The Right – That horrible government, treading on their people’s liberties, shutting down their economy like that…
The Left – That wonderful government, making the decision for their people because their people wouldn’t have known any better, regardless of economic impact…
We’ll take no particular position on the role of government in this particular case. We simply read this article to mean – the less debt you have, and the more savings you prudently accumulated while times were good, the more flexibility you’ll have to make a choice, either way. And isn’t choice what it’s really all about?
Choice, coconut drinks, and no central bank. Sounds like paradise to me.
“With no central bank of its own, the policy options are limited. A relatively low debt-to-GDP ratio of 21% gives the country room to borrow, Brown says. The government is in talks with the Asian Development Bank and the New Zealand government to provide loans until border restrictions are relaxed and visitors can return.“
“During the recent run of good economic times, Puna’s government had the foresight to bank NZ$56.7 million in an emergency reserve fund to be used during downturns or to recover from cyclones. The funds helped pay for the stimulus measures.“
Or to just cut right to the important parts…
“no central bank of its own”
“relatively low debt-to-GDP ratio”
“foresight to bank NZ$56.7 million in an emergency reserve fund”
To be fair, we do, of course, hope all the individual business owners (including ones like the Napa family and their Kiikii Inn & Suites) in the Cook islands had also been just as prudent with their savings.
“I thought the same thing as everybody else: What are we going to do?” says Napa, 59, recalling the moment he found out there would be no more guests arriving at the motel. “I was just gearing up for busy season.”
Thanks to Emmanuel Samoglou writing for Bloomberg BusinessWeek for chronicling this inadvertent case of prudence being the ticket to paradise – at least in relative terms?
Oh, the trouble with thresholds. Whether we’re talking tax brackets, or in this case, stimulus checks. It remains to be seen how (or if) things will actually play out with all the various proposals for a “second round” of stimulus in the face of the COVID-19 pandemic, but however unlikely it may be to come to actual fruition, we just had to call out this particular proposal as described by Alison King for NBC10 News in Boston as an example of how “glossing over” the math can lead to, well, “confusing” outcomes…
NBC10 Boston: Markey Joins Sanders and Harris to Call for Plan to Provide Americans With Monthly Income During Crisis
“The Monthly Economic Support Act would provide $2,000 each month to people earning $120,000 or less annually.”
So, let’s do the math. $2,000/month over 12 months would be equal to $24,000/year. An extra $24k/year in your pocket? Not bad! Except, we noticed it would kinda stink for you if you happen to find yourself already in the income bracket between $121k-$143k.
The easy answer for some, at quick glance, would be to say “you’re really complaining about people who already make a six-figure income? They’ll be just fine!! They’re already “rich”!!! (we can debate the definition of “rich” another day…)
Clearly, there were a few “Twitter Users” who missed the point right out of the gate…
You know who would benefit? Old women on Social Security of $1,000 a month. Fuck your $121k-$143k annually.
Hold up. You’re upset about someone getting $2k a month, who is currently making nothing, because those who are making $10k a month won’t get an additional 20%? And this doesn’t sound greedy to you?
— 🎃 🏳️🌈QueerWolf🏳️🌈🐾Werewolf? At Home Wolf! (@Lycanthropology) May 18, 2020
I’ll play a tiny violin for them that I can’t afford to buy after making $30k last year.
OK, we get it, it would only “stink” in very relative terms, sure, and for that reason, if you’re already at $144k+ then even we’ll suggest you should probably just be happy you’re already there.
That said…
In the particular scenario described here, the $120k salary guy nets out with $144k on the year, while the $121k salary guy nets out with – well, $121k. Maybe the second guy should have asked for a $1k pay cut first? (or at least a few more weeks vacation). Silliness.
It’s a fair enough point – no one making that much money should really be “complaining” either way, at least not yet (we’ll see where inflation takes us…) But the point is, thresholds are dangerous because they’re completely arbitrary. And when things are completely arbitrary (or worse, opportunistically targeted at well-connected friends in the case of Wall Street bailouts, or just as opportunistically targeted at impressionable would-be voters of certain political leanings in the case of “stimulus checks for the people”), there’s bound to be #moralhazard somewhere. At the least, we’re once again playing “god” with the very definition of value – and it’s not like you had a say, either way.
Sure, maybe we’re over-emphasizing the plight of the $121k salary guy who ends up with $23k less at the end of the year than his $120k salaried counterpart, because someone (his employer?) had valued his work $1k higher before all the “stimulus” talk started (or maybe he was just a better salary negotiator – and ha, isn’t payback just a bitch for him now…)
The main point here is – we don’t like when people mess with the rules in the middle of the game. The laws of math never actually change, but if we’re going to leverage those laws to help apply the concept of value in human society, we ought to be more careful about how we try to manipulate them.
