I will partially defend PPP here: the money is forgiven if "loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs." So it's more of a stipulated grant than a loan. As it should be.
The failure of PPP is administrative. Congress authorized this much money: who gets it? The Small Business Administration was supposed to administer it, but they are not equipped to do so, so they delegated it to banks, which favored businesses with existing banking relationships. That's a stupid way to distribute a stupidly-small pot of money.
I agree with "give money and healthcare to people independent of work" to the extent that this crisis continues. Congress should authorize enormous monies, and the Fed should commit to back it, until the infection rate declines to manageable levels. We can pay for it now or pay more for it later.
I do not agree that "bankruptcies aren't that bad." I do not want my hometown's businesses to be "restructured." After this crisis, we will have an economy that is massively distorted towards delivery. Amazon is going to come out of this so much stronger than my neighborhood grocery store - but there was never a problem with that grocery store.
"Corporate negligence" is a real issue: some authorized money may go to paying dividends, or executive bonuses, or other garbage, even while they impose layoffs. But if you impose oversight, you delay help to firms that really need it. One thing you can do is post-facto oversight: don't block spending, but let the American people know where the money was spent. And the CARES act sets that up pretty well.
The jobs they created will not come back for the foreseeable future in many cases. It isn’t like they can just reboot with a clean slate, much of their capital was destroyed in the process. For a lot of businesses, “pausing” them is a death sentence, and there won’t be nearly as many people stepping up to replace them.
Business that have been based on rented property anyways are much easier to restart and landlords of otherwise healthy businesses might lose less long term if they allow skipped rent in the crisis instead of enforcing it now and then go through a lot of idle months from fluctuation due țo a series of failing new tenants.
In the first days of the Italian lockdown I picked up some mentions on international news that they were intending to pause mortgages and rents for the time of the lockdown, shifting some of the economic burden on banks (who'd be far more practical to bail out) and the rentier class. Anyone able to chime in with more details about that? Was it just an announcement that was quickly subdued by well connected landlords? This approach sounds incredibly helpful and practical to me, but I could easily imagine attempts to put it in concrete legal terms to fail miserably.
Strongly disagree with the last point. If there is one lesson that I remember from the history of US -- entrepreneurial spirit is the reason this country exists in the first place. My only worry is that Google, Amazon and Facebook will use this time for huge land grabs in all niches.
Many stores that closed have already been on their last legs. And in the digital realm there can only be one winner (try beating Amazon at online sales or Google in search...) So you are right in the sense that it will be even harder for many people to step up against the tech giants - but this is a whole different issue.
Imagine if the government unilaterally destroyed your house but left you with the mortgage. What are the odds that you can buy another house at that point? Pretty slim I’d say.
You want to keep kicking the can down the road, so that someone that isn't you will hold the bag. Because someone will hold the bag for all this, and it isn't fair. So? Life isn't fair. Pandemics happen, and the government can't possibly bail out everyone.
He's right. Add a UBI and nationalize healthcare. It's not complicated; the elites just don't want it. The ones like you.
As a result I have some clarification questions... How do they want to "keep kicking the can down the road" exactly? Your comment about the government not being able to bail out everyone only serves to reinforce the point about the risk of starting a small business.
What do you mean by "He's right"? He's right that people will line up to start new businesses and put their diminished life savings on the line after what's transpired?
Then you flippantly say "Add UBI and nationalized healthcare", as if it's just something you add to a shopping cart and "it's not complicated". So it sounds like you assume these features as part of the assumption that people will flock to starting businesses. That's not part of the discussion at all, but it's an interesting point to discuss whether that would spur the activity. It very well might as it's the "social safety net" one would need to have more confidence.
About the only thing you said that resonated with me is "the elites just don't want it". Given the growing wealth disparity and the relative flat to down real income of the average American in the last 40 years I'd say that's a fair statement.
Your final statement comes out of nowhere as you lump the commenter into this group of elites when all they were saying is "hey man, I'm not so sure people will be lining up to risk their life savings to start a small business".
Care to try again with a gentler, more constructive tone and explain how the commenter, and by extension myself, are naive with the summarized viewpoint I stated at the outset?
It's all about the money supply. The elite want to bail out because it inflates the money supply.
You can bail in instead of bail out. Bankruptcies happen and equity holders lose, but the problem is that bankruptices reduce the money supply. Money effectively disappears when debt is restructured.
