When $2 trillion isn’t enough
A $ 2 trillion emergency relief package was passed by the U.S. senate yesterday. That’s almost 10% of the size of the economy! What’s more, almost everyone believes there will be more coming.
The whole package came about in less than a week with detailed bipartisan discussions in the senate on every aspect of the deal. Eventually, the senate voted 96-0 in favour of it. They might have democratically elected a clown for their President, but democracy otherwise works in the U.S. The House has to pass it still, but I have a feeling it will reach Trump for his seal (or, more likely his angutha) by Monday. The unemployment data that came out yesterday showed a record increase of 3.9 million workers seeking benefits just in last week. That’s an unprecedented number. The previous record of increase in jobless workers in a single week was about 600,000. The package couldn’t have come a day earlier.
Anyway, like we did yesterday, we will do quick armchair analysis of the relief package. As usual. I have put the announcement as A(n) and my critique below it as C(n).
A1: Direct payments to individuals earning below $75,000 per annum. Each individual gets $1200 plus an additional $500 for each child under 17. We have spoken about this here
C1: Direct payments schemes have the least leakage. Each U.S. household gets about $3400. If you want people to survive for 6-8 weeks while the economy is in standstill, this is a failsafe method
A2: Expansion of unemployment insurance: The federal government would give unemployed workers $600 a week for four months on top of their state benefits (which range from $200-$500 per week). Apart from this, there’s a pandemic unemployment assistance programme that would provide benefits to gig worker, independent contractors or the self-employed
C2: Hmm. Now it gets interesting
- The inclusion of gig and contract workers is a much-needed step and recognises the changing labour participation patterns
- The unemployed insurance package is just too attractive. What’s the point of going out looking for work if you can get between $800-1100 per week as unemployment benefits? There’s a moral hazard built in right there and when things come back to normal there might unintended consequences to this
A3: The Treasury Department can provide $500 billion in loans, loan guarantees and investments.
C3: “Toto, I’ve a feeling we’re not in Kansas anymore”
- The U.S. government can give loans to or invest directly in businesses. They will then place certain restrictions on how these businesses manage themselves. These include not issuing dividends, not launching buybacks, retaining 90% of staff to extent possible etc. Well, big government is knocking
- There’s a specific provision for loans or investments in small and mid-sized businesses. There’s no limit on the extent of equity the government can hold in these firms. A real possibility of government owning businesses has emerged. This has happened in the past during the auto bailouts which ended well for the government. But this sounds like approaching footsteps of socialism
- A Congressional oversight committee will monitor who receives these payments. Yes, lawmakers will sit and decide which business is a good investment or lending opportunity! They might as well have copied the whole playbook from India
A4: The bill includes protections against foreclosures on mortgages and evictions of renters.
C4: This is a good policy for current times
- A straightforward relief for mortgage owners or renters during the lockdown. A 60-day forbearance on mortgage loans with can be extended for four periods of 30 days each with no penalties or additional interests on account of delayed payments.
- Also, those who get this relief and have tenants shouldn’t evict tenants for failure to pay their rents up to 120 days. This is a neat bit of policymaking. You must pay it forward.
A5: A $100 billion public health emergency fund to reimburse hospitals, doctor, medical workers for expenses and revenues lost in dealing with the pandemic. An added 20% on Medicare for patients with Coronavirus and elimination of $8 billion of scheduled payment reduction to hospitals caring for uninsured or insured pandemic patients.
C5: Not enough and this sector will need way more in future
- U.S. has a broken healthcare system, and these measures don’t go anywhere near addressing the problem if the worst of the pandemic fears come true. A very different package will be needed soon
- This provides hospitals and health workers with a temporary relief while they fight at the frontlines. They don’t have to work tirelessly and worry about their finances at the same time
There are other measures included in the package to help the airlines industry, suspend student loans and evacuate Americans etc.
In summary, United Socialist States in Republic (USSR) of America is on its way
Hindi films taught me everything I know
A familiar trope I miss in Hindi films these days is that of house on fire. While I was growing up every other movie featured a fire sequence where the hero would run into a burning cardboard of a house and rescue people stranded there (usually, a bedridden Satyen Kappu, father of the heroine). The aam janata would watch the entire proceedings transfixed without even a symbolic act of throwing a bucket of water to douse the fire. That’s social contract in India for you.
The fire was never an accident. It was usually lit by Ranjeet at the behest of Kader Khan (a familiar duo of pyromaniacs) who wanted to burn the basti down to build some monument to capitalism. With Ranjeet and Kader Khan representing capitalism, it never stood a chance in India. A whole generation has been singed.
Anyway, the whole thing was an education for me in how not to respond to a crisis. I’m no expert here but after watching umpteen such scenes, I had developed a simple heuristic on what to do while fighting a fire. Lifelong learning began early for me.
So, why am I telling you this? Well, I searched far and wide for a framework on policymaking during a crisis. I drew a naught. Then, in a moment of divine inspiration, I realised my fire dousing heuristic from Hindi films is as good as any framework. So, I applied it quickly to the twin problem challenge that we had discussed here. Voila! It works like a charm.
Briefly, if you are a rational Hindi film hero you should follow these steps in any crisis – ether tackling a fire or the twin problem Covid-19 pandemic challenge.
- Save human lives: Get Satyen Kappu (and other vulnerable people) out alive as quickly as possible
- Contain the fire: Make sure the whole basti isn’t burned down
- Call the fire station: Pump liquidity (of the water kind) to douse the fire and save whatever you can
- Ask for fiscal support: You will need shelter and food for the next few weeks before you can get back to your home or rent a new home
- Find out the source of the spark and develop a long-term cure: Beat Ranjeet and Kader Khan to pulp. Make sure they remember the lesson
- Buy a fire insurance policy and follow fire safety norms at home: Learn from the past and make sure you have a comprehensive emergency response for next time
As you will notice, so far in India we have struggled to get a good response going on #3 and #4. Today’s RBI monetary intervention was a good first step on #3. The government has to act decisively on #4 without repackaging things like it did earlier this week. #5 and #6 aren’t on horizon yet.
I was reading through a Nielsen report today on how India consumed media in Week 1 of lockdown. The future isn’t looking promising.
Time spent on smartphone in Week 1 has increased by 1.5 hours from the pre-Covid days. The maximum increase is from the 35-44 age group and the most used medium is Whatsapp. I was always deeply aware of how my generation is solely responsible for the state of media and everything else in this country. I now have proof.
And this is Week 1. A Conradian heart of darkness awaits.