What the Government Needs to Do Next to Tackle the Crisis

Yves here. What the government needs to do to address the medical system and real economy needs created by the coronavirus crisis.

By James K. Galbraith, Lloyd M. Bentsen Jr. Chair in Government and Business Relations, University of Texas at Austin. Originally published at the Institute of New Economic Thinking website

Tax rebates, tax cuts and business bailouts will not solve this crisis. Here’s what’s needed.

The first big need is medical supplies, facilities and personnel. That is why we need to finance immediate domestic production of masks, oxygen tanks, ventilators, and the construction and staffing of field hospitals, including the conversion of existing structures such as hotels, dormitories and stadiums, and the hiring and upgrading of staff.

Ideally HHSshould finance supplies, the Army Corps of Engineers should run construction, and FEMAshould manage and coordinate. The Federal Reserveshould be empowered to buy unlimited debt from state and local governments and both debt and equity from private companies. If Congress cannot agree quickly on specifics, create a government-owned Health Finance Corporationand give it unlimited full-faith-and-credit bonding authority, as was done for the Depression and WWII.

Maintaining vital civilian supplies, especially food, medicines and fuel, is the second big need. This is a two-part problem. The first part is to make sure that there are goods in the stores and pharmacies, and that gas stations and drive-through restaurants can remain open. The second part is to ensure that those at home have the means to pay, and that local distribution remains orderly.

To keep supplies flowing,there must be higher pay and credible protections for essential workers, such as drivers, stockers, checkout clerks and security guards. Amazon and Walmart are already raising pay. Groceries, pharmacies and service stations must most urgently protect their workers, who are exposed to hundreds of customers every hour, from getting sick. After health care, protection should go there. Distribution networks will break if stores can’t stay open or if shoppers won’t go in.

Payroll replacement through the businessis the best solution for those on existingpayrolls, as Glenn Hubbard has written. The employer can get an interest-free loan from the bank, cover payroll, and claim a reimbursement from the federal government on quarterly taxes. Small business owners can pay themselves, up to a cap. This approach is seamless, sensible, precisely-targeted. Coverage can be discounted. The UK is doing 80 percent of payroll; Denmark is doing 75 percent. US workers likely have more out-of-pocket work-related costs, such as commuting, so 70 percent might be right. There should be a supplement for tipped workers; employers know who they are. Audits later can deter fraud.

For self-employed and gig workers, the fast efficient way is to qualify them for unemployment insuranceas long as necessary. If wage workers remain on payrolls, it will be much easier for the UI system to ramp up and meet the new claims. Similar terms and discounts should apply.

Orderly distribution must be maintained. There seem few problems yet with the raw supplies of most basics. But if goods can get to the shelves, will they soon disappear into the hands of hoarders and black marketeers? The solution is not to ration by price! If prices go up too much, people will panic. Markets will not adjust; they will collapse. Prices must be held to costs. For the most part, large distributors will do this; they have reputations to protect.

A shortage economymay arrive anyway, with long lines to get into stores, empty shelves inside, and black markets all around. This would be a health disaster. Lines are already a byproduct of mandatory social distancing rules. Some shortages have been reported – sanitizer and toilet paper, notably.

The solution is to limit sales per customer, and if necessary to control prices and ration basicslike rice, potatoes, flour, pasta, eggs, milk and cooking oil and staple meats. Rationing and price controls can be run by local authorities under a general hold-the-line order, as was done in World War II from April, 1943 onward. Put up signs with the allowed prices. Civilians will enforce them.

All evictions, foreclosures and utility stoppagesmust be stopped. People need to remain safe and secure in their homes whether they can pay the bills or not. For those still being paid or getting relief, a deferral on rent and mortgages, discounted by the degree of lost income, may suffice. For those left out, probably the best thing is to hold everyone harmless for now and plan to sort it out later.

Basic communications– internet, cable, phone – should be made free for the duration. To make films and concerts free would also greatly help people to cope. The government can reimburse communications companies for the cost.

