Category: Economics

Oregon Closes Online Schools!!!

Well this has got to be the dumbest thing I have read all week:

WW: The Oregon Department of Education has closed the state’s online charter schools under Gov. Kate Brown’s order to close public schools to halt the spread of COVID-19, according to a document obtained by WW.

…Marc Siegel, a spokesman for the Oregon Department of Education, confirms that although Brown’s order did not explicitly call for the closure of online charters, state education officials believe that is the intent of the governor’s order.

I have to think this is an oversight soon to be corrected but maybe there is a method behind the madness. Some are worried that students will switch into online charter schools reducing other public school funding:

“Enrollment of new students to virtual public charter schools during the closure would impact school funding for districts across Oregon and therefore may impact the distribution of state school funds and delivery of services as directed under the executive order,” the department said in its guidance to districts.

Unbelievable.

Hat tip: Raghu Parthasarathy.

Price dispersion and pandemics

Price dispersion is an excellent indicator of transactional frictions. It isn’t that absent price dispersion, we can confidently say that frictions are negligible. Frictions can be substantial even when price dispersion is zero. For instance, if the search costs are high enough that it makes it irrational to search, all the sellers will price the good at the buyer’s Willingness To Pay (WTP). Third world tourist markets, which are full of hawkers selling the same thing at the same price, are good examples of that. But when price dispersion exists, we can be reasonably sure that there are frictions in transacting. This is what makes the existence of substantial price dispersion on Amazon compelling.

Amazon makes price discovery easy, controls some aspects of quality by kicking out sellers who don’t adhere to its policies and provides reasonable indicators of quality of service with its user ratings. But still, on nearly all items that I looked at, there was substantial price dispersion. Take, for instance, the market for a bottle of Nature Made B12 vitamins. 

Prices go from $8.40 to nearly $30. It is not immediately clear why sellers selling the product at $30 are in the market. It could be that the expected service quality for the $30 seller is higher except that between the most expensive and the next lowest price seller, the ratings of the next highest seller are lower. And I would imagine that the ratings (and implied quality) of Amazon, which comes in with the lowest price, are the highest.

p.s. Sales of the boxed set of Harry Potter show a similar pattern.

That is all from Gaurav Sood.

Sicken Thy Neighbor Trade Policy

A number of countries have imposed export bans on medical equipment. This is a natural, knee-jerk, reaction but a mistake for two reasons. First, no country in the world produces everything it needs. An export ban imposed by one country benefits that country but when all countries ban exports, it’s likely that no country is better off and all are worse off. A prisoner’s dilemma.

The prisoner’s dilemma is even worse than the basic analysis indicates because supply chains are globalized so it’s not even that one country produces ventilators and another produces masks and they are better off trading. Rather, it’s that both ventilator and mask production rely on inputs from other countries. What this means is that export bans make it more difficult for anyone to produce anything. Reuters gives an example:

Swissinfo has reported that production in Hamilton Medical, a major Swiss manufacturer of hospital ventilators, has slowed because Romania banned exports of a critical input that Hamilton was sourcing. The lesson is that any EU export restriction puts at risk other EU imports also needed to fight COVID-19. If the product definitions covered by the EU policy are so broad that they also restrict exports of parts and components, the EU may end up losing access to other supplies of equipment it seeks to import.

And here is Stefan Dräger, head of German ventilator manufacturer Drägerwerk:

DER SPIEGEL: When will a shortage begin developing for filters, tubes and other components for the ventilators?

Dräger: It already has….The parts come from all over the world, including from Turkey. I very much hope that the supply chains remain intact despite the protectionism. If someone decides to disrupt them, there will no longer be any ventilators, for anyone.

Disrupting sophisticated global supply chains is likely to create dis-coordination.

For want of a nail the shoe was lost;
For want of a shoe the horse was lost;
For want of a horse the battle was lost;
For the failure of battle the kingdom was lost—
All for the want of a horse-shoe nail.

For want of a ventilator part the life was lost.

The second reason why export bans are a mistake is that when there are economies of scale banning exports can decrease local consumption. A company that knows that it cannot export will be less willing to invest in building new plant and infrastructure, for example. We see exactly this phenomena in the brain drain “paradox”. Brain drain proponents argue that developing countries need to ban exports of human capital (i.e. don’t let people leave) to keep skilled workers at home. But in fact places like the Philippines, which export a lot of nurses, also have more domestic nurses. As Clemens and McKenzie write:

Enormous numbers of skilled workers from developing countries have been induced to acquire their skills by the opportunity of high earnings abroad. This is why the Philippines, which sends more nurses abroad than any other developing country, still has more nurses per capita at home than Britain does. Recent research has also shown that a sudden, large increase in skilled emigration from a developing country to a skill-selective destination can cause a corresponding sudden increase in skill acquisition in the source country.

