Bill Dupor of the St. Louis Fed on fiscal remedies

The entire piece is interesting, here are two highlights:

Subsidize COBRA Continuation Coverage Employer -provided health insurance is commonplacein the United States. Laid off (or furloughed) workers, even if they receive higher UI replacement rates, would (or at least could) lose their health insurance. The federal government already has the COBRA program to allow for continuation of coverage for workers losing their jobs. This program, however, requires worker-paid premiums. These premiums increase the relative cost of engaging in nonmarket activities. To reduce that cost, the federal government might temporarily cover 70 percent of the COBRA premiums for the unemployed or furloughed. Calculating an appropriate size of such a program, even in a rough sense, is difficult at this stage. For a baseline, suppose the allocation were $25 billion, which was the value of a similar program implemented under the 2009 Recovery Act.

And here is another way to get cash into people’s hands quickly:

Penalty-Free Withdrawals from Individual Retirement Accounts

Many Americans hold tax-deferred individual retirement accounts. Individuals can withdraw funds on retirement (and a few other special situations) or any time they wish if they pay a 10 percent penalty. This 10 percent penalty is in addition to the taxes that are due on the withdrawal. In the event of a severe viral outbreak, the federal government could temporarily remove this 10 percent penalty up to a certain dollar amount and for a preset length of time. Since the initial contribution to the retirement fund was tax deferred, taxes would need to be paid on the withdrawal even if the additional penalty was waived.

Recommended.

Comments

it is unconscionable to address the unknown impact on the real economy while ignoring the health care sector's needs. See this: my views, drawn from 2009 stimulus learning, and my book about it:
1. Job One is fund a huge rapid expansion of health care system. Need one billion test kits. 10 x increase in beds/capita. 10 x increase in ventilators. $10,000 bonus for all health care workers and all new enlistees in the ranks of health care. Honestly, it is unconscionable to think that firms not in health care need top priority or that sending everyone checks takes precedence over this. The appropriation should be as big as necessary to this purpose, and it is surely in the category of $100 billion plus. Hospital administrators do know the needs. Send the money to states; don't let the federal government get in the way.
2. Job Two is to figure out how much demand stimulation is necessary. Focus on people not firms. The firms will adopt the business equivalent of shelter in place, and some like cruise liners and gambling casinos may have lay offs. Others like Amazon and Wish and Zoom will be hiring like crazy. Hard to know what is the net net outcome.

But in any case the focus of demand stimulation should be ethical: increase amount of unemployment compensation, child care subsidies, social security payments, paid sick leave. This isn't just about macroeconomics prescription of throwing money out the door just to get gdp to go up. That isn't necessary or helpful in the long run.

3. AND then do what needs doing but politics normally wouldn't let the two political parties agree to do. That is: public private investment in the three critical infrastructure platforms: transportation, clean power, and communications.

4. The 2009 stimulus was half as big as it needed to be and sadly not as long lasting as it needed to be. The Democrats thought that was because of Republican opposition. Be that as it may, this time both parties care about the problem in advance of a critical election so they ought to be able to strike a bargain.

5. Save only firms critical to the fabric of the economy. One is Boeing and all of its supply chain. There may not be any others in jeopardy. Too soon to say.

6. Imitate 2009 stimulus and TARP by NOT having government actually run the private sector. For example, let public funds go to non profits and start ups and other clean power firms w/o taking them over or regulating them or putting them numerous time consuming hoops that actually block investment and spending. You will find you have funded some Tesla somewhere (again) and that will be worth a failure or two.

401(k) Hardship Withdrawals May be available with employer only action. A from I work with posted the following: https://www.stevenslee.com/401k-hardship-withdrawals-can-help-with-employees-coronavirus-related-costs/

Again, I' m impressed. I think it has to do with the acceptance that money must be spent and the attempt to be practical and efficient in where the money goes.In 2008, the responses of many economists seemed partisan and ideological, especially when compared with 1933 where you had economists with strong beliefs who understood that in a crisis different rules apply. I'm thinking of Henry Simons, Frank Knight, and Irving Fisher. As Hyman Minsky said of them, they didn't need to construct a new theory to see what the economy needed in a crisis. I'm not singling out economists in particular. Just the opposite There were economists who I would have thought been pro-active who weren't.