Full-on #UBI – or the idea of Universal Basic Income that’s been tried in places like Finland and enthusiastically touted by the #YangGang in recent months and years – would actually be more fair if fairness is the goal. No artificial thresholds. Scale from the bottom up. Everyone gets the $2,000 check. Purely progressive. Those with the least need it the most, and therefore each citizen would experience a net-impact that’s consistently proportionate to his.her current economic standing – from the guy who manages to scrounge together $500 a month panhandling on the streets and would stand to see his fortunes rise by 400%, to the one already pulling in a cool million each month (we’re not sure how he’s doing it) and will see his fortunes rise by just a measly 0.2%. The beauty – no flawed human being had to decide where the “thresholds” were. We let the math speak for itself…
And one would think that “letting the math speak for itself” would be a solution that even modern liberals and libertarians can agree on – while perhaps continuing to debate whether the preferred implementation of said solution is via bottom-up inflation (i.e. #UBI) or programmable sound money (i.e. #Bitcoin, #Ethereum) or maybe some weird combination of the two we haven’t entirely thought of yet…
***Disclaimer*** We have quoted “Tweets” from select “Twitter Users” in this story because we thought the views & opinions expressed by those “Twitter Users” were relevant to the topics being discussed in this story. These “Twitter Users” have no affiliation with the Economorals blog, and we make no assumptions about any particular political, religious, or other affiliations of any kind that may or may not be held by any of the “Twitter Users” quoted, nor the specific validity or credibility of what they say. Again, we just thought a few “Twitter Users” had some genuinely interesting words & ideas to share in the context of this story’s main themes, and since they’ve already shared those words & ideas in the public domain, we wanted to share them again here too. Because if there’s one “market” we can all hopefully agree on, it’s the “marketplace of ideas”.
The excerpt below from a recent piece by Neil Irwin writing for the New York Times about sums up the “economics vs. values” equation we like to talk about on this blog (and perhaps also the popular political-partisan sentiments of the times we live in…)
“My conservative friends don’t think states and cities deserve help,” said Tony Fratto, who worked in the George W. Bush White House and is now a partner at Hamilton Place Strategies. “My progressive friends think certain businesses don’t deserve help. And my libertarian friends don’t want anyone to get help.”
The only viewpoint that’s missing here – is there anyone out there who just thinks everyone should get help? At least then we’d avoid that whole nasty #moralhazard problem… well, sorta (and then we can just let the “economists” figure out the rest?)
Pandemics, natural disasters, wars, recessions, depressions… sometimes we can’t easily control those things. Sometimes we have no choice but to simply let them run their course. Sometimes we wouldn’t really want to interfere with their course even if we thought we could.
When it comes to the economy, though, there’s always a choice. In this case, as Bloomberg’s Ben Steverman writes, the choice (or at least the outcome of those choices) is simple – more inequality, or less inequality.
The decisions we make that lead to one outcome or another, even if indirectly, have much to do with the things we value in the first place, or at least, the things those making the decisions happen to value. Are your values aligned with theirs?
Bloomberg: The Pandemic Will Reduce Inequality—or Make It Worse
“The Black Death took a highly stratified medieval society and turned it upside down. With 75 million dead, Europe’s wealthy landowners couldn’t find enough people to tend their fields. When peasants—the essential workers of the day—demanded higher pay, the elites of the 14th century fought back with punitive laws, forced labor, and taxes. Even so, wages for the lowliest workers soared. In rural England, they doubled.”
“For now, the most obvious guide to what comes next isn’t the Black Death, which precipitated the demise of European feudalism, but the Great Recession, which had more or less the opposite effect. In the aftermath of the 2008 financial crisis, inequality soared to heights not seen since the early part of the last century. At first, elites feared that much of their wealth would be wiped out in a globally synchronized market crash, à la 1929. But central banks pumped out trillions of dollars as monetary stimulus, markets recovered, and what followed may have been the best decade in history for the superwealthy.”
To be fair, we don’t know what the balance sheet of mom & pop Quality Electric Co. in Birmingham, Alabama might have looked like in this particular case either – but we’re guessing it couldn’t have been any worse than, say, what was about to happen to Millennium Management and ExodusPoint Capital Management. Unfortunately, in this “race to the bottom, er, bailout” we’ll probably never know for sure how the “little guys” might have fared against the “big guys” head to head, because according to BNN Bloomberg someone stepped in to pick the winners and losers before anyone even had a chance to get to the finish line…
BNN Bloomberg: Resentment grows on Main Street over bailout winners and losers
“…waiting for approval of her US$40,000 small-business loan last week when the government’s first-come-first-served lending program ran out of cash.“
“Smaller companies like us are probably just going to be washed under the rug”
Meanwhile….
“Some billion-dollar hedge funds, too, have benefited from quick Fed action. A number of them, including Millennium Management and ExodusPoint Capital Management…”
“The basis trade was in a position to tank… The Fed responded, limiting losses. Both Millennium and ExodusPoint declined to comment.”
So…
“…if one of the lessons of 2008 is to help Main Street as well as Wall Street, the lesson seems to be only partly learned. Americans live in two separate and unequal worlds, and the bailouts reflect this.”