The problem we now face is that equity holders today have decided that bail outs are necessary politically. Equity is the most speculative ownership of productive capacity, but you wouldn't guess it with the way it's discussed. Wouldn't you expect that that kind of security to lose value in an unforeseen circumstance like this? The system eventually doesn't function if the government hamfistedly tries to alter price discovery to such an extent that markets stop working. That's where we are today.
So bail in. Give everyone free money. I give you an ID number and a bank account number, and I receive cash every month. That's a hell of lot simpler. Nationalize healthcare. Wouldn't a nationalized system be simpler? The lines of code per person have to be higher in a country with fifty different systems. It will cause inflation, but we don't really have a choice.
Sorry if my tone is a bit flippant, but someone has to argue for sanity here. The United States is going down a dark path in nationalizing so many USD assets. Somebody has to try to explain why.
Considering how many economists seem to disagree on what the proper response here is, I highly doubt it's just math.
And regarding nationalizing healthcare... That's a whole truck full of worms, and seems unrelated to an economic recovery. Couldn't you also argue that seeing the government nationalize an entire industry would decrease entrepreneurial spirit in other industries in fear of the same thing happening there?
It really is just math. Every dollar we waste today on unproductive capacities is a dollar that your children will never have.
I don't think it works like that.
This might be true, but I don't know that there's been an obviously wrong set of recommendations yet during the coronavirus crisis. Do you have an example?
> the realists are a good place to start
This is almost certainly false - at least if you're including yourself in "realists". Personally, I'd look at the heretical economists first.
You seem to be missing a lot of other points from your analysis.
> The elite want to bail out because it inflates the money supply...The problem we now face is that equity holders today have decided that bail outs are necessary politically.
Let's check the numbers. Collective wealth of all the billionaires in the entire world is 8.6-8.7T USD [1]. Collective retirement and pension assets in just the US is 19.1T USD [2]. So it seems that commoners, relying on the retirement and pension assets, would benefit much more from a stock market recovery than the elites.
> Nationalize healthcare. Wouldn't a nationalized system be simpler?
Maybe yes, maybe not? UK / France / Italy / Germany / Spain all have public healthcare and have ~320M people between them, roughly the same as the US. And yet, their COVID-19 deaths are ~100K vs ~55K for the US when both the continents had fairly similar advanced warnings. Why is this simpler (and presumably better, from your tone) system producing a far worse outcome?
[1] https://en.wikipedia.org/wiki/Billionaire#Statistics [2] https://en.wikipedia.org/wiki/Pension_fund#United_States
Pensions are not equity. Pensions also usually fall very high on the cap table, saving them from restructuring in bankruptcy.
> Maybe yes, maybe not? UK / France / Italy / Germany / Spain all have public healthcare and have ~320M people between them, roughly the same as the US. And yet, their COVID-19 deaths are ~100K vs ~55K for the US when both the continents had fairly similar advanced warnings. Why is this simpler (and presumably better, from your tone) system producing a far worse outcome?
That's not really how pandemics work for one; the Milan fashion show arguably killed tens of thousands of people as a superspreading event. The US healthcare system is terrible, whichever way you slice it (cost, infant mortality, outcomes).
I am talking about pension funds which have to invest their money in something, with public stock market being an obvious choice for such investments.
My point is that the assumption that most small business owners will be able to reboot their businesses when the economic shutdown ends is almost certainly not true due to the mass destruction of their working capital. No one said anything about fairness or bailing them out, just about the unrealistic expectation that these people will be able to start new businesses, so that life will go back to normal for their customers, or that millions of people that have never run a small business will have a sudden desire to fill that gap. Many jobs will be disappearing as a result.
Another poster suggested what is likely to happen and I already see the wheels turning in my city: cash-rich investors/companies will swoop in to pick the carcasses of dead or distressed small businesses, acquiring the assets of the best ones at a steep discount to what would have been required pre-shutdown. That is a poor outcome for small business owners and will change their risk calculus going forward.
Not all small businesses need capital to start. And a lot that did start with capital didn't really need to (I've seen so many people rent an office as their first move, for a business they could easily run from home).
To use your analogy: imagine if the government wrecked your house, but left you with the mortgage. You can't move anywhere, can't buy another place, can't rent anywhere. You'll have to rebuild from the rubble.
But in real world terms, it just sounds like a large number of Uber drivers.
This terrifies people more than anything...and the more entitled someone is, the more they fear it.
Yes it costs maybe a couple hundred dollars to legally start a business. So you are correct in the most literal sense, that it does take some $ to start!
But if you have a mindset that it takes anything more than that, I'm here to tell you from firsthand experience that you're wrong :/
That is exactly what I was thinking of while reading the grandparent comment: that one of the worst things to fear from this crisis, is coming out of it into a world with further consolidation of global power into a handful of entities, and even more authoritarian governments.