All other utilitiesneed to run as public services; the crucial goal being to maintain access, calm and order, at stable prices. With stores and factories shut, it is unlikely that power supplies will run short. Again, decisions on how to deal with unpayable arrears can come later.

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  1. Synoia

    It appears, Thump and his advisers are wanting to restart what’s shut down.

    It appears that they do not understand the words, Testing, Asymptomatic, Contagion and Plague.

    To restart safely, would require testing all who leave their homes, every time the leave and return.

    When do the test devices get sent to every home, Donald?

    It appears that I’m leaving a bold comment.

    1. Darius

      A robust test, trace, and isolate program combined with physical distancing, rigorous hygiene, and yes, universal mask wearing, would allow people to go out. But only after the virus is under control.

      And treatment should be free.

      It’s actually pretty straightforward. I guess we don’t do that anymore.

      1. rd

        You need supplies to do this. We have now outsourced the entire supply chain to another continent that figure out where we fit on the priority list.

        Where do those medical latex gloves come from? Malaysia, and they have reduced staffing of the medical glove plants by 50% apparently because they had been using forced labor: https://abcnews.go.com/Health/wireStory/key-medical-glove-factories-cutting-staff-50-amid-69776786

        The US needs to take a very hard look at outsourcing critical supplies in numerous industries on other continents. Cheap does not necessarily mean inexpensive.

        1. Darius

          A concerted effort would overcome these problems in the short term. You raise, of course, a weakness that should be addressed in the long term. It is, however, just one facet of the neoliberal disease that has wrecked this country, and requires a massive political and economic effort to correct.

          I don’t think we should say, “Oh well. Might as well just resign ourselves to catastrophe.”

        2. Math is Your Friend

          Maybe, maybe not.

          If outsourcing cuts the price by a factor of four, then you can stockpile four times as much of whatever you might need.

          At the rate this pandemic is expanding, manufacturing locally might not provide a sufficient flow of critical materials, particularly when the need arises only every five or ten years – the average production is going to be orders of magnitude less than the rate of consumption during a crisis.

          IIRC, about 15% of people infected by SARS-2 need hospital care, and half of those need an ICU.

          I spent an hour earlier this evening reading the introductory? base level? EU training manual for health workers (HW) using PPE (personal protective equipment) in an IDHC (infectious disease, high consequences) circumstance.

          Somewhere around page 70 or so, I came across the best case consumption of PPE for ICU care of a patient.

          Maximum endurance in PPE in a fully air-conditioned hospital was given as 2 hours.

          No HW should ever be in the red (contaminated) zone alone. ICU patients need 24 hour supervision.

          Most of the PPE is discarded after one use.

          Therefore, for each patient, you need 24 full sets of PPE, not counting any re-usable equipment, which must be isolated and disinfected before re-use.

          The PPE on some areas of the may consist of up to five different layers (gloves, for example – one inner set and four outer sets, so a clean glove can be exposed by peeling off the outermost glove. Other areas can have three layers.

          The consumption of equipment is enormous.

          In this one way (and one way only) it is like a war – a ‘come as you are’ affair, where what you can use is what you have, because you don’t have time to make a substantial additional amount in time to be useful.

          What really counts is the amount of equipment and material you have already stored.

          Production capacity only matters when the time scale is long enough – typically when you are making preparations for a crisis, long before it actually shows up.

          The capacity to find and make drugs or vaccines or diagnostic tests in a hurry, on the other hand, might be incredibly valuable.

          … or so I surmise.

          Good luck everyone, and stay cautious. Getting sick before the drug/and or vaccine and/or ventilator resources get ahead of the need for them could be very bad.

    2. Pym of Nantucket

      But isn’t the grand failure of this system the breakdown in information dissemination? This whole thing looks like an episode of Mad Men (when it doesn’t look like a scene from Caligula, that is).

      To achieve a system wide response down to the individual level would require verifiable reliable information to flow to people acting on it at all levels. The progress is poor in developing clearing houses for evidence based information that can reliably predict outcomes. The organizations that have the most resources to throw at persuasive activities (the Madison Avenue gang) are experts in deception, not truth.