The premise of export bans–in this time of need, we need to keep our resources at home–is natural but the virus is a worldwide challenge that needs a worldwide response. We is everyone in the world. We have a lot to gain by cooperation, especially as some countries are being hit at different points in time. Germany, for example, sold ventilators to China as the crisis hit China and China can (re)sell to Germany as China recovers. Our best strategy is a united front where we learn from other countries and reallocate resources around the world.

Beggar thy neighbor trade policy, such as the infamous Smoot-Hawley tariff, lengthened the Great Depression. We don’t want sicken thy neighbor trade policy to length the great pandemic.

Hat tip: anonymous.

Pandemics Depress the Economy, Public Health Interventions Do Not: Evidence from the 1918 Flu

That is a new paper by Sergio Correia, Stephan Luck, and Emil Verner, I have not read it, here is the abstract:

What are the economic consequences of an influenza pandemic? And given the pandemic, what are the economic costs and benefits of non-pharmaceutical interventions (NPI)? Using geographic variation in mortality during the 1918 Flu Pandemic in the U.S., we find that more exposed areas experience a sharp and persistent decline in economic activity. The estimates imply that the pandemic reduced manufacturing output by 18%. The downturn is driven by both supply and demand-side channels. Further, building on findings from the epidemiology literature establishing that NPIs decrease influenza mortality, we use variation in the timing and intensity of NPIs across U.S. cities to study their economic effects. We find that cities that intervened earlier and more aggressively do not perform worse and, if anything, grow faster after the pandemic is over. Our findings thus indicate that NPIs not only lower mortality; they also mitigate the adverse economic consequences of a pandemic.

Via Jason Furman.

The Defense Production Act

In my post, Let the Markets Work, I argued that the Defense Production Act was “neither especially useful nor necessary.” The earlier post focused on how markets were working to address the crisis. Today, we can see the flip side, how the government is working to address the crisis.

The NYTimes reported on Thursday that the government was balking on a deal to buy ventilators

The White House had been preparing to reveal on Wednesday a joint venture between General Motors and Ventec Life Systems that would allow for the production of as many as 80,000 desperately needed ventilators to respond to an escalating pandemic when word suddenly came down that the announcement was off.

The decision to cancel the announcement, government officials say, came after the Federal Emergency Management Agency said it needed more time to assess whether the estimated cost was prohibitive. That price tag was more than $1 billion, with several hundred million dollars to be paid upfront to General Motors to retool a car parts plant in Kokomo, Ind., where the ventilators would be made with Ventec’s technology.

At $1.2-$1.5 billion that’s $15,000-$18,750 per ventilator which is well below the standard price of $25,000-$50,000 (maybe these ventilators would be simpler or less fancy.) Seems like a bargain to me but maybe GM wasn’t the best producer. I think we could buy more pretty quickly from China, as Elon Musk did. In anycase, I’ll give the government the benefit of the doubt on the bargaining. Note that even as they were haggling over the price, GM and Ventec were continuing to work towards production. The market for ventilators is growing.

The President, however, then went on Hannity to say that he didn’t think we needed 30-40 thousand ventilators and also insulted GM CEO Mary Barra in a series of tweets. This was clearly some kind of clever bargaining strategy. Surprise! It failed. Yesterday in a pique, the President invoked the DPA.

CNN: President Donald Trump invoked the Defense Production Act on Friday to require General Motors to produce more ventilators to deal with increased hospitalizations due to the spread of the novel coronavirus in the United States.

But it’s unclear what practical, immediate effect the order will have.

…Trump also named Peter Navarro as the national Defense Production Act policy coordinator for the federal government. Trump said Navarro has been doing that job over the past few weeks but announced him as the coordinator for the first time on Friday.

Trump decided to invoke the act because he was irked by news reports that an agreement between GM and the administration had stalled, a person familiar told CNN.

So what have we gained by using the DPA? Will the ventilators be produced any faster? Will the ventilators be any cheaper? Will other companies be so quick to enter into negotiations with the government? Will Peter Navarro direct production more efficiently and fairly than market prices? No.

Real wages are flexible now

The restaurant used to pay you $13 an hour, now they pay you “$13 an hour plus p = ?? of Covid-19.”  That new wage is a lower real wage.

