary and fiscal 'stimulus' is going to do little. 40% of small businesses face insolvency in the next 6 weeks, regardless of the bailout minutiae . 30% of consumers face insolvency in the next few months. There are too many people and small businesses who have been living check-to-check for this not be a near existential problem. 

What am I missing here? Shouldn't the shutdown of economic flow be addressed by minimizing the total economic flow? Isn't that better than having the government print money and try to replace, piecemeal, the missing economic flow?

if we look from another perspective, 60 -  80% of the shops might not be making enough to cover their monthly expenses. Many shops were noticed opened and closed within 6 months to a year in a busy town shed some times ago. The once map dotter lost count on the updates she needed to make on the list of shops and location on the map ....... The lock- down reduces the avoidable expenditure e.g. electricity, water, labor costs, and give them rest before they start again, at the same shops or new ones, much later.

I was told also, that 80% of the time, a resort would act like a charity organization. The management has to pay salaries to the workers, maintenance including electricity and water, without having any customer or may be visitation of a fly or two. Lock- down could save them more than half a million to millions of expenditure per month (depending on size) which loosen up for other payments....

Here, it is a paid holiday, for over a month, ordered by the government. This is not the best. I was told, a rather young director for a government linked office in Singapore, was granted 6 months maternity leaves, fully paid, some times ago.... The lock- down might only set the pace back a little, without affecting the income of majority middle to upper income earners. The hardest hit might be the less than 10% hard core impoverished generally reported, who might need extra help to get by.......

The economy outlook, on the overall, might not differ much. The obvious difference might be the emerging of details entailed??

National reserve incontinence has been the latest trend world wide. Wonderful is the feeling of fund recipients and the party organizers or care givers.........

Go on, be either one, to share the joy. Outside of those two, one might have only words, to mention the displeasure as party outsiders..........

Edited March 28, 2020 by specinho