In as dramatic a turn of events as we’ve seen in our lifetimes, America went from virtual full employment to the highest level of unemployment in just about a blink of any eye. The economy is as flat on its back as it’s been since any time since the worst parts of the Great Depression and, as yet, no one has come up with the way out.
Ask most people how things got so dire and they’ll probably say “coronavirus.” That’s true — but only partially. The real culprits are those government officials who ordered social distancing and the closure of bars, restaurants and businesses deemed by them to be non-essential. That, and the justifiable fear on the part of business owners they might at some point be sued if their workers or their customers got sick (whether they had anything to do with it or not) was the tipping point leading many merchants to hang a “Gone Fishing” sign on the door while waiting for things to return to normal.
As has become increasingly clear, there’s no telling when that will be. The two-week self-quarantine period has turned into more than two months. The worst of it all seems to be confined to five states and connected to nursing homes though, admittedly, we don’t know nearly enough about the disease, about how it spreads, how many people have been exposed, and how to treat it to be sure of anything except the need for massive interventions to keep the economy going.
What’s been done so far has been a political boon to the welfare staters and proponents of bigger government. The federal government has been passing out money as fast as it can print it to workers, to business owners and to anyone else with enough political stroke to get on the right list. That’s not fine, as far as it goes, and is generating massive amounts of debt we’ll find it tricky and expensive to repay. But it allows the political class to say they’re “doing something” so, as a campaign strategy, it probably works.
The problem is that’s not what America is about. This nation was founded and continually replenished by adventurers and religious pilgrims and brave men and women seeking the chance to build a better life for themselves and their children than what they had in the nations they came from. They may have expected upon arrival to find a country where the streets were paved with gold but they knew, instinctively, that the American Dream was something to be earned, not given to them.
Instead of managing the recovery, which it can’t do any better than it managed the pandemic, the government needs to find ways to create incentives that direct people toward mutually beneficial outcomes. And then it needs to get out of the way.
Right now, the policies implemented in the CARES Act and the other relief bills have turned things on their head. People who are making more on unemployment than they would on the job have little to no incentive to return to work if the boss calls and says the business from which they been sent home because of COVID is opening up again. That’s a dumb way to do things, to put it bluntly, yet some politicians like House Speaker Nancy Pelosi want to extend the period over which people are eligible to receive benefits.
Instead of that, let’s suspend the federal payroll tax on both employers and employees for the 2020 calendar year. That’s an automatic 7.5 percent raise for anyone working that’s probably big enough to provide a good reason to go back to work instead of staying home collecting unemployment. And it will certainly help those who’ve continued working throughout the crisis by putting more money in their pockets.
Another thing we’ve seen is a decline in the value of businesses as they continue to be closed. That matters to stock prices which in turn matters to the savings and retirements of tens of millions of Americans whose 401Ks and pension plans are invested in those firms. The Pelosi approach to this, one endorsed by some Republicans as well, has been to hand them money in the form of low-interest loans that add to the national debt.
A better way to help inspire confidence in the market is to increase the returns investors who take risks can realize. A cut in the capital gains tax rate would do that but it would never get past Mrs. Pelosi. She’s got too much political capital invested in class warfare for that to happen. They can, however, be indexed to eliminate the inflation tax on assets by executive order, thus increasing the incentive for investors to take risks.
We can bring the economy back, but only by incentivizing the return to work. More government bailouts as Mrs. Pelosi and other Democrats want will only create a permanent culture of dependency as we’ve never seen before. And that won’t be good for America.
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