Last time I left off with a promise that I’d resume my blathering on Thursday, which was pushed back to Friday in one of the comments. That clearly didn’t happen, so there goes my credibility. Anyhow, I don’t think the stimulus is actually going to stimulate, but I also don’t think it was a mistake. This is an odd position for me to be in, because my list of “economic stuff the government should do” is much shorter than most. (Proceeds to rattle off three things.)
I think that generally, the best things a government can do to help an economy out of recession are [A] to ease excessive tax or regulatory burdens on the economy, [B] keep inflation slow and low (given government control of the currency), and [C] nothing. [A]’s pretty straightforward and obvious; note the use of the word “excessive.” [B] will get me in trouble with my more hardcore libertarian/free-market readers, but I only have, like, three readers so we’re talking about one guy. [C]’s cool, but as I’ve said before, [C] loses elections unless you do the nothing early enough in your term that the nothing pays off and the economy recovers in time for the election. But if [A] and [B] are in place, then the government should do [C] so the market can work its wonders.
So why isn’t this “stimulus,” or as the letter from Presidente Donald J. Trump, printed in both English and Spanish, more appropriately calls it, this “Economic Impact Payment” necessarily a mistake?
Because in this case, the government– Trump, the feds, the governors, the states– forbade a lot of the economic activity that falls under the rubric of “the market working its wonders.” Those of you who took econ classes, you know how, like, supply and demand seek equilibrium when unfettered? How if butchers aren’t making money, then fewer butchers will butch and they’ll start looking for other work? Or if brewers are making lots of money, then more brewers will enter the industry to soak up the economic profits? Or if bakers are charging too much, then Q-sub-D will fall until– you know what, I’m not going to reteach the entire class here, you get the idea.
The invisible hand can’t work its magic if the butcher, the brewer, and the baker aren’t allowed to work.
The economic impact payment (EIP) isn’t going to stimulate the overall economy; I think production is going to drop too much for that to be possible. But what it might do, what it hopefully will do, is serve as a temporary bailout for those who aren’t allowed to work. (Warning: callousness ahead.) I don’t mean bail out everybody who’s out of work– because I guarantee that the invisible hand wants to shift many of those folks into different jobs. If I lose my job as a public school teacher because the marketplace falls in love with online teaching and I become redundant, then that’s on me to find or create new work, same as if times were normal. But if I’m not allowed to do my job,* then I think that’s a violation of my rights– perhaps a necessary one given the pandemic– and the government owes compensation.
Here’s the tricky, maybe weaselly** part: it’s tough to distinguish those who are out of work because of structural changes underway (i.e., the economy is transforming and demand for different types of jobs is shifting) from those who are out of work solely because the government says so (for good reason, granted). In some cases, someone may be out of work for a combination of the two reasons. So rather than sort the two groups out, and rather than determine how responsible the government is for your unemployment, the feds just sent checks to everybody because it was fast and simple. They said they’ll clean up the mess later (which means they won’t ever clean up the mess, but ignore that for now).
So: the EIPs aren’t going to stimulate, but they aren’t a mistake because the government needs to make up for putting people out of work. Yes, it was out of apparent necessity and an abundance of precaution, but the feds need to make up for it.
More analysis soon. Night night for now.
*I should specify: “my private sector job.” The public sector has the right to take away “my” public sector job.
**”Maybe weaselly” because I’ll concede the possibility that I have abandoned principle in the face of economic disaster. But I didn’t like stimulus checks in 2008, and I didn’t like them in 2001, and I have no reason to believe they would have helped in 1982, or 1973, or 1946, or 1929, and so on. This is a case of Uncle Sam saying “You’re not allowed to earn money for the next few weeks.” That didn’t happen in any other recession I can think of (though you could argue that conscription of labor and other resources in our major wars might be analogous). So if Trump tells me I have to close my store, and won’t allow me to make a go of it with social distancing and masks and proper hygiene and occupancy limits, he’d better cut me a check.