Now, whether politicians step up is another question, yet to be answered.

Both proposals make sense.

I would modify the 401k proposal to provide that the holder could add back the same or lesser amount they withdrew without regard to the yearly cap and there would be a tax credit for the amount paid in taxes for the previous withdrawal. I would limit it for two years. You could also make this proportional to adjusted gross income so that it is really a hardship withdrawal based on income or change in income..

Both great ideas.

Nothing against Mr. Dupor, but it is important to remember what the crisis is about and to do general things, not specific things. E.g. don't bail out Boeing, but let Boeing borrow at rates other companies receive. If Boeing goes under, so be it. Same with auto companies, and everybody else.

"Public private investment in the three critical infrastructure platforms: transportation, clean power, and communications." is nothing more than special pleading.

Cobra? Cobra is a band aid. I suppose one could use the crisis to make a bigger band aid, but that would be a waste of a crisis.

With free international trade, there is nothing domestically especially critical to an economy.

Meh.

KISS.

Bring unto us a payroll tax holiday to the end of the year, and if you wish, a $1,000 check to every adult in America for every month of lockdown.

The people at risk from COVID-19 are generally more than 80 years old.

Does it not make more sense to isolate the elderly rather than shut down the non-elderly?

Good question,

The fence between the generations will not be impermeable. So, how much do the unfettered associations among the young affect the old with a fence compared to fettered associations among the young and the old? Taking life years saved as the proper [utilitarian] measure, I think NOT exclusively fettering the old is the correct answer. Seems to depend on the permeability of the barrier.

Am willing to be persuaded otherwise.

The non-elderly roaming about can contract the virus, show no symptoms and then inadvertently spread it to the elderly. That's how contagion works.

A lot of talk about giving everyone $1000 check per month. I think this could work out better than corporate bailouts. If I and many others decide to spend that money on a plane ticket, then that's all the "bailout" that airlines get instead of a direct infusion from the government. All corporations seeking bailouts must instead pass this basic, simple, and fair market test.

Common stockholders of failed businesses must be wiped out and debt holders get a haircut because as Sumner says that's how capitalism works. Moral hazard should be discouraged.

Corporations must re-learn what it means to build rainy day reserves and not allow short sighted shareholders from bullying them into doing something foolish like airlines did spending 96% of their free cash flow on stock buybacks. Worse, many Fortune 500 companies took on debt to do the same thing. This is short term greedy, long term irresponsible, and the market powered by public cash should be allowed to mete out justice.

wouldn't penalty free withdrawals be encouraging selling stocks at precisely the wrong time? you'd probably be better off turning the federal govt into a no-interest payday lender if folks were that cash strapped

Why should withdrawals come with any penalty? One does have to pay taxes on these non-yet-taxed earnings.

The IRS should adjust its Turbotax sheets and stop promoting financial intermediaries.

Because it comes with the ability to defer taxes unlike any other account. Tax deferral, to note, is different from and orthogonal to capital gains.

And here is another way to get cash into people’s hands quickly:

Wait a minute, did the Wuhan flu evaporate everyone's money? Sure, neo-liberal turbo capitalism runs on debt, no doubt about that, but do transportation, entertainment and energy issues empty the bank accounts of the population? In fact, gasoline and streaming video are cheaper than they've been in a long time. Doesn't anyone at all have a few bucks hidden away somewhere to tide them over a rough spell? If employed Joe Six-pack gets a check from the government, what's he going to do with it? If he's unemployed it will be added to his unemployment check and hopefully get put toward his mortgage, rent or car payment. In other words the manna money will be subsidizing rentiers and finance companies. How about those entities taking a little haircut in this situation?

"do transportation, entertainment and energy issues empty the bank accounts of the population?"

They do when your finances are running only on the fumes of debt. The whole country is a few paychecks from default. Good thing we have a President who's very experienced in bankruptcies. Multiple.

Only if, in a couple years, I can put it back in without penalty.

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