On the Hidden Benefits of the Coronavirus Epidemic (yes, there are some!)

Boy am I going to get slammed for this post! Oh, well, time to be unpopular.

The job of economists is to focus not just on visible costs and invisible benefits but also hidden costs and hidden benefits. Nowhere is this more important than now as we debate reopening the economy. I would say right now that too much has been made of the visible costs and benefits that would accrue from opening the economy or keeping it closed and not nearly enough is being said about the hidden costs and benefits. As to the hidden costs of maintaining the stay in place orders, we are likely going to see increased mental health issues arising from social distancing and isolation. We are a social species and denying us physical human contact can have a deleterious effect on our health. One study suggested that not holding your baby could lead to issues that span into adulthood by negatively impacting their DNA: https://www.miamiherald.com/news/nation-world/national/article186889938.html

That being said, I want to focus on the hidden benefits that are accruing to us. With fewer cars on the road, we can see the impact on demand for gas with the plunging gas prices (I just paid $1.25 a gallon for gas yesterday). This is good news for most Americans but horrendous news for workers in the oil industry but, on balance, the good that arises from lower gas prices for a country such as ours likely outweighs the ill effects. However, with fewer cars on the roads, we also get fewer traffic accidents. With more social distancing, we were see fewer cases of influenza, a disease that also kills tens of thousands of Americans each year (please note that I am not dismissing the coronavirus epidemic at all-the problem with coronavirus is that it is more virulent than the flu, more deadly, and, unlike the flu, we do not yet have a vaccine for it, but the point is that what works to stop the spread of the coronavirus also stops the spread of the flu). With fewer factories operating, we have lower carbon emissions, which should alleviate concerns (whether they are valid or invalid) over climate change. With more people working at home, we dramatically reduce commute times and with more parents at home, children are receiving better supervision than if they were in the care of others. All of these things benefits from social isolation need to be considered before we reopen the country for business. That being said, the negatives are stark and real as well. We are currently experiencing the greatest reduction in productive capability in world history, an outcome that, in the short-run at least, will dwarf that of even the Great Depression, so no, I am not making an argument to maintain these orders to stay at home.

That being said, however, we need to be careful about when we lift these orders and let data drive our decision-making rather than emotions. We can replace income lost from idling production for a short period of time (now if this goes on for more than a few months, we are definitely going to be in trouble but all indications are that we will be able to relax these restrictions if we can flatten the curve and thus contain the spread of the virus). We cannot replace lives that are lost or time that is lost from being with our children. So use this time that you are staying at home productively and re-connect with your kids if you have been lax about that. The time we spend with our children cannot be replaced, it cannot be deferred, and it will not accrue with compounded interest, unlike your income or wealth.

Why we need to stop worrying about the deficit (for now), stop worrying about who gets paid (for now), and just pay everyone (for now)

Regular readers of this irregular blog know that I am very concerned about the deficit and want government first and foremost to be fiscally responsible. I do not want to spend money unnecessarily and I want us not to waste it by paying people who do not need it. However, there is a good, a bad, and an ugly way to do this when you have a crisis such as we are in now. The ugly way is to try to balance the budget on the backs of those who are suffering (and indeed to try to have a balanced budget at all -- that is such a horrific idea in a crisis that few, if any, would embrace such a position at this point unless they were required to do so by low - for further details on this, see my original blog positing back in 2011 on "Why No No Taxes and 'Cut, Cap and Balance' is a Horrible Idea (from a Conservative Perspective)" but I digress). The bad way is to target relief to only those who "truly need it" such as we are currently doing. The good way is to pay everyone and then tax back the gains from those who do not need it at a later date as opposed to designing a large bureaucracy to figure out who is "deserving" and who is not.

Part of this is because there really is no good reason to develop such a bureaucracy in the first place. All that bureaucratic tape is wasteful, almost by definition, especially since you can tax back the gains on the other side and it introduces severe distortions and disincentives known as "benefits cliffs" that need to be approached with caution. Furthermore, the government can not know a priori what is happening right now. They can only now in arrears. However, circumstances can change quickly and if you give out aid to everyone and simply tax them after the fact you can account for that. Trying to determine whether someone needs it before the fact is much harder to do and introduces the problem of adverse selection with people engaging in behavior to make them APPEAR to be needy when they are not.

In crisis times, such as we are having right now, this problem is only magnified. Paying people based on their 2018 or even their 2019 incomes does not account for what their current income is and it is their current income and only their current income that matter right now. Another key issue has to do with the alacrity by which you deliver relief and with targeted relief the issue is that the more you target relief, the more bureaucratic red tape you have to go through, and the slower the actual gets out. As for why we should not just give money to the unemployed, there are people who still have jobs but who have had their hours (and incomes) cut as a result of this unprecedented crisis. While in 2007-9, we could point fingers at individual companies who caused it, this time the collateral damage is much greater and a lot of it has been caused by government orders that have shuttered 60% to 80% of all businesses in this country. That is not to blame the government. They did what they had to do to contain the virus (although they could have acted quicker both with the orders and the stimulus and if they had we might have already been emerging from this. However, they didn't and everyone else is left holding the bag).

What we really need to do is pay everyone a basic guaranteed income for the duration of the crisis and then figure out who didn't need it after all is said and done by making people pay it back over the next 3 to 5 years if they did not need it. Of course, in addition, we will all be paying it back for the next generation due to the larger budget deficit, which is why I am upset that we do not have guardrails on regarding the deficit during good times. I actually warned about this back in 2011 when I argued that "Why "No New Taxes" and Cut Cap and Balance is a Horrible Idea (from a Conservative Perspective)" but my fellow conservatives did not listen. As soon as they got into power, they merely decided to one-up Democrats and become the only truly fiscally irresponsible party in our country because fiscal irresponsibility onlyexists when you blow up the deficit during a fiscal expansion (for all the Democrats talk about being fiscally irresponsible by proposing socialistic ideas when they are out of power, they really do not act fiscally irresponsible when they are in power, unlike Republicans who talk a good game when they are out of power but who refuse to play it once they get into power - the utter hypocrisy of Republicans on this point makes me sick).

Now none of this means that I support Democrats in their policy aims because they are even more interested in simply providing targeted relief than are Republicans but unless and until the Republicans turn away from Trumpism and re-embrace conservatism by becoming fiscally responsible and promising to attack the deficit with a vengeance once this crisis is passed and only if they they actually follow through on that promise, I won't be voting for Republicans in the upcoming election. Not going to lie, I won't vote for Democrats either (I will vote Libertarian) but I would be happier with the Democrats in power since in recent history they have been better at fiscal conservatism than Republicans have been (though even Democrats need to be a lot more fiscally conservative going forward if we are going to extract us from this mess).

For those who want to read what I had to say about the last time we got ourselves into this mess (and thus prove to everyone that I am, in not anything, quite consistent on this point), see http://voice-of-reason-on-the-internet.blogspot.com/2011/07/