The WSJ Editorial Board has suggested that the Fed create a new facility that gives very cheap loans to businesses that need them. These loans will not need to be repaid right away and should sustain any business that needs it during this period. It sounded workable.

https://www.wsj.com/articles/financing-an-economic-shutdown-...

Not an economist (just trying to understand all this) but wouldn’t this just be kicking the can down the road? I understand how loans and credit works in healthy markets/seasons but to me this feels like making a bet that these businesses would be able to take this infusion, weather out the storm, and then raise profits enough above what they were before to pay it all back.

It’s fundamentally different from me starting a small business and going to Chase saying, look here’s a healthy prospect and I’ll be able to pay it back within x years.

If you can kick the can down the road until the virus goes away, you just saved the whole economy. The ability of my local Chinese place to serve customers is undiminished, my desire to eat Chinese food is undiminished, and all that's in the way is an ultimately temporary law.

> The ability of my local Chinese place to serve customers is undiminished, my desire to eat Chinese food is undiminished, and all that's in the way is an ultimately temporary law.

Agreed on this. But the rent paid out during the period of reduced revenue coming in creates a delta that this loan is filling in. The loan still needs to be paid back (even assuming 0% interest). That extra money needs to come from somewhere: increased prices, increased traffic, or decreased expenditures.

A better way would be to suspend all debt collection and rent collection for x months. That will keep lots of small businesses alive, and employees on reduced salaries will still be able to feed their families if they don't have to worry about rent.

Throw in food stamps for the unemployed and you're most of the way to keeping a nation going.

> A better way would be to suspend all debt collection and rent collection for x months.

I know this would help for people I personally know in this industry.

Dine in has been reduced almost entirely but takeaway orders hasn't deviated too much from the standard.

The reality here is that a lot of small hospitality businesses don't actually make much profit at all so it's unlikely that they'd survive too long with this forced reduced business. And it's always unhelpful to hear (in general not from you) comments like "maybe they should have saved up more earlier" or "they shouldn't be opening up a restaurant then" because a lot of times they can't work in any other industry - this is all they know.

Imagine having reduced business through no fault of your own yet you're still liable for paying the commercial rent of $1.2k per week. You can't sell the business because no one is buying. You can't sell it because you lose all the goodwill which is bad especially if you've spent any money renovating the place up to standard.

Far, far, far better. In fact, it's the only thing that might actually work. All this talk of loans is just people refusing to admit that a capitalist system (I hate saying that word) simply doesn't function under these conditions. The economy needs to be paused.

The rental payment from a shop is income for the landlord. The income from the landlord is payment for his/her obligations - all the way up the chain.

If you force rental payments to stop, then who gets hit? The landlord is going to default on their obligations. So do you then bail them out? If the landlord defaults, the banks (presumably) will repossess the property. So it's just somebody else suffering, rather than the tenant.

The loans work, because the obligation to pay back this loan will come from a future where you have the capability. The govt is the eventual guarentor of this loan, and hence, they take the hit if the eventual future does not come to pass (e.g., the restaurant never regain their full business). The gov't can't take the full hit of all these defaults all at once, but they can if it is spread out. So a loan will spread them out into the future (even perhaps, far future), and the economy survives, even if a lot of the business that took the loan didn't.

> The income from the landlord is payment for his/her obligations

Read my post again. The rent holiday goes hand in hand with a debt holiday. That's the only way this works. Tenants don't have to pay rent, and landowners don't have to pay a mortgage.

Sure some businesses will fail as a result of this, but far more (on a massive scale) will fail if you don't do this.

I don't think you've thought this through. What are the banks going to do if they don't receive their payments? How are you going to bail them out? With a loan? Why not give that loan to those who need it instead of kicking the can down the road?

> What are the banks going to do if they don't receive their payments?