      “Thump” has just walked into the throne room at this moment in time. He didn’t create the world driven by B.S., he just happens to be an expert at exploiting it. Biden as nominee is essentially a white flag agreeing Trump can carry on.

      To end this, some physical limit to the confidence game must be reached. Otherwise the b***s*** artists will stay calling the shots. The pandemic will be used to strengthen the hold by the oligarchy over the financial system.

  2. Another Scott

    One thing to remember is that not everyone uses utility services for heating, which is still needed in many parts of the country. There also needs to be a similar program in place for people who use heating oil, propane or wood as the heat source.

  3. JohnMc

    Not that i support price gouging for essential products or services in any form, but i find it remarkable that as a society we tolerate it from the medical system year in and year out.

    Did anyone make medical PRICING an issue in the Dem campaign?

  4. jackiebass

    You mention self employed and gig workers being helped. I agree but with a big IF. If they paid their SS,Medicare and income taxes , then yes they should be helped. If the are like some self employed and gig workers I know, who keep every penny they make. If they don’t give back to society by paying these things then NO. If the pay their fair share then YES. I have a son in law who worked as an independent contractor. He kept every buckle made. I had an educational talk with him. Basically I said to him for a few buck now you are jeopardizing your future. If you don’t pay into SS etc for a minimum time you can’t collect when you get old. Also more years means a bigger benefit. A short time later he gave up being an independent contractor for working for an employe. It’s just ingrained in me to be honest and don’t cheat. You will be a better person for it. I wish Trump was thinking like Yves. Unfortunately I think Trump is thinking about Trump not the American people.

      1. periol

        Usually, you get paid a lump sum (as an “independent contractor”). It’s up to you to make sure your taxes are properly filed and paid out of the money you receive.

        1. jackiebass

          If you don’t or never have filed the government probably doesn’t know you exist. There are more dishonest people in our society that people are aware of. Actually some think it’s OK to not pay what you owe.

    1. mrsyk

      I think this is one of the “sort it out later” examples, the point being that anyone who gets left behind during the health crisis adds to the health crisis.

    2. periol

      Sadly I think you’re missing the reality that these “gig jobs” don’t pay “gig workers” enough money. The gig jobs don’t pay into SS/Medicare like a regular job does, and the pay is low enough that people are forced to choose between groceries and taxes.

      Most gig workers, like your son, figure out the jobs are a scam and don’t pay well at all, stop doing them, and try to get a job with a real company. As it should be. But sadly there are enough desperate people these gig jobs keep finding new workers to churn.

      Don’t blame your son for our society giving free rein to these corporate shenanigans. His future Social Security isn’t threatened by him working gig jobs and not paying into SS for a couple of years, it’s in jeopardy because the political and corporate vultures will make sure it’s not around in 40 years or so when he’s eligible.

      Most young people I know don’t think Social Security will still be around when they need it. You look around this country, it is hard to argue with them.

      1. DHG

        When I began my career I didnt think it would be around for me and yet it still is and I am collecting.

        1. JTMcPhee

          Maybe that’s because old people voted, and let the Congrescritters know that messing with SS and Medicare was a serous no-no. And not just the olds — a lot of people of all ages have been making it costly for the looters at the top to try to kill off the last vestiges of the New Deal.

          AARP used to be big on this, but that bunch has gone all corporate and their lobbying is “Oh please, please, only trim a little around the edges…” That’s what happens when orgs like AARP go .com and set up headquarters under the Imperial Dome, and start hanging with other lobbyists and hobnobbing socially with the guys and gals with the expensive suits and hairdos who will only shake your hand if there’s a “campaign contribution”/bribe in it.

          It behooves us all to tell young people how SS and Medicare operate and are funded, and get them on board to be ready to put the iron to any legislators who decide to touch what was for good reasons the “third rail of politics.”