“I really have no faith,” Shultz said. “I have no faith in the system. In this government. In this leadership.”
All we can say is, the system allows it. So, what does that say about the people participating in the system? How about the ones who created the system in the first place? (or better yet, the ones who allow it to continue?)
Bloomberg: Hedge Fund Managers Claiming Bailouts as Small Businesses
“A manager with a healthy business who takes advantage of a program that isn’t “precisely defined, is not only showing poor moral judgment and potentially hurting the reputation of the alternatives industry, but it’s also probably crowding out struggling workers and businesses severely impacted by Covid-19”
“One manager, who asked not to be named, said he was outraged when he received a note from his accountant analyzing his potential eligibility. Why, he asked, would a hedge fund that collects management fees, and can make money if it’s skilled, avail itself of a government handout?”
“It’s a complete abomination,” agreed Nate Koppikar, a partner at San Francisco-based money manager Orso Partners. He noted that firms that avail themselves of the money may later be publicly identified under the Freedom of Information Act. “
While the world waits for “herd immunity” to take hold to help protect us from ongoing waves of the Coronavirus, a different kind of “herd” is once again being made immune from bearing any responsibility for their irresponsible debt-fueled actions over the past decade. And unlike with COVID-19, the government is guaranteeing their survival.
Forbes: Stimulus Money May Jumpstart The Economy, But Who Is Picking Up The Tab?
“There’s no doubt that it’s socially desirable to rescue our economy; but are we attempting to solve a debt problem by piling on more debt? That’s a scenario that may not end so well. “
“Also, why were we so focused on stopping a market correction? Doesn’t the mere drop in prices caused by a dramatic market sell off automatically help form the basis of the next market recovery? Socializing losses while privatizing profits sounds great politically, but with each successive crisis, the likelihood of future victories grows more remote.”
“…efficient markets, which automatically reallocate capital from failed businesses to successful ones, get unsettled when politically-powerful zombie firms (with far too much debt) successfully lobby for handouts when times get tough.”
We’re all for keeping the little guys afloat. And whatever you think of the private-equity model in the first place, and what it means for “short-term bottom-line impact vs. long-term growth and workers” (perhaps a discussion for another day) it might all be fine until you read that last part…
(Hint: It’s Risk/Reward – until you take all the risk away from those who stand to get the greatest rewards)
(Another Hint: As long as the wealthy get to stay wealthy first and foremost, then some folks might be willing to help keep the little guys afloat)
SFGate: Behind the scenes, private equity angles for a piece of stimulus
“…the private-equity model often leads to more unemployed workers because firms are focused on ruthless efficiency and the investors’ bottom line, rather than long-term growth and workers.”
“Currently, most small companies in a private-equity firm’s portfolio don’t qualify for stimulus funds provided through the Small Business Administration under what is known as the “affiliation rule.” Businesses must report if they have major investors, and they are blocked from the program on the theory that they can borrow money from their larger and deep-pocketed private-equity backers, rather than taxpayers.“
We don’t envy the decisions that policy-makers have to make in light of the Coronavirus crisis. We’re not going to pretend there are any easy decisions here. Or that there are any magic-bullet answers. Because there aren’t. It hardly benefits anyone if the entire system collapses at once. But, how we approach those decisions, how we apply them going forward, and how (if at all) we learn from and deal with the inevitable fallout from those decisions, will say much about our values as a society (or at least, the values of those in charge of making the decisions?).
History will be the judge on this one. As will all the people watching – and their reactions once the dust settles. The question will be – are enough even paying attention?
AP: Hawks no more: Fiscal conservatives embrace rescue package
“This is a response to an invasion,” he told reporters. “This is the kind of thing you’d have to do if we were at war.”
“Failing to take dramatic action now, Toomey said, “would be a wildly imprudent thing, and it would probably result in such a severe recession — it might very well be a depression — and it could take decades to come out of this.”
“The future will be more painful,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.”
Still, she added: “This is definitely not the time to worry about the deficit. This is the time to be borrowing as much as we need to deal with the huge health crisis.”
We don’t necessarily envy the role Steve Mnuchin has to play right now, but this article could’t help but get us thinking about the very tenets of the Economorals blog (particularly the last one on the list below). A refresher:
Who gets to define “need”? Who gets to define “want”?
Ask not (yet) what your economy can do for you.
Ask not (yet) what you can do for your economy.
Ask first: What purpose does your economic system serve in the first place?
Ask then: How closely aligned are the views & values of popular economists to your own, as they relate to the previous question??
The Week: Coronavirus stimulus will make Mnuchin ‘one of the most powerful Cabinet members in modern history’
“…a $500 billion funding program, and Mnuchin will oversee how it’s distributed to local and state governments, as well as businesses, the Post notes. He’ll undoubtedly face pressure from corporate executives looking for bailouts from that fund, and will have to weigh those pleas alongside the needs of taxpayers.”
