Economic Solutions to COVID-19 Beginning to Emerge

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Economic Solutions to COVID-19 Beginning to Emerge

It appears Washington is coalescing around a set of policies to help families and businesses while the economy is effectively shut down.  California’s “stay home” order is illustrative of the challenge – how do businesses survive when the government is telling everybody to stay home?

Just a week after states and localities began aggressively telling people to stay home, most businesses are confronting an indefinite period of sharply reduced demand or, in some cases, no demand at all.  For those businesses, the key question is how much cash do they have and how long can they keep their workers on payroll with little or no revenue coming in, and no sense of how long the crisis will last?

Andrew Ross Sorkin grasped this challenge fully in his op-ed piece earlier this week calling on the government to make bridge loans available to all businesses.  Here’s his key paragraph:

The fix: The government could offer every American business, large and small, and every self-employed — and gig — worker a no-interest “bridge loan” guaranteed for the duration of the crisis to be paid back over a five-year period. The only condition of the loan to businesses would be that companies continue to employ at least 90 percent of their work force at the same wage that they did before the crisis. And it would be retroactive, so any workers who have been laid off in the past two weeks because of the crisis would be reinstated.

Those who know Andrew from his day job on CNBC’s “Squawk Box” know his politics are left-of-center and that he’s typically skeptical of businesses seeking benefits from government, but this crisis is different.  The goal here isn’t to bailout this industry or that industry – it is to help all businesses to survive so that, once the crisis is over, we can all go back to work.  As Andrew argues, “…the plan’s entire aim is to return the economy to the state it was in before the crisis with as little change and interruption as possible.”

The good news is that this idea of restoring cash flow to businesses while the crisis continues is catching on in DC.  Earlier this week, more than 100 trade groups wrote to the President and congressional leaders requesting them to make bridge loans available to businesses in all industries and all sizes, as well as suspending all filing and tax payments to the federal government.  It simply makes no sense for the government to drain businesses of money at a time when they have so little revenue coming in.  Here’s what the letter says about making credit available to employers:

Immediately provide readily accessible, unsecured credit to businesses of all sizes to ensure they have the cash to pay their workers, rent, and other costs during this crisis.  While Congress, Treasury and the Federal Reserve have recently announced policies to increase the availability of credit to some businesses, these policies need to be expanded to make certain they are comprehensive and that the credit is readily available to all operating businesses in the short term.

Yesterday, Senator Majority Leader Mitch McConnell introduced legislation called the “CARES Act” that includes four key components, all sizable and all of them focused on increasing the cash resources for families and businesses in the short term.  These policies track very closely with the priorities outlined in the business community letter and while the loan programs should be expanded — the cash crunch is being felt by businesses of all sizes — their structure is well designed to get money to employers quickly so they can keep people employed.  The Parity for Main Street Employers coalition issued the following statement in support of the legislation:

The Parity for Main Street Employers (PMSE) coalition strongly supports the McConnell CARES Act.  The bill’s provisions are big enough to address the challenge created by shutting down large parts of the economy, and they are well designed to help families and their employers weather this crisis.  PMSE intends to work to see this legislation enacted, including expanding the loan provisions to help employers of all sizes readily access much needed credit. 

Some politicians reacted to the McConnell bill by arguing that any response to the crisis should focus on workers.  We agree, but the best way to take care of workers and their families is to pass policies that help them keep their jobs.  As Sorkin points out in his op-ed:

Some politicians have argued that bailouts should be directed only toward individuals and families, rather than companies. After all, we don’t want a repeat of 2008, when so much of the country felt the bailouts benefited Wall Street banks but not Main Street businesses.

But the truth is that sending checks directly doesn’t solve the problem: People want a paycheck and a sense of confidence that when the crisis subsides they will still be employed. And one-time check writing — or even a series of checks — won’t restart the economy when the crisis is contained because so many companies would be forced to file bankruptcy without immediate loans.

So the crisis continues, but the good news is that policymakers on the right and left are looking at the same solution – move quickly and give employers the resources necessary to stay solvent and maintain their work force now, so that when the crisis is over, they can pick up where we left off — when nobody had ever heard of a coronavirus.      

2020-03-20T18:00:17+00:00