      2. Ian Ollmann

        We will see about that. It isn’t necessary to end Social security. We just need to reduce the benefits maybe 30% to deal with the expensive side of the Boomer demographic bubble, if caronavirus doesn’t get them first. Grimly, once they are out of the system, the benefits can come back up.

    3. jef

      Jackie – For every tax dollar the working class does not pay the rich and corporate america manages to avoid paying $10,000 in taxes, maybe more.

      Also it is not tax dollars that pay for all the things that you believe everyone should “pay their fair share” for.

    4. Kevin Carhart

      I think you’re mistaken at the very least because of the public-health crisis. In another time & place you could talk about it based on the ground rules of that moment and not this one. Err on the side of helping even a supposed free rider, because otherwise that precarious person feels survival pressure to go out and work, and stay mum about who they are exposed to on a regular basis. Which is everyone’s business because they can spread the virus. The economic dynamics of misclassified IC’s are literally dangerous now. If there is not complete justice relative to the person who learned the ropes with the quarterly ES tax system, and sent them in on time, so be it.

    5. JTMcPhee

      SS is kind of self-regulating — if you don’t pay into it via FICA wage withholding (it is NOT A TAX, but a deposit into a social pension pool) you don;t get much when you need it.

      Sorry, I’ve got no sympathy with that Calvinist notion, that one only gets what one deserves according to the Puritan crap about hard work. We really are all in this together, and it is us mopes against the people who persuade us that only the pure and diligent deserve even a pittance from the wealth we collectively create by our work. That’s part of the scam that Henry Ford used to “keep his workers in line:”

      Ford was a pioneer of “welfare capitalism”, designed to improve the lot of his workers and especially to reduce the heavy turnover that had many departments hiring 300 men per year to fill 100 slots. Efficiency meant hiring and keeping the best workers.[22]
      Ford astonished the world in 1914 by offering a $5 per day wage ($130 today), which more than doubled the rate of most of his workers.[23] A Cleveland, Ohio, newspaper editorialized that the announcement “shot like a blinding rocket through the dark clouds of the present industrial depression.”[24] The move proved extremely profitable; instead of constant turnover of employees, the best mechanics in Detroit flocked to Ford, bringing their human capital and expertise, raising productivity, and lowering training costs.[25][26] Ford announced his $5-per-day program on January 5, 1914, raising the minimum daily pay from $2.34 to $5 for qualifying male workers.
      Detroit was already a high-wage city, but competitors were forced to raise wages or lose their best workers.[27] Ford’s policy proved, however, that paying people more would enable Ford workers to afford the cars they were producing and be good for the local economy. He viewed the increased wages as profit-sharing linked with rewarding those who were most productive and of good character.[28] It may have been Couzens who convinced Ford to adopt the $5-day wage.[29]
      Real profit-sharing was offered to employees who had worked at the company for six months or more, and, importantly, conducted their lives in a manner of which Ford’s “Social Department” approved. They frowned on heavy drinking, gambling, and (what today are called) deadbeat dads. The Social Department used 50 investigators, plus support staff, to maintain employee standards; a large percentage of workers were able to qualify for this “profit-sharing.”[

      1. Tom Doak

        So Henry Ford’s great wage was the 2020 equivalent of $16 per hour? (assuming 8 hr day)

    6. Big River Bandido

      I have had viruses before. Not one of them asked me beforehand if I had paid my self-employment tax.

    7. Hayrick

      You are good and honest JackieB but probably not rich therefore you conflict the difference between money and kindness. The average person is like you, and kind. Not your leaders – no one in America gets rich by being kind.
      Because you don’t realise that you are being conned by the rich who are not invested in the average Joe, your conflict results in them dividing society to conquer (and get richer). Be kinder and look after your own because what is coming could be very challenging.

  5. Peter from Georgia

    These are great ideas, but the devil is in the details. For example, let’s review Georgia unemployment benefits insurance in Georgia. One qualifies if one has earned over $1,000 in WAGES in 2 of the last five quarters, was fired through no fault of your own (insubordination, failing to properly follow work rules or requirements = denial), and you must look for at least 3 jobs per week; it is available at a max of 12 weeks at $425 or so per week. If unemployment is especially bad (think state wide 9% or more) it would move up to about 16-20 weeks of unemployment benefits. Better than starving, but nothing to pay all costs.

