Trickle-Up Economics
7/7/20
With Covid 19 cases reaching all-time highs in the US, re-opening plans being delayed in many states, and testing capabilities and protective gear again being strained, Congress has been plodding along without any real sense of urgency. Additional Covid-related federal spending seems inevitable at some point, but bipartisan consensus seems a ways off for critical elements of future legislation (e.g., allocations to state and local governments and expanded safety net expenditures). That said, both parties do appear to be leaning toward extending the Payroll Protection Plan (PPP) in some form.
I’m frustrated by the wrong-headedness of this political remedy, as I see it shaping up.
It’s painfully obvious to me — as it should be for anyone else — that those sitting on some cushion of savings are infinitely better able to cope with the economic fallout from this virus than are those who lack these resources. Given that, as well as the limited appetite for additional federal spending, doesn’t it make sense to put those who are most vulnerable first in line for whatever aid is forthcoming? That would be people — as opposed to businesses. (Learning that more than 100 law firms received PPP loans ranging from $1 million to $10 million under the initial round of PPP is maddening, but it’s indicative of a flawed, trickle down orientation that’s been all too central to federal assistance programs… forever.)
Propping up a relatively small percentage of businesses, thereby allowing them to maintain some portion of their labor force may be well-intentioned, but it’s bad policy. The aforementioned law firms notwithstanding, many of the businesses that have received — and potentially will receive — PPP funding simply aren’t going to be viable in the long run. Moreover, as structured, PPP gives incredible discretion to the business owners to determine who actually benefits from the funds. The program may have intended for benefits to trickle-down to wage earners, but it’s hard for me to believe that the primary beneficiaries aren’t the business owners, themselves.
Admittedly, the terms of program have required PPP recipients to attest to their need for assistance as being due to the Coronavirus, which, no doubt, will be true in the vast majority of the of cases; but do these businesses deserve a higher priority than those with little or no savings and income? Congress and the administration seem poised to treat those who’ve been furloughed as being disposable. It’s shameful. The desperation of those on the bottom of the economic latter is frightening, and yet Congress dithers.
One action that has been taken is that federal moratoria on foreclosures and evictions have been extended for many households, but these actions are stopgap. Households that have been unable to meet their financial obligations may get to stay in their current homes for a bit longer, but they’re still expected to make up for missed payments. They’re sitting on a timebomb in that while they’ve been granted some temporary respite, eviction will likely still be the ultimate consequence for households with reduced income and little or no savings. How are these households expected to manage?
Something’s got to give. As we think about intervening in this market, the two opposing approaches would be (1) to subsidize affected households or (2) to subsidize the landlords or lenders. I choose the former. It’s time to pivot from trickle-down economics to trickle-up economics. In the capitalistic system, businesses (i.e., landlords) and lenders, put their capital at risk, hoping and expecting to earn an acceptable return. But their capital is, and should be, at risk. Losing that capital would be a painful prospect, but not as painful as finding oneself without food and shelter. When designing fiscal responses to our current circumstances, financial support should be go the most vulnerable among us — directly, as opposed to indirectly.
