With the US economy on the brink of collapse after the Coronavirus pandemic forced businesses across the country to close their doors, we must ask the question: Is our massive political divide stopping us from fixing the problem?
After COVID-19 started sweeping the nation, business around the world shut their doors to the public. Some did it voluntarily, and some by way of government mandates. As businesses closed down in the US, the inevitable followed. Millions of Americans lost their jobs, and the US unemployment rate still sits at 11.1%.
To aid in the obviously woes being felt by business owners and employees, Congress passed the CARES Act. In this article we'll discuss two key provisions in the "stimulus" meant to save the nation.
PPP - Paycheck Protection Program
Congress has allotted a total of $659 billion to the program meant to help struggling businesses stay afloat. Billions of dollars went to pay expenses, including employee salaries and wages. That amounts to roughly 3% of GDP for our once booming economy. That GDP number will be important later..
In addition to the PPP, Congress allotted $268 billion in expanded and extended unemployment benefits. If you lost your job, which was a high likelihood, you could qualify for $600 per week in unemployment benefits in addition to unemployment benefits you may already be receiving.
These two key pieces of the CARES Act combined with various business loans, direct payments, and expanded medical payments added up to over $2 trillion dollars. Lawmakers touted this as a savior, although short term in purpose, for productive members of the economy. Everyone knew this amount of money wouldn't last long, and as we come to the end of the expanded unemployment on July 31st, Congress is deep in to the fight for more expenditures.
America wasn't the only country affected by the COVID pandemic. The sickness caused by the novel coronavirus has now swept the entire world killing hundreds of thousands.
Politicians on the left demonized the business stimulus provided in the CARES Act as more "Corporate Bailouts," or "bailouts for the rich." I find this characterization very interesting given that so many people on the left have praised countries like Denmark for their success as a "Socialist" economy. We've written plenty about whether or not Denmark is Socialist, so we'll leave that fallacy alone for the moment.
So what was Denmark's response the the economic shutdown? A massive version of what we call PPP "bailouts" in the CARES Act. I wouldn't call it a bailout as much as I would call it a fairly logical response to a forceful economic shutdown at the hands of the government. Contrast the idea of bailouts with the bailouts after the financial collapse of 2008. In that case you had poorly run businesses looking for bailouts after they failed to look into their own economic future. Those bailouts were aid towards businesses that had failed due in most part to their own actions. They were heavily influenced and enabled by government policy, but once again we'll leave that for another article.
In the middle of March, the Danish government announced that if a business was struggling and would have to lay off at least 30% of it's workers, or lay off at least 50 people, the government would cover 75% of wages owed by the businesses to their workers. The workers do not work, but they are still technically employees of the company. This plan cost upwards of 13% of Denmark's GDP.
Imagine for a moment that congress allotted $2.5 trillion to US companies in the CARES Act. What would be the response by the public, and the Democratic lawmakers? "Corporate Bailouts!"
To clarify, I'm not in favor of the US government spending any money it does not have. In fact, I'm not in favor of the US Government forcefully taking money from it's citizens. Once again, that's for another article.
Which plan is best?
Let's assume that a stimulus absolutely had to happen. Which one of these plans makes the most sense?
In our plan, we gave some money to businesses for the purposes of keeping their employees, but we then incentivized unemployment by paying some workers more money to leave their jobs. This has severed ties between employees and employers, and has lead to many businesses reporting that they are having a hard time finding workers at a time when the unemployment rate is 11%.
In Denmark's plan, those who were employed remain employed without having to go to work. The plan was expensive, but Denmark's technical unemployment rate remains at 4%. Most importantly, they have not incentivized people to stop working, they have only told them to stay home from their jobs for the time being. When the economy reopens, the business structure will still be in place, leaving the door open for a much faster recovery.
It's not entirely clear what the correct solution is. I would not have supported a lock down, and I would not have supported the CARES Act. A pandemic is something that businesses might have to learn to weather, but the freedom of individuals to take risk must remain in place. In contrast, we had an economic collapse forced on by the government, and therefore a discussion about compensation or aid for production might be warranted.