They'll be bailed out by the govt as usual. Which is the point.. the govt has to keep humans fed and housed through this. This is the best way to achieve that end. Kicking the can down the road is exactly what needs to be done. The economic problems and readjustments can happen later. The immediate problem is people fucking dying.

Yes, with a six-month, zero-interest loan. We are already handing those out like candy, to deal with bank liquidity problems.

> If the landlord defaults, the banks (presumably) will repossess the property

As others have pointed out, this is not what any of us are saying. Those debts are paused too.

The loans DO NOT work, because most of these businesses are barely profitable at all. Now they have to recover to their previous levels of income AND pay back a loan? They can't. It's a ridiculous expectation.

why is it ridiculous to expect a business to not make any profit after a crisis? The alternative is to close down the business, which, imho, is worse. At least, with the loan, a business that's barely making any profit can continue to barely make any profit after the crisis (but even less profit for the loan repayment). That's a better outcome than losing the business entirely. The employees remain employed, and the economy doesn't grind to a screeching halt into a depression.

This has already been explained to you, over and over again. The alternative is not to close down the business. It's to make it so the business owner doesn't have to pay anything during the crisis, except supplies for himself, so that the business doesn't close permanently. The loan is a really, really stupid idea, because it burdens the business more during the recovery, which guaranteed will be less profitable than before this, so it just delays the bankruptcies. You might as well have them not pay it back at all, but then why single out just business owners for free money? Why not everyone else too? And worse, everyone else runs out of money too because debts weren't paused, because enough people are stupid enough to think that loans are the way out of this instead of realizing that the economy doesn't work when nobody's buying anything but food and toilet paper, and pause it to prevent it from destroying itself. If this doesn't get done by the end of the month we're looking at another Great Depression.

I see plenty of places that landlords just sit on waiting for some maximal amount of rent to be agreed to, only for the business to crumble under high rents, rinse, repeat.

You might want to read up on The Irish Potato Famine.

Some landlords were letting people stay rent free out of compassion because no one had money and it was tough all over and no one else was going to rent it. Then the government decided to bleed the landlords and insist it get paid if the unit was occupied, even if no rent was being paid.

Landlords had no choice but to begin evicting people. Things got ugly fast.

That was a fairly unusual scenario though, where the government actively disliked their citizens, many politicians explicitly happy to see the Irish suffer, others viewing it as the will of God, and none of them dependent on Irish votes.

It's an indication of how things can go wrong with the government working against you, but I don't know that it maps well to the current pandemic.

The road to hell is paved with good intentions. The Irish example is a real world example of the government tampering in some way with landlords and it having unintended consequences that were disastrous.

I don't think that's a reasonable reading of the event. Ascribing good intentions to Westminster with regard to the famine is unjustified. Some wanted to help, others distinctly didn't. It would be beyond charitable to suggest that all their actions were designed to minimise Irish suffering.

I don't think that's a reasonable reading of my comment. (Trying to be light-hearted here, not mocking.)

I wasn't ascribing good intentions to Westminster. I was saying that their intentions, good or bad, and the intentions of the current American government are irrelevant. What's relevant here is they did a thing and it got x result. So we should use that example to wonder what will really happen should we do a similar thing now.

> So we should use that example to wonder what will really happen should we do a similar thing now.

Except nobody is suggesting a similar thing. I started this thread by suggesting that the government do x, and you replied with the assumption that the government would do x+y.

If by “suspend” you mean cancel the debt due in the quarantine months than I definitely agree: in both moral and economic terms it would be best for the rent-seekers to take as much of the hit as possible.

But if it’s just a pause in collection, and you still owe that money, then it’s the same old margin problem: very few restaurants make enough money to repay that loan no matter who it comes from.

A business that was going to fail due to low margins without COVID19 shouldn't suddenly get to live because COVID19 destroyed the world economy.

It has to be a pause in collection (and interest), but at the end of the day the lender also has to get their money back.

> The ability of my local Chinese place to serve customers is undiminished, my desire to eat Chinese food is undiminished, and all that's in the way is an ultimately temporary law.