Of course some workers are quitting, others are trying to shift back to disability, and so on.  Those are movements along labor supply curves, not proof of sticky wages.

Plus other employers are taking unprecedented latitude in shifting around work hours, demanding new levels of commitment, asking workers to scrub down surfaces more and wear masks, and above all offering weaker promotion ladders, etc. — all cuts in the real wage.

I expect unemployment levels to rise to new and scary heights, and yes I do think the government should do something about that.  But if you are analyzing the status quo with “a sticky wage model,” that assumption is probably wrong.  Even though it is usually correct.

Of course at some point in the future I expect wages to become sticky again.  Perhaps that is how we will know things have stabilized.

“Flexible wages on the downside, sticky wages on the upside” is perhaps the best assumption at the moment.

A further lesson is that sticky wages are not the only driver of unemployment, and the “fixed cost of working” models of Richard Rogerson and others have been underrated for a long time (to oversimplify a bit, given fixed costs it is not worth everyone coming in to work at some levels of demand/productivity).

Minimum wage hikes are a much worse idea now

For one thing, the marginal product of labor is much lower, at least for a good while.  But there is a deeper problem.  Under the status quo ex ante, minimum hike proponents argued that the highest wages would be taken out of, say, the economic rents of restaurants.

But now those rents are largely gone!  Especially for the small restaurants.  The result will be that, if the minimum wage is raised, more laborers are laid off.  At the very least there should be no minimum wage, or a much lower minimum wage, for small businesses.

A further effect is that higher contagion risk (extending into the future too, now that pandemics are salient) may encourage more employers to automate, including in kitchens, theme parks, etc.  A higher elasticity of automation also militates against a minimum wage increase, because capital-for-labor substitution is now more likely, again indicating larger negative employment effects.

In essence, most of the previous empirical literature on this topic has to be significantly downgraded in relevance.  Whatever you thought of them to begin with, the pieces by Dube and the like just don’t apply any more.

Most likely, we should lower current minimum wages.  And that is all the more true, the more you have been worrying about coronavirus risk and Trump’s poor performance in response.

These are all very simple points, I am tempted to say they are “not even Econ 101.”

And note that in the very early stages of a lock down you might want a much higher minimum wage, precisely to keep people away from work, if somehow you cannot keep the customers away.  The much higher minimum wage would force the employer to decide which are the truly important workers, and send the other into non-infectious activities, as Brian Slesinsky suggested to me.

This is all related to my earlier post The Meaning of Death, from an economist’s point of view.

Longer-run economic consequences of pandemics

How do major pandemics affect economic activity in the medium to longer term? Is it consistent with what economic theory prescribes? Since these are rare events, historical evidence over many centuries is required. We study rates of return on assets using a dataset stretching back to the 14th century, focusing on 12 major pandemics where more than 100,000 people died. In addition, we include major armed conflicts resulting in a similarly large death toll. Significant macroeconomic after-effects of the pandemics persist for about 40 years, with real rates of return substantially depressed. In contrast, we find that wars have no such effect, indeed the opposite. This is consistent with the destruction of capital that happens in wars, but not in pandemics. Using more sparse data, we find real wages somewhat elevated following pandemics. The findings are consistent with pandemics inducing labor scarcity and/or a shift to greater
precautionary savings.

That is a new paper by Òscar Jordà, Sanjay R. Singh, and Alan M. Taylor.  And here is the tweet storm.  It should be noted, of course, that the Spanish flu did not give rise to a comparable economic stagnation.

Via Evan Soltas.

Safety Protocols and Zones of Quarantine

Carl Danner writes me:

“Essential activities” has no objective definition.  It implies some blanket degree of risk acceptance that can’t be accurate by any underlying calculus, i.e. as if someone has specifically weighed whether we can tolerate these particular activities because they provide enough value to offset the incremental risk of conducting them.  But the reality is more likely that those conducting most activities (including “essential” ones) are now undertaking risk mitigation measures intended to reduce the chance of virus transmission to very low or nonexistent levels.

What we need instead — and the logical place for governments to go in unwinding these blanket restrictions — is a recognition that any beneficial economic activity should be allowed if undertaken using a protection protocol appropriate to its particulars and sufficient to prevent virus transmission.  This would get government out of the business of choosing which businesses or occupations are essential, vital, important or whatever — including all the problems attendant to making such discretionary determinations across the entire economy for a sustained period.  Without that revised approach, we could start to develop occupational licensing/certificate of need type problems as a general feature of the economy.