    The real problem is getting it. One can either file online, in person, or over voice prompts. Then the Georgia Dept. of Labor employees must CERTIFY that you’ve been terminated for a qualifying reason. Georgia has furloughed many employees (i.e. less to handle claims) and businesses, especially restaurants, are closed. With no one to “verify” from the employer, the system shuts down. And that is before we got hit with a tidal wave of filings, approximately 27,000 for second full week of March (IIRC). Our record for the month was approximately 180,000 lost jobs in January 2009.

    This is not to say we should not try, or that it is impossible, but there are some serious issues with relying on Unemployment benefits to pay people in Georgia when the system is swamped.

    1. a different chris

      Yes, give everybody an equally sized pile of money (2k/mo, 3k?) — maybe you have to have regional differences sadly – and sort it out at tax time.

      1. Eureka Springs

        Why should what I’m calling emergency relief money, if it ever happens, be taxable at all? That’s a recipe for disaster extended forever on those who can’t handle a 400 emergency now. How much do you want to spend chasing them down, punishing them, likely with no return even then?

        Hell, why should anyone pay a dime in tax on the first 40k or more?

        Remember income tax started round about a century back as something like 1% only on the quite rich.

    2. rd

      One of the issues is that many companies have not terminated the employees. Since they are hourly, they just close the office and they don’t do any work. So the unemployment rules may or may not view that as unemployed, depending on the state.

      1. Carla

        “For self-employed and gig workers, the fast efficient way is to qualify them for unemployment insurance as long as necessary. If wage workers remain on payrolls, it will be much easier for the UI system to ramp up and meet the new claims. Similar terms and discounts should apply.”

        To me this implies that the federal government makes the rules, and ALL workers not working and earning get unemployment. As I understand the piece, the states would be made whole as follows:

        “The Federal Reserve should be empowered to buy unlimited debt from state and local governments and both debt and equity from private companies.”

        Do correct me if I have misunderstood Mr. Galbraith.

  6. Tom Stone

    I just recieved an Email entitled “A Bipartisan Message to all Americans”.
    Here’s the text.
    “Die quietly and don’t stink the place up, we’re busy looting the Country.
    All the best (To our donors!),
    Mitch, Nancy &The Gang.

    It’s reassuring to know that our leaders are doing what they are paid to do…

  7. Bill Carson

    Per Trump’s live Fox News town hall (right now), Trump says he wants the country open by Easter.

    Maybe he can raise the dead, too.

    Important Note: Dr. Fauci does not appear in the town hall. Fox News interviewer does not mention this fact.

  8. SteveB

    “The employer can get an interest-free loan from the bank, cover payroll, and claim a reimbursement from the federal government on quarterly taxes. Small business owners can pay themselves, up to a cap. This approach is seamless, sensible, precisely-targeted.”

    LMAO please let me know a bank that is going to give me an interest free loan on a business that has no sales (shutdown) and I’m going to get reimbursed on quarterly taxes… two words CASH FLOW………… Have any of these idiots ever had to run a business or get a bank loan or manage working capital???

    Just send us some of that free $$$$$$$$ in the form of CASH

  9. Jp

    Retired but still working pt. That pt work pays our (considerable) real estate tax, here in Ill Annoys. All my shows have been cancelled or pushed back into the Fall. I have had 3 albums cancelled too, money and travel problems. So I am reading about bailouts, etc, but nothing about state real estate taxes being postponed for us precarious serfs. I am sure there’s a lot of us in this leaky boat. Anybody hear of help in this?

  10. Anon- sorry I can't say

    Agree with you Yves, good article. I wonder if anyone with the power to implement some of this reads what goes on here. I suspect they do. I strongly suspect they do.