Six months from now, when the quarantine ends, you aren't going to go to your local Teriyaki and Wok, and order six months wroth of Chinese food.

The restaurant will never recoup those six lost months of rent. The employees will never recoup those six lost months of wages. These loans will never be repaid.

That's not how margins work. God didn't descend down to earth and declared all restaurants to be low margin. Margin is a matter of competition. If there is lots of competition then the margin will shrink to barely cover costs of running the business. If suddenly every restaurant has a problem finding customers and a load of debt then restaurants are forced to increase their margins to cover their debt payments.

Low margins are the result of heavy competition. If there is less competition margins will be high again.

1. I didn't say one word about margins in my post.

2. The problem is that after the pandemic ends, the margins will remain low. Because new entrants, with no outstanding debts or obligation will eat the lunch of any of the restaurants that remained 'open' during the pandemic.

> he ability of my local Chinese place to serve customers is undiminished, my desire to eat Chinese food is undiminished, and all that's in the way is an ultimately temporary law.

I have thought quite a bit about whether this situation will cause long-term behavioral changes.

Do you expect the restaurant business to bounce back to where it was after the crisis ends? I would expect that to happen for a short-duration event. But what if this persists for months, or into next year?

I have searched for papers that explore this idea (say after the 1918 Spanish Flu), but haven't found anything relevant.

This would introduce liquidity to a struggling category.

How would loans help? A lot of employees aren't currently needed so they will be laid off regardless of whether the business owner can take out cheap loans. I don't see how loans can make up for the much reduced economic activity.

I imagine the WSJ Editorial Board is focusing on a solution to keep businesses surviving, not employment. They may have other ideas to help with that later. Without businesses, there will be no employment.

The economy is an engine that isn't allowed to stop or it will break. The idea behind loans is that you force the engine to keep turning through external support. Yes this is obviously a money losing strategy but the value of the engine is much higher than the cost of keeping it running during the pandemic.

Loans may already be super cheap and expanding that option further will extend the current run but lead to a bigger crash once those loans come due given the economy continues to flat line after the pandemic ends.

They need a moratorium on rent, mortgage and property taxes. Temporarily suspend base operating costs, and provide direct assistance for employees.

Loans will help them bounce back when the crisis is over. Makes no sense right now.

UBI is honestly the only solution here.

I think targeted redistribution will work better. If you want to protect the economy, take the people with excess wealth — providing no utility right now — and give some of their wealth to those who cannot earn income during this crisis. It avoids the inflationary effects of printing money. You could accomplish this by raising taxes on the wealthy and sending the revenues directly to those who will lose their livelihoods and the small businesses which need to make rent to stay afloat. Obviously the political appetite to do this doesn't exist in the US, but I think it is easily the best solution.

That's why we (US, and much of the world) have progressive tax rates for earned income. Though in the US, we then give lower tax rates for unearned income...

You alluded to this, but in reality effective tax rates in the US are actually flat or even regressive due to the favorable tax treatment of investment income as well as the massive deductions for property ownership:

https://www.nber.org/papers/w20625

>take the people with excess wealth - providing no utility right now

Most "excess wealth" is tied up in business and other investments. It's not like wealthy people just horde cash like Scrooge McDuck. That wealth is currently working to support the economy. It is hardly passive.

Forcing the wealthy to pay increased tax on this value will cause them to close business functions, sell stocks, etc.

Is that really wise at this point in time? To redistribute value from existing, proven formats into unspecific, theoretically useful ones?

Theft is not immoral simply because it is unfair or mean. It's because it causes systemic dysfunction.

How about something a bit more targeted? Do we really need to give software engineers working from home extra cash?

Software engineers are a tiny fraction of the population, and any money given to them can always be recouped via taxes anyways. The added bureaucratic/administrative complexity on such a time-sensitive measure just doesn't seem worth it.