The pieces are already being put into place, like contact tracing APIs, however well-intentioned they may be.
The stratification between the rulers (who can already still go anywhere and comfortably wait out a global crisis on private estates or islands) and the ruled, the monitors and the monitored, could end up being worse than any fictional dystopia.
I share many of the concerns you've expressed, but worrying about the contract tracing API that was recently put forward is (hopefully) unwarranted. A faithful implementation of the joint spec published by Apple and Google would preserve your anonymity until and unless you published your secret keys. Moreover, the overall design is cryptographically sound (unless I missed something recently?) and appears to be decentralized (at least in principle) so in theory you won't have to trust the behavior of any binary blobs unless you choose to do so.
For more insight into the design (and security) of such systems, you might take a look at the TCN protocol (https://github.com/TCNCoalition/TCN) or the DP-3T protocol (https://github.com/DP-3T/documents).
I don't understand what you mean by tracked here? Until and unless you release your secret keys, the numbers your phone was broadcasting are just random gibberish to anyone other than you.
If you have Bluetooth enabled in the first place, you're already broadcasting a MAC address. Many devices now rotate that specifically to prevent tracking, making it equivalent. In fact the only real differences from your device's MAC are the bit width (tracing numbers are significantly larger) and the fact that tracing numbers are cryptographically derived from an underlying secret.
As far as conditioning massive swaths of the population to be electronically tracked, I'm afraid that ship sailed quite some time ago. Cellphones inherently reveal your (coarse) location in order to operate, modern vehicles carry extensive electronics packages that phone home to the manufacturer, and a seeming majority of people voluntarily upload significant portions of their geotagged lives to various service providers.
I'm about as privacy conscious as you'll find these days, but my only concerns regarding the contract tracing API relate to battery life and the security implications of leaving Bluetooth on all the time (it seems like there's always another zero day being announced).
A minor (but absolutely essential) correction - your diagnosis keys are to be submitted to a database, not your actual location data. Only those who observed one of your previous broadcasts will be able to make the connection.
The notion of a mandatory app or device that tracks location in a centralized manner certainly does make me uneasy. Thankfully that's not (yet?) the reality, but (the same as you) I can easily imagine that an appeal to security might be made in the future to justify such a requirement being enacted.
But the current API, while correlated with that issue, isn't actually related to it in a causal manner. On it's own, the published protocol miraculously manages to yield almost no privacy whatsoever. Even better, none of this actually requires cell network connectivity. You could hypothetically manufacture a Bluetooth-only device (thus no location data leakage via the cell network) whose sole purpose was to facilitate contact tracing!
If we're able to achieve effective contact tracing without giving up our privacy, perhaps it will critically weaken any hypothetical future push for a mandatory app or device that could be used for centralized tracking?
Not all entrepreneurs are "decimated"...many are in a position to prosper :)
My business is as good as it has ever been, and I do not work in any of the obvious verticals that would benefit from COVID-19, but all evidence suggests my case is an outlier.
Other countries did not recover so well, mainly because they chose more socialist economic polices.
No, it wasn't because of the Marshall Plan. Most of the MP money went to other countries, not Germany.
Germany also had the problem of wholesale death of its men of working age. The currency was repudiated. The government at all levels had ceased to function.
The strong correlation of postwar prosperity is with how much of a free market was embraced.
It's the same with post-war Japan. They embraced the free market after being burned flat in WW2, and rose to world dominance by the 1980's.
The government making your business illegal for multiple months is not an emergency businesses should have expected, or be expected to expect.
>and run on even thinner margins and bigger stock price growth and dividends for the shareholders.
Thinner margins, stock price growth, and dividends for shareholders are all good things that we want more of not less.
It's also bullshit to call financial aid from the government, that's needed because of government action, a bail out. It's compensation.
This isn't a recipe for a robust economy, it's a recipe to enrich the rich. You might want that, but the majority of the population is not benefitting from that. Employees benefit from robust companies who have some money saved up for a rainy day, and from wages that track cost of living. When a majority of workers are impoverished and can't afford a month without income, that's directly related to thinner margins and dividends for shareholders.
No it’s not bullshit and it’s because of a pandemic mostly, very little because of government action. The government will make it legal again soon to open your business but many will still need aid for time to come because there will be less demand.
Will we be subsidising empty restaurants, hotels and airplanes for an entire year or more because it is not ‘their fault’?