    Just my opinion but I’m sorry to say right now this looks like the chaos we all witness after Hurricane Katrina. Government officials just ill prepared for this right now. Time for more clear headedness around the concept of the people, rather than business. Some states are doing a better job than others.

    I also hate to say this but I think it’s going to look a bit like the Vietnam War in respect to people will start demanding more and better from the government when it’s their dad, mom, uncle, aunt, great-granny or pappy who has died.

  11. geoffrey v gray

    “The employer can get an interest-free loan from the bank, cover payroll, and claim a reimbursement from the federal government on quarterly taxes.”
    Huh? Banks don’t provide service anymore. You want service, you wait on a phone queue for hours.
    So the candy store owner say spends a few days running around trying to get a loan–if he’s lucky–and then, quarterly, has to figure out how to get the feds to reimburse.
    What a freakin hair pull.
    Won’t work.

  12. Michael K

    I like the idea of the Fed buying State and local debt. How about special low- or no-interest debt issued by states to fund projects in the national interest? They would be designed specifically for purchase by the Fed.

  13. Anthony G Stegman

    I feel that there is a bit of overreaction going on. So far, there have not been mass casualties from the coronavirus. Fear mongering at all levels have created problems with panic shopping and hoarding. The worst case scenarios estimate a maximum of 2 million dead. While a large number, it ought not cause a societal collapse. The hospital beds and PPE shortages need to be addressed, both in the long and short terms. However, the massive bailouts and takeover of the economy by the central bank is overkill in my view. Getting back to “normal” should not be the goal. We can use this crisis to completely remake our society in ways that benefit all of us, not just the elite who always seem to be the prime beneficiaries of taxpayer largesse.

    1. Tom Bradford

      Hell, let’s not be modest. The Black Death wiped out half the population of Europe without causing societal collapse and did result in changes for the better, ie the end of surfdom, land redistribution, a loosening of the Church’s grip on science and thought.

      So the US can afford to lose 165 million in exchange for a better world. You volunteering, or are you needed to design this brave new world.

  14. David in Santa Cruz

    ie the end of surfdom

    Not in Hawaii, daddy-o! They’ve already quarantined themselves off from the haole’s, so Hawaiian surfdom will never end!

    1. KPL

      What should happen and what will happen are two different things? Look no further than 2008/9 and the last decade. A leopard does not change its spot!

  15. VietnamVet

    We are all Puerto Ricans now.

    The Hamptons are infected with the coronavirus. Suffolk County today has 17 deaths and 1,880 confirmed cases. “Anyone who has traveled out of the New York City metropolitan area to anywhere else in the country to self-isolate for 14 days, Vice President Mike Pence said.” Two weeks in the bolt-hole will be traumatic for the Masters of the Universe, but nothing compared to Harvey Weinstein’s. Literally everything is unraveling.

    This article is how to put everything more or less back together. But, I must repeat that until there is a vaccine or an effective antiviral treatment, a public health regime (containment) based on universal paid coronavirus testing, rigorous contact tracing to identify new cases, and enforced quarantine of the infected (ill and asymptomatic) is required. Two negative tests and the quarantine ends. The uninfected are then free to go back to work, restart the economy and not spread the virus.

    The Establishment had better pitch in to save the nation and themselves; otherwise, there will be no western civilization to return to.

  16. KPL

    “This approach is seamless, sensible, precisely-targeted.”

    Exactly the reason it will be given a go by by the conniving Cabal of the Fed, corrupt politicians and unscrupulous corporate. How do you funnel money into one’s pockets or rich man’s pockets or shove money into the black hole of the Boeings of the world if it is seamless, sensible, precisely-targeted?

  17. carl

    As usual, there are plenty of good ideas, but no way forward to implement them given the limits of the system we have in place. When people are dying in the streets (or in their homes), maybe some of this might be deemed possible by the ruling class, but certainly not before, and not without gigantic protests (oh wait, no large gatherings). Agree with poster above that it’s another Katrina moment, and we all know how that turned out–scatter a bunch of AA folk to the wind,and privatize the school system.

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