The Economic Response Needed to Coronavirus

We Need Less Central Government – Not More

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President Trump and Congress want to spend close to $1 trillion we don’t have to deal with the coronavirus. Before spending money we don’t have, we should make sure it will be effective for taxpayers.

Beat Back the Virus

The best thing that can be done for everyone in the economy is to quickly beat back the coronavirus so we can resume normal economic activity. This is best done by cutting government regulations to allow faster development of vaccines, easier medical testing, and market responses to changing conditions. President Trump has already substantially done this.

Government Subsidies NOT Worth It

“Stimulus” spending will be inefficient and creates winners and losers. Targeted assistance to special groups such as airlines, small businesses, and banks sounds “fair” and “compassionate” even though it is simply special interest spending by government. We need to deal with the underlying problem rather than the symptoms in order to avoid wasting taxpayer money and adding more distortions to the economy.

Cutting Regulations Speeds Solution

Trump Administration actions cutting regulations on the medical industry and encouraging private sector initiative are the most positive steps taken so far. Getting coronavirus testing out of the moribund Federal bureaucracy and into the private sector and local governments is quickly increasing test capacity.

Cutting through red tape to let companies accelerate testing of vaccines will probably result in a useful vaccine in less than 6 months rather than 12-18 months most government “experts” have predicted. An American company has already started human clinical trials. An Israeli company believes it may be just several weeks away from a vaccine ready for clinical trials. The Israeli vaccine will be taken as a pill which would make it very easy to distribute.

Letting decision making be decentralized regarding testing and treatments allows people to respond efficiently taking all risk factors and local conditions into account instead of having the FDA and CDC impose draconian regulations stifling a fast, efficient response.

Foreign Travel Restrictions Worked

Trump Administration restrictions on travelers from infected areas coming to the United States was decisive in cutting the number of Americans infected. Countries like Italy and Iran that allowed flights from China after the United States prohibited them suffered from more infections. Even though there is a lot of panic in the United States, the number of people infected and number of fatalities is fairly small compared to other countries and other dangerous things Americans face (such as flu, traffic accidents, etc.).

Federalism and Free Enterprise Beats Central Control

The Federal government issues suggestions and guidance, but wisely avoids implementing regulations and restrictions. Leave that to state and local governments as well as private companies and individuals. This allows more sensible, flexible risk assessments allowing people who know their situation best to make decisions.

Federal Suspension of State Regulations Can Help

The Federal government has suspended many state based regulations on medical practice to allow medical professionals to practice across state lines. Medical professionals are allowed to work in states they are not licensed in. They can go anywhere they are needed in the country to help patients. Emergency room regulations were suspended to allow hospitals more flexibility to ramp up their capacity as needed.

One other thing the Federal government should do is suspend state regulations on “price gouging”. These regulations are responsible for shortages and panic in retail stores. If prices increase to match demand to supply, stores will not run out of items, people will not hoard, and panic buying will be reduced. This will allow people who really need things to buy them even if at a high price. The high prices will encourage people to buy only what they really need right now instead of stocking up when other people need those items. As the panic eases and production increases, prices will come back to “normal” levels. Stores should not be required to increase their prices, but they should be allowed to do so. That way, manufacturers and retailers could decide for themselves whether to keep prices low and run out of items or raise prices to make sure they are sufficiently stocked for people who really need to have certain items.

Paid Sick Leave – Useful but Easily Abused

Policies that have the effect of encouraging sick people from showing up at work and infecting people have some value for containing the infection. The problem is that these policies are almost impossible to implement in a way that prevents fraud and abuse. Providing government funding for sick leave and allowing people to still get food stamps if they stay home from work when sick sounds good, but can create incentives for people to be “sick” even if they really are not. Any program like this must be very short lived in order to avoid wasting money on fraud and abuse. Keep in mind, people claiming this benefit will NOT be able to get checked by medical personnel. Verifying their claims will overload the medical system. Federal funding for this beyond two months duration will probably not be productive.

Government Paid Testing – Questionable Value – Wash Hands

Government paid testing has limited value in curbing an outbreak. There should be testing available for anyone willing to pay for it. That will allow everyone to know the real economic cost of testing.

Prioritize tests according to the best value that can be obtained. For example, first responders, hospital workers, and nursing home employees are likely the most critical people to test. Those people are the most worthwhile to test when the tests are first being rolled out and are most expensive. As production of tests ramp up and they become less expensive, testing can be expanded to more people as needed.

Remember the tests sometimes give a negative result even when a person has recently been infected and is contagious. This makes extensive testing less likely than good hygiene to curb the spread of the disease. Also, soap and water are less expensive than the tests.

Stimulus Spending – A Band Aid Instead of a Solution

Putting money in the economy through stimulus policies is likely to cause more harm than good. The effect on the economy will be minimal and the effect on the government deficit will be devastating. The best way to put money back in the economy is getting back to normal as quickly as possible.

Suspending the payroll tax has some merit. The current proposal to suspend both the employee and employer portions is not ideal. Implicitly, employees pay both the employee AND employer portions of the payroll tax. Employers lower wages and salaries to account for the employer portion of the tax. It’s part of the cost of employing someone. Suspending the employer part of the tax is a windfall for employers but provides limited benefit to employees.

Keep in mind, the Social Security Trust Fund will be funded with other taxes. There is no “free” money out there. Essentially, suspending the employee portion of payroll taxes will shift funding Social Security from payroll taxes to income taxes. That provides some relief to low income workers. Suspending the employer portion will shift taxation from business owners to income tax payers. This hardly seems worth the trouble considering that debt will be increased to pay for this in the short term.

Cut Regulations and Fix the Problem Fast

Clearing out those government regulations that interfere with private sector responses to the virus is what we really need. The solution to the problem is to solve the problem. Managing the contagion and quickly developing and deploying a vaccine are what we need. That will allow the economy to recover naturally without wasteful government stimulus programs. The Trump Administration is already on the right track managing the contagion and clearing the way for a vaccine. It should quietly drop stimulus and subsidy packages since they are likely to be ineffective or even counterproductive.

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