I agree on your second point but this is a flip side of market economy that we have all subscribed to - there are good times and bad. If capitalism is the way to go, then companies that can't survive (for whatever reason) should go under. This pandemic and government decisions affect everyone equally. Lets put our money where our mouth is. Otherwise we should switch to socialism and call it a day.
Many people will have their livelihoods and retirements destroyed and can't even restart their existing business, let alone start something brand new. And that's assuming they don't get sick with the coronavirus.
The sensible landlords should not be charging rent to their small business tenants right now. If the lose them all, then their properties will be worth considerably less when the dust settles.
Location is everything in cities like NY, especially for businesses that rely on people traffic so few hundred feet closed to rail station might be a lot more expensive so they just wait for tenant that can utilize that.
If you stop rent payments then you must also help landlords and property owners with their mortgage.
That said, I agree, we should be deferring mortgages and canceling rents.
Everyone is paying downstream until you hit the lenders.
What are the lenders’ costs? What if they pause repayment for 3 months and tack it on to the end of their loans?
Presumably if all the lenders downstream did this, we could really hit pause.
[1] https://en.wikipedia.org/wiki/Mortgage-backed_security#Marke...
By the way this is another reason why UBI is good in a crisis. It creates a floor for people to buy food etc. while we suspend rent payments and mortgages for a few months. And with no disincentive to work like we have now.
Anyway... so who do the retired people need to pay when everything is on pause? Social Security and Medicare cover a lot of the basics. If they have investments yielding enough for them to live on, then they have savings that they can use 0.5% of in three months.
Not to mention, the stock market is down, we can pause bond yields for the retirees for a few months also. The only thing I wouldn’t pause is sovereign debt, since we can print money to service it and confidence in that is paramount.
(Another reason why McConnell’s stance on letting states go bankrupt is dangerous. I would have liked to see states and cities have the ability to issue their own complementary currencies.)
Is it now unfair that some people have saved more cash than others?
Mass bankruptcies are terrible.
One nitpick, there are two types of bankruptcy for businesses, chapter 7 and chapter 11.
Chapter 11 is for restructuring the business and keep it running, but it's very expensive (around $100k in legal fees in California), and it only really makes sense for businesses that have a decent outlook for the future, so it's mostly an option for mid/big-size businesses.
Chapter 7 implies shutting down a business for good. Assets are liquidated and the business completely terminated. There are also big legal risks for the company owners/officials of starting the same or similar business again after bankruptcy, as they can be accused of fraud (basically mis-using chapter 7 to avoid debt liability to then continue pursuing the same business).
Usually chapter 7 is the only real alternative to small businesses, and given the legal risks, it's unlikely they can come back to life afterwards.
This crisis will be truly devastating for a lot of businesses.
That is what i was thinking lately too. We have bankruptcy procedures for a reason, big companies wont disappear they will be restructured and continue to exist and shareholders can decided with their pockets if they want to refinance a certain business. Going back to its intended way that "shareholder value" is a two way street. It cant always be sunny.
Changing the incentive structure would benefit us all.
And probably the best thing to get everything back on track is pumping money through the population and not single big entities.
It's too much loss for his private "business" and of his son in law.
We'll c
That's crazy. I can't imagine much demand for retail space at the moment, so why would a landlord kick out a previously good customer in order to let it go empty.
Once places open back up, nobody is going to be opening new resturants any time soon, so rents will be way down on any new tenant.
I don't think they did. If I owned a small restaurant or a book store - having been closed for a month would be devastating in itself. Seeing no light at the end of the tunnel (another month to re-open, and then probably months of very few customers, on top of a crazy unemployment rate) I'd voluntarily cut my losses and settle with landlord to end the lease early. I'd assume that what had happened.
It is not enough to give corporations money for payroll - in NY large part of the cost of running business is the space itself. Also I don't understand all these "lending" programs - all they do is defer an even larger payment for later - most of the businesses will not be able to repay that if they have been closed for months. You are basically taking a loan to pay the rent so you can go bankrupt later. Doesn't make any sense.
I don't know what to do but we need to give money and healthcare to people independent of work. Let businesses fail (big and small) and rebuild new ones once this blows over. Corporations will only buy back stocks and and line shareholders' pockets with dividends. Single digit percentage points of the stimulus money will reach employees.
Bankruptcies aren't that bad - usually companies are not dissolved, but go through restructuring and gain a new management team (which one, knowing there is no bailout in the future, will plan better for emergencies like this one).
What we are doing now is perpetuating corporate negligence that will now factor in 100% government bailout and run on even thinner margins and bigger stock price growth and dividends for the shareholders.