A Prize in Every Box

In his regular Wall Street Journal column Andy Kessler advises against a stimulus package with “a price in every box”:

Politicians need to do something, right? Yes, but it should be short-term and temporary. President Trump has a “big bold plan.” White House adviser Peter Navarro wants an $800 billion payroll-tax cut. Senate Republicans want to send $1,200 checks to a huge share of Americans. Treasury Secretary Steven Mnuchin is negotiating with congressional leaders a bailout of as much as $2 trillion. Rep. Ro Khanna, Mr. Sanders’s campaign co-chairman, ups the ante with checks of up to $6,000 for those making less than $65,000. Candy-coated popcorn, peanuts and a prize.

Mr. Mnuchin has smartly authorized the Fed, via Section 13(3) of the Federal Reserve Act, to lend directly to solvent companies, creating a trillion-dollar backstop for the commercial-paper market and money-market funds. A “lender of last resort” is needed. Airlines need capital, so lend to them at a Bagehotian penalty rate, against future ticket sales or even planes as collateral. The penalty rate is to make sure those that don’t need it don’t clog the system. The same program could shore up hotels and other still-solvent large businesses. And with support from the Fed, banks can do the same for small businesses. If the economy has a three-month hole because of quarantines and lockdowns, the Fed can provide a bridge loan across that void.

Those without jobs also need direct assistance, like debit cards for food handed out by local authorities. No one should go hungry as the economy evaporates for 90 days. Food aid could also be provided internationally—maybe using those mothballed cruise ships.

But one big puzzle is deciding the best way to help workers, many of whom are out of jobs, or are running short on tips and trips if they’re waiters or Uber drivers. We have a social safety net, and each state must temporarily but immediately lower bureaucratic barriers to collecting unemployment insurance—which obviously should include waiving the requirement that applicants seek work. Temporary sick leave is critical, as is helping small businesses continue to pay wages.

What I want to comment on is his assertion that”government giveaways as stimulus don’t work”. I agree with him that as presently constructed they don’t work as well as they did 80 years ago. I believe that John Maynard Keynes would say the same thing. When you combine the Ricardo’s theory of comparative advantage, a fiat currency, Keynesian stimulus, and deciding that the United States’s advantage are in providing health care services, finance, and personal consumption expenditures. Under those circumstances the multiplier goes down to zero and you’re merely transferring consumption from the future to the present. That’s fine until it becomes the future but the future is now.

As we are seeing right now in order to make something politically palatable you need to put prizes in a lot of boxes. That’s politics not economics.