How much are you willing to pay to make sure that it's targeted? 30% overhead is not uncommon for means-tested welfare.

That software engineer would spend it elsewhere in the industry, likely some non-essential.

That hourly worker w/o a job will pay rent and food. Software engineer...a carwash, new lawn equiment, or hell even a vacation.

Giving an airline a tax break won't drive them more customers. Giving their customers more money will give them customers.

What? Nobody is going to be flying anywhere soon, regardless of whether you give everybody $1000.

$1000 a month per person...Trump has announced at least 2 months of it. I have my salary still. My wife and I get $4000 of free money. What do you think we're going to do with it?

You need to think long term what this money can do.

Printing money and giving it to everyone essentially taxes every dollar by the same amount. That's not necessarily the best solution here.

In the end the money for UBI comes from taxes one way or another. Even if every dollar is taxed the same amount, not everyone makes the same amount of dollars.

Shorter working hours is another solution. I think that makes a lot of sense now that the global economy is contracting. More fair that jobs are "shared fairly" rather than that some gets to keep theirs and others don't.

Nah, you could never pay enough (in the short term) to keep everyone going.

Suspend loan repayments and rent collection for 6 months, and print food stamps for the unemployed.

What will UBI do that food stamps etc won't?

It has not worked for every test city that tried it. Why is this different?

SBA just announced a program for loans up to $2M at 3.75% to make payroll

Loans don't solve this. It isn't like once this is over restaurant patronage will jump up to 200% of normal. This is business these companies will never get back. Giving them a loan that they can't repay is just delaying the problem.

Spreading the problem out over a long period of time keeps the company in business. It's a no-brainer good idea for the SBA to do this. Not sure what you would prefer instead.

I'll take a crack at it. I would prefer commercial rent abatements combined with commercial property tax abatements. The same would make sense for residential as well. Unemployment payments should be increased and restaurants should temporarily lay off staff as needed.

It is like CPR. It is better than doing absolutely nothing and gives extra time for more extreme measures, but on its own it is just delaying the inevitable.

It is not delaying the inevitable. There will be many profitable restaurant businesses who find their business lacking liquid cash over the next few months. Being thrown a credit lifeline means that they can make it through this period of time and come out on the other side as a profitable business again. Paying down the debt is a common business practice that people do all the time.

Throwing out a credit lifeline can be a practice that benefits everyone in times of crisis.

>There will be many profitable restaurant businesses who find their business lacking liquid cash over the next few months

Like I said in my earlier comment, the best hope for these businesses is to return to normal revenue numbers. They aren't going to make up for the business they are currently losing. They don't have a liquidity problem. They have a lost revenue problem. They are still accruing costs without accruing revenue. Delaying those costs doesn't fix that disconnect.

>Paying down the debt is a common business practice that people do all the time.

Taking on debt to allow you to make investments and improve future outlook is a smart business decision. Taking on debt in order to meet recurring operating costs rarely works out when there is no hope of future growth.

I think you're overestimating the magnitude of lost revenue. We're talking about 1 month of lost revenue.

A profitable restaurant's unit model might be: 10% net profit, 30% COGS, 30% fixed cost, 30% labor cost

During this one month shutdown, the restaurants won't incur labor cost or COGS. So, they're really only in the hole 30% of one month's revenue. With a little back of the envelope math, you'll see that the restaurant owner can pay back a loan for this amount by allocating 10% of their monthly profits (or 1% of monthly revenue) to loan payback.

Now, if the restaurant is NOT profitable, then we have a problem. But, they were probably going to go out of business soon anyways in that case.

You're forgetting that businesses can jack up prices after a crisis. Let's say there are 10 restaurants. One of them survives because it has taken a loan and others just crumble. Suddenly all the competition is gone and people are storming your place.

You do know what they would prefer, you just can't accept that there are other ways of humans relating to each other than usury

I'm assuming the loans are to make payroll for work already done. Many businesses don't have the cash on hand to pay for the work that was already done, they're relying on revenue from that work or past work that is now being paid to pay their employees.

