Sunday, April 5, 2020

Windfall is better than a freefall

My older Brother wrote an excellent rebuttal to my earlier post, Yea bipartisanship, Oh Wait! Enjoy.

Earlier this week Nathaniel posted about $2 Trillion dollar bill which passed with rare bi-partisan support. Normally I agree with Nathaniel's sense of fiscal responsibility,but in this case I think he missed the mark.

Nathaniel is probably right that the bill is a bad one and that it will lead to windfalls for companies and individuals who don't need it. But if a fire is starting in your kitchen you don't stop to think about the best way to put it out you just start throwing water as quickly as you can. So I'll do my best to defend each part of the bill that my little brother took issue with.

First the check to each American. To be clear this is NOT a check to everyone. Many people (myself included) don't qualify. Ideally this money would only go to people whose income is being impacted, but the writers did have the sense to exclude people with high income who likely will be able to get by if they do miss a month of wages. If economist and tax professionals had spent 3 months to develop a more targeted plan I'm sure they would have saved billions of dollars. However, it would have been debated in Congress for 3 months and failed to get any support. Of course by then it would have been far too late for people whose paychecks are now cut in half (or taken away completely).

The second point is additional unemployment insurance. Nathaniel argued that this was also a windfall as people could make more on unemployment then they do in their normal employment. You could argue that this incentives