Governments could offer every 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 COVID-19 crisis will take time to be solved by science. The economic crisis can be solved right now.
With President Donald Trump proposing to send $1,000 checks to every American and industries, like the airlines, lining up for bailouts, there is a better way to arrest the panic.
I chronicled the 2008 financial crisis and spent the past week on back-to-back telephone calls with many of the experts who crafted that bailout, as well as the programs put in place after 9/11, Katrina, the BP oil spill and other crises. Now here is a thought experiment that could prevent what is quickly looking like the next Great Recession or even, dare it be mentioned, depression.
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 5-year period. The only condition of the loan to businesses would be that companies continue to employ at least 90% of their workforce 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.
The program would keep virtually everyone employed — and keep companies, from airlines to restaurants, in business without picking winners and losers.
It would immediately create a sense of confidence and relief during these tumultuous times that once the scourge of the coronavirus was contained, life would return to some semblance of normal. It would also help encourage people to stay home and practice social distancing without feeling that they would risk losing their job — the only way to slow this disease.
The price tag? A lot. Some back of the envelope math suggests many trillions — that’s with a “t” — of dollars would go out in loans if this crisis lasted three months, possibly as much as $10 trillion. That’s half the size of America’s gross domestic product. And assuming 20% of it is never repaid, it could cost taxpayers hundreds of billions if not several trillions. I get that. But with interest rates near zero, there is no better time to borrow against the fundamental strength of the U.S. economy, spend the money and prevent years of economic damage that would ultimately be far, far costlier.
The alternatives being proposed may be worse — because the size of the bailouts may be too small and come too late, and because the politics of targeted bailouts at specific industries and businesses would create a morass of anger and distrust.
Ultimately, the plan being suggested here is the equivalent of a full-employment act for the country during the crisis.
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.
The proposal here, a shock and awe plan, avoids that.
The most challenging part would be executing it.
Who would make the loans? The government doesn’t have the expertise or people to make it happen.
The easiest way to do it would be to have the banks, which already have a relationship with companies and individuals, administer the program, guaranteed by the government. Banking may not be the most popular industry, but it could get the job done in short order. In truth, the banks should volunteer to administer the plan for free as a gift to the country for the bailouts of 2008. Besides, if the economy goes down, so do they.
Self-employed individuals, including contractors, gig workers and others, would be provided no-interest loans based on their provable income in the previous 12 months. And companies would have to be restricted from using the loans to “refinance” past loans or use the money for stock buybacks. But other than that, there should be few restrictions, lest individuals and companies refuse to take the money.
In a crisis, getting buy-in matters. And time is the enemy. At the rate of the economic slowdown in just the travel industry alone, unemployment would jump to 6% right now and Treasury Secretary Steven Mnuchin is warning unemployment could rise to 20%, Depression-era levels.
Would there be fraud and abuse along the way? Yep. Is that acceptable? Of course the answer is no, but given the scale of this crisis, it may just be part of the price paid.
Admittedly, if you hated the economic system before the COVID-19 crisis — inequality, executive compensation and the like — this proposal wouldn’t change it. If you believe the airline industry is terrible and deserves to file for bankruptcy, this plan wouldn’t make that happen either. If you feel that we are once again privatizing profits and socializing losses, that wouldn’t be wrong.
In truth, 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.
But once we do that, and the economy gets back on its feet, we need to have a very serious, almost grave, conversation in the country with our political and business leaders about financial responsibility and our policies. Over the past 20 years, we have lurched from bailouts to wars to rescue packages to bailouts again, and we never fill up our coffers during the best of times to pay for any of them.
At some point, our debt will become the crisis that we can’t end with more money.