Frankly, I think the restaurant industry is over built and many of them deserve to close. The margins are non existent, most of the food is terrible, it's the ultimate bubble economy business.

Ok, shut that business down then. Layoff all workers. If all you can think about is profit at the expense of everyone else then this is the course of action. I personally am in favor of solving a liquidity crisis with liquidity but well if people want to throw a wrench in the gears that's fine with me.

Actually, yes, once this is over it's reasonable to assume restaurant patronage will see a huge surge beyond prior levels, at least for a time.

Doesn't "delay" the problem -- it exacerbates the problem.

probably with compounding interest if they allow deferred payments lol

For restaurant owner running on 3-5% margins, when salaries are a significant expense, it would be suicide to take a loan to make payroll; your business would probably never be profitable again. Better to let the business die and reinvent yourself in June/July.

Yes, better from a personal standpoint, but jeez, from a humanitarian perspective, can you really blame any restaurant owner from wanting to make payroll at any cost so that their employees can continue to feed themselves, pay rent, and take care of their loved ones?

The employees should be able to apply for unemployment payments from the state. Which can a problem on its own, to be sure, but an employer doesn't have to bear the weight of lives all by him or herself.

My point is why are we putting them in this position? How about a GRANT instead of a loan?

The restaurant is TOAST when the loan starts being due as they try to reopen in the middle of recession after a forced closing and they'll all be out of work trying to feed themselves, pay rent and take care of their loved ones.

>How about a GRANT instead of a loan?

You mean free money, just because? How could you even begin to figure out who deserves it? That'd be a lot of offices and bureaucracy to set up to solve the question. Unless you just want to give wads of cash to any restaurant claiming to need help, in which case I'm glad you're not leading the economy.

At that point, you might as well just give that money directly to the restaurant owner, and all the employees, for the duration of the crisis.

The problem with loans are you have to repay them. Giving out loans as a social safety net is a cruel joke. It just makes people worse off in the long run.

Zero percent interest loans over a long enough repayment period (eg. ten years) would work though. It allows spreading the immediate loss in sales over a much longer period.

Not that it would happen though.

What they need to do is provide everyone with restaurant vouchers paid for by the government. Then we can all have a big meal after this is over and keep our favourite eateries alive.

And how do the restaurant staff pay for food and shelter in the meantime?

If it's known that restaurants will get paid eventually, it makes it easier to finance. I guess it's still not gonna be easy to stay afloat. The staff will need a handout. Either special law or they get unemployment. Not sure.

> Will there be a restaurant bailout?

Maybe it could be like farm subsidies, but we pay restaurants to close for a certain amount of time / certain days of the week, on the condition that they pay employees normal wages for those days.

> on the condition that they pay employees normal wages for those days.

"Normal wages" for many restaurant workers in the U.S. exclude tips. Without tips, "normal wages" is below the minimum wage.

While it might better than nothing, it's not liveable.

> "Normal wages" for many restaurant workers in the U.S. exclude tips. Without tips, "normal wages" is below the minimum wage.

Restaurants are required to bump tipped employees up to the non-tipped minimum wage if the tips don't put them over it. Thus, "normal wages" in this case would be the non-tipped minimum wage.

They are "required to", but this is rarely enforced, so they very frequently don't actually do this.

What a bizarre interpretation of 'minimum wage' and 'tip'! This means that the restaurant owner essentially collects (part of) the tips?

So you could employ a restaurant worker at $0/h and then bump them to minimum wage, because the tips will never cut it? Basically, you'd be collecting all the tips? This cannot seriously be legal!?

There's a separate "tipped employee" minimum wage, which must be paid by the employer regardless of tip income. Last I'd checked, though, it was only about $2/hr.

if (wages+tips) < minimum_wage then wages = minimum_wages end