In other words, this part of the virus response should transition to a health and safety regulatory concern that is important, but handled like most of the others.  For example, poor food hygiene can also kill you, but governments generally don’t respond by deciding which cuisines are essential and which are not.  Rather, anyone willing to follow the safety rules can put up any menu they want.  So it should be for economic activities of all kinds.

We should not lift restrictions until the number of new cases is declining and low and we have enough testing capacity to squash new outbreaks. But we should start to think about what safety protocols may be reasonable in the future. For example, I think we could allow any firm to reopen that does not deal with the public and where all the employees wear masks. Any workplace that disinfects twice a day and checks worker temperatures might be another appropriate allowance. Another possibility is quarantining at work. I don’t see the latter as useful for most workplaces but for say a nuclear energy plant or air traffic controllers it might be appropriate to bring in mobile homes, as they do for fracking workers in North Dakota. Going somewhat farther afield we might use cellphone data to decide on zones of quarantine, e.g. home or work or driving in between. Obviously such systems can be spoofed but the point would be to offer this as a temporary and voluntary system to move towards normalcy.

Hat tip: Michael Higgins.

Stock Buybacks are Fine

Ted Frank writes:

Let’s start with what a buyback is, since even many financial journalists do not understand this: A corporation purchases stock from its shareholders. It’s economically indistinguishable from a special dividend, where a corporation pays out money to every shareholder, except it permits shareholders to elect their own tax consequences, unlike a dividend that creates a tax event immediately.

…Proposals to ban buybacks are effectively proposals to demand corporations hold such huge stockpiles of cash, depriving shareholders of investment choices. Such proposals will backfire by slowing down the economic recovery when money that could be invested is instead held in corporate bank accounts, doing nothing.

I agree. Buybacks are just not a big deal.

Lessons from the “Spanish Flu” for the Coronavirus’s Potential Effects on Mortality and Economic Activity

That is the subtitle of a new paper by Robert J. Barro, José F. Ursúa,  and Joanna Weng, here is the abstract:

Mortality and economic contraction during the 1918-1920 Great Influenza Pandemic provide plausible upper bounds for outcomes under the coronavirus (COVID-19). Data for 43 countries imply flu-related deaths in 1918-1920 of 39 million, 2.0 percent of world population, implying 150 million deaths when applied to current population. Regressions with annual information on flu deaths 1918-1920 and war deaths during WWI imply flu-generated economic declines for GDP and consumption in the typical country of 6 and 8 percent, respectively. There is also some evidence that higher flu death rates decreased realized real returns on stocks and, especially, on short-term government bills.

I wonder if the economic cost isn’t higher today because we know more about how to limit pandemic spread and we also value human lives more, relative to economic output?

Kudos to the authors for such swift work.

Also from NBER here is Andrew Atkeson on the dynamics of disease progression, depending on the percentage of the population with the disease.  Here is an excerpt from the paper:

Even under severe social distancing scenarios, it is likely that the health system will be overwhelmed, which is indicated to happen when the portion of the U.S. population actively infected and suffering from the disease reaches 1% (about 3.3 million current cases).7 More severe mitigation efforts do push the date at which this happens back from 6 months from now to 12 months from now or more, perhaps allowing time to invest heavily in the resources needed to care for the sick. It is clear that to avoid a health care catastrophe as is currently being experienced in Italy, prolonged severe social distancing measures will need to be combined with a massive investment in health care capacity.

Under almost all of the scenarios considered, at the peak of the disease progression, between 10% and 20% of the population (33 – 66 million people) suffers from an active infection at the same time.

A not entirely cheery prognosis.

A new idea for small business lending and support

From my email, from Amanda Brown, she is developing this plan with Ben Laufer:

I am a master’s student at Stanford in Management Science & Engineering and a fan of your blog Marginal Revolution. I have been following it more closely in the midst of COVID-19, especially the conversations about small business financing during the crisis (e.g. today’s post about bridge loans).

I was hoping to get feedback on an idea for a new small business lending platform which would allow community members to fund fractional amounts of a business loan. The thesis is that fractional loan contributions from local supporters would give institutional lenders confidence to fund the full requested loan amount (and that the total amount contributed by peers would supplement traditional measures of borrower creditworthiness, such as FICO score, cash flow, etc., when setting the interest rate). For example, 10% of the principal might come from all the peer investors combined, and the remaining 90% from a single big lender. To my knowledge, nothing quite like this exists. In the wake of COVID-19 shutdowns, it seems especially important for small businesses at the heart of our communities to be getting access to low-interest financing based on peer endorsement.

