The conservative case for a temporary government takeover of the economy
The United States just enacted the largest fiscal stimulus package in its history in response to the coronavirus pandemic. The $2 trillion coronavirus relief bill will cut $1,200 checks to most Americans, significantly boost unemployment benefits, and offer some $500 billion in aid to businesses.
But it may not be enough to stave off economic catastrophe. Bigger, more innovative government intervention into the economy is going to be needed. And the type of intervention we need is something that even political conservatives ought to be able to learn to love.
The stimulus enacted by Congress last week should provide some momentary relief to businesses and workers hit hard by the economic shutdown caused by coronavirus social distancing. But it seems better tailored to the last economic crisis — the typical financial-sector recession like 2008–2009. This time is different. “In this crisis, stimulating the economy is akin to throwing a sale inside a department store that has been emptied by the bomb squad,” Peter Goodman of the New York Times recently wrote.
What type of government response would match the current crisis? The nature of the crisis is that to combat the virus, we’ve needed to put the economy in a temporary freeze for a period of several months. To avoid needlessly devastating individual businesses and throwing employees out of work, government needs to step in to freeze the costs of business in the interim. As economists Emmanuel Saez and Gabriel Zucman have explained, to keep businesses afloat and employees on payroll, government should step in to directly pay employee wages and other overhead costs for businesses affected by the coronavirus shutdown.
A small-scale version of this kind of intervention has already been put in place through the stimulus bill’s Paycheck Protection Program for small businesses. The government is offering small businesses $350 billion in low-interest loans and promising to cancel repayment if the business does not reduce payrolls — essentially converting each loan into a grant. The amount of money allocated for the program so far probably won’t be enough, but at least it’s a start — and one that not a single Republican senator voted against.
We should build upon that foundation to replicate the large-scale interventions adopted by other countries. According to the New York Times, Denmark’s government is “covering 75 to 90 percent of all worker salaries over the next three months, provided that companies refrain from layoffs. The Danish government also agreed to cover costs like rent for companies that suffer a shortfall in revenues.” Similar programs have been adopted in Britain and the Netherlands, too.
It’s a massive government intervention into the economy. Denmark is functionally shifting 13 percent of its economy onto the public fisc for a period of three months.
It’s no surprise that political liberals and Nordic social democrats would favor this kind of emergency action. But as Britain has shown, those on the right-of-center have reason to tolerate something like the Paycheck Protection Program on steroids. Here’s why:
It keeps people in the workforce. Conservatives have long emphasized the importance of work in peoples’ lives. Work provides dignity, meaning, and a place in society. Unemployment is traumatic, and has long-lasting negative effects throughout the rest of a person’s life.
Doing too little in the face of the coronavirus economic shutdown will throw millions out of work. And it already has. Last week, nearly 3.3 million people filed for unemployment — a nearly ten-fold increase of the typical number of weekly jobless claims over the last half decade. The president of the Federal Reserve Bank of St. Louis has predicted that the unemployment rate could hit 30 percent by the summer.
By contrast, unemployment in Denmark went up significantly less than in the United States, only tripling in response to coronavirus. The difference is certainly due in part to aggressive action by the Danish government to keep people employed.
And in Britain, experts estimate that the government’s direct payment of wages will save hundreds of thousands of jobs. Britain’s conservative Chancellor of the Exchequer has called the intervention “a great national effort to protect jobs.”
It counters government distortion of the market. The economic shutdown —and ensuing skyrocketing unemployment — is a deliberate policy choice made by levels of government. It is not the result of cyclical economic forces or market changes. It is the consequence of necessary government intervention to protect the public health.
Conservatives generally favor (at least in theory) letting markets function undisturbed. But here, preserving the market economy means meeting the government public health intervention with a corresponding economic intervention. That is less distortionary to the economy than doing nothing and letting the government-imposed market clampdown go unaddressed.
It compensates businesses and workers burdened by government action. Businesses like restaurants, bars, and airlines — and their employees — have been disproportionately harmed by the coronavirus shutdown. Those businesses have been shuttered by government for the sake of diffuse public health benefits. So we’ve privatized the economic losses, and socialized the health benefits of the shutdown.
Conservatives typically believe that private economic actors are at least morally — if not legally — owed compensation for this kind of quasi “taking” by the government. Because government has snuffed out the ability of certain businesses to operate and certain workers to earn a living, government has a responsibility to make them whole. That responsibility can be satisfied by government stepping in to assume the costs incurred by affected businesses.
It sets markets up for success. There is no economic reason for vast numbers of workers to be separated from their employers. Mass unemployment now will make it harder for the economy to get up and running once social distancing can be lessened. “Freezing” the economic status quo ante in place through government intervention will make it easier to more seamlessly transition to a functioning market after coronavirus subsides.
Temporary government receivership of much of the economy thus makes it easier to unfreeze the economy and to minimize the long-term disruption of coronavirus. As one Danish economist put it, “If you can tide firms over and thereby reduce the severity of bankruptcies and firings, you can expedite the return to normal.”
There should be something for both the left and the right to get behind in the Danish model for responding to the economic harm of the coronavirus. But unfortunately, President Trump and other Republican leaders in the United States increasingly appear to be eyeing a completely different direction. To undo the economic distortions caused by emergency public health responses, they’d simply prematurely reverse social distancing and business shutdowns altogether. And they admit that they’re willing to tolerate health risks and even a “death toll” for the sake of getting the economy back to normal — even though such a hasty attempt to force a return to normalcy could backfire and harm the economy in the long run.
That type of commercial barbarism is not our only option. We can protect our economy while we protect ourselves by shrink-wrapping it for a future, safer date. We need not succumb to economic fatalism. When the needs of the economy conflict with the needs of people, we have the power to change the rules of our economy. That is our surest way through this crisis.