Adding the “peer staking” element to a small business loan signals to investors that the local community believes in the future success of the business and the borrower’s likelihood of repaying (and peers would also be able to earn the same interest rate return on the principal as the majority funder… so it’s not like crowdfunding, where you contribute but won’t see your dollar again…). The design also increases accountability without the need for a collateral since borrowers would feel a personal responsibility to repay their peer debt-holders, who may be friends, family or customers.

I am wondering what your thoughts are on the idea (and its relevance at this time). If you think it is worthwhile, perhaps you would consider sharing this 5-minute survey with your followers to collect feedback on the idea:

https://forms.gle/Tk2Gweqa5frTacid9

Amanda Brown (aclairebrown@hotmail.com)

Ben Laufer (ben.laufer@gmail.com)

Joshua Angrist has written a tribute to Alan Krueger

Alan Krueger died a year ago this week. I think of him often, and would like to mark the anniversary of his death by sharing a story of my time with Alan. Alan and I had a lot in common. First, we were both born in the third quarter; that is, we’re QOB3s. In fact, Alan was only one day older than me. We used to joke that this explains his relative success: it’s an age effect!

There is much more at the link, moving throughout.  And here is the Joshua Angrist introduction to econometrics course on Marginal Revolution University.

Dog-walking markets in thwarting the Spanish lockdown

4 people in Alicante were ticketed for violating the State of Alarm for walking the same dog. Seems there were trying to get out of their apartments to walk their dog, only it wasn’t theirs. I’d like to know if the owner of the dog was pimping it out for walks. Update: People are pimping out their dogs for walks Going rate seems to be between 20 and 25 Euros per walk.

That is from a reader (Marty O.) email, in turn from a contact in Spain, here is an associated article those dogs are pretty tired by now.

Zachary Booker on bridge loans and bankruptcy

This is an email, all from him, I won’t add in any other formatting:

“Like you, I have an extraordinarily deep concern about the capacity for businesses – not only SMBs, but also larger, capital-intensive firms – to weather this path of suppression. I was quite surprised to hear Russ take a lighter note.

…I am deeply sceptical of the efficacy of bridge loans that you spoke about early this morning. While Brunnermeier, Landau, Pagano, and Reis have laid out the best transmission mechanism, I can not possibly envision it will move the needle enough for the majority of those businesses while also not leaving a wake of loss provisions for future generations. I suppose you could say I am partial to point two in your piece.

I also simply can’t understand the legal logistics of bridge loans in this scenario. Most companies will have a capital structure of some kind (perhaps without the most sophisticated lenders). How are you cramming down those who you are priming in the capital structure? You need consent. Who will be managing this incredibly laborious process of gaining consent and creating the terms? Cash grants are one thing, but bridge loans that aren’t unsecured at the bottom of the capital structure are an entirely different matter.”

“While the benefit of hindsight can be a hindrance to pontificating on novel circumstances, it strikes me as unequivocally true that the GFC had a much simpler – intellectually, if not politically – solution. Namely a solution that at its core involved taking known, marketable securities out of the system at haircuts or depressed valuations to abate panic, settle markets, and of course eventually sell at a profit.

In short, I’m partial to the view that mark-to-market accounting was both a central impetus for why the crisis was so severe and why action could be taken so decisively without burdening tax payers for generations to come (see Ball’s very good book here and Fragile by Design, both of which you’re likely familiar with). This crisis provides no such “simple” solutions that can be concentrated against a singular sector of the economy by taking decisive action.

I, of course, have no grand unified theory to share with you. However, I did want to pass along some thoughts I had upon reading your bridge loan piece that came to mind.

Like you, I am also worried about how broad the demand shock is currently and will be moving forward. Affecting not only every industry severely, but also every locality in the economy (e.g. leaving no state or municipality without deep, painful bruises). This raises the question of how the economy – when this is all said and done – reconstitutes itself in an orderly, efficient fashion.

While I’m partial…I believe one of the incredible strengths of the United States is its bankruptcy code. In particular, the out-of-court and Chapter 11 processes.

I would perhaps mull over how the United States can leverage the bankruptcy code to provide support, both out-of-court (e.g. before filing) and to expedite the process while in-court (e.g. by utilizing pre-packs, which are very popular, very quick, and incredibly effective at providing sustainable balance sheets).

The United States could explore offering – or backstopping – DIP Financing for firms that file Chapter 11 (see explainer on DIP financing from Davis Polk here). DIP Financing has been around for many decades, is incredibly safe, and deeply effective.

  1. The US could offer DIP Financing at favourable terms directly and automatically under preset conditions (e.g. a firm that was FCF positive in 2018 with EBITDA +$[10]mln, but needing to file Chapter 11 in 2020, would immediately get a facility at L+[100]). This would also give the US the highest seniority in the cap stack with very favourable terms upon a potential future Chapter 11 (Chapter 22) or a future Chapter 7 (liquidation). For firms that have not been in distress prior to the crisis, this would have the US assuming very little real credit risk. 
  2. The US could backstop private DIP providers – to get credit rolling again – by guaranteeing [95] cents on the dollar for any facility extended within the next [X] months. Historically, DIPs have returned much more than this so this is reasonably safe from a credit perspective. Note: this could also be done for TL1s or revolvers out-of-court. Same principle applies regarding seniority, lessened credit risk, etc. although you’d need consent down the capital structure.
    1. The United States could explore offering participation in pre-packs whereby:
      1. The US would inject $[X]mln in senior secured notes if;
      2. Existing Senior Secured take a [5]% haircut
      3. Unsecured take a [15]% haircut
      4. Equity take a [50]% haircut
      5. Again, the idea would be for pre-packs to be, well, pre-done. The idea would be that if your business is hurling towards bankruptcy, it may be best to bite the bullet and recapitalize (via the US notes) while re-working your balance sheet right now. If your firm meets the FCF, EBITDA, or whatever criteria is determined then the US would offer this package automatically. Contingent only on those within the capital structure consenting to taking at least [X]% haircuts (as consent is required by law). Note: you may want to say that any financing put in – or backstopped by – the US will not be additive to the covenant ratios underpinning the rest of the capital structure (or these covenants can just be amended, if necessary, to allow for this new capital injection as is commonplace anyway).

One would hope that if The United States does something like this it could serve three useful functions:

  1. Providing confidence to market participants that there will be a financing backstop – for otherwise healthy firms blindsided by COVID-19 – by the United States, which will likely have the paradoxical affect of freeing up credit from private participants and stopping the explosion in credit spreads and the halting of credit extension we’re currently seeing.
  2. Allowing firms, without much relative credit risk to the United States, to obtain a runway through the fresh injection of capital along with a modest restructuring that will help them weather the storm if it is to be prolonged.
  3. Providing an automatic, guaranteed solution that is widely accessible to firms as all qualifications and terms would be preset and thus remove any uncertainty as to what firms would be able to qualify for or ultimately obtain.

Using the bankruptcy code in this way would allow the United States to help firms (albeit, likely slightly larger ones than mom-and-pops) in a predictable, known, guaranteed way while also protecting tax payers from taking significant downside risk positions in an ad-hoc and convoluted matter via bridge loans (if they are feasible at all, which I doubt). In short, the United States would leverage the incredibly strong institutional and intellectual framework of its existing bankruptcy code.

I believe – as I believe you do as well – that we are in for a much lengthier protraction than many anticipate…I do not believe Goldman’s forecast…that we’ll see 13% GDP growth in Q3. I do not believe demand will return so quickly or in such force, because I do not believe we will return to normalcy as quickly as we have just departed it.

As I said previously, I have no grand unified theory to get American business through this crisis. However, we both agree in the general goodness of Big Business as a driver of America. What I’ve just laid out is perhaps the most politically palpable solution (because it involves bankruptcy, even if only in name only) that can give a strong life line to those currently in need while not exposing taxpayers to absurd (albeit still large) credit risk. This solution also can be worked to protect pension liabilities and other essential worker benefits.

I think it’s inevitable that we have mass insolvencies, dislocations, and mismatches moving forward. For small businesses, there are solutions around the edges, but I simply cannot comprehend how the United States would be able to figure out and then extend the appropriate levels of credit via bridge loans en masse to these folks. It is surreal to imagine it possibly working and I worry deeply about what such a program – if tried, almost certainly with less dollars than would be required – would do to the social fabric and psyche of the American people when firms inevitably still buckle and break.

I haven’t given much thought to how to leverage the institutional framework of America to best ameliorate this crisis, but I’ve seen no one speak much about how out-of-court or in-court restructuring could be a partial solution. So I figured I’d pass this along as something to keep in the back of your mind and mull over.”

Zachary tells me you can reach him at Zachary.Booker@mail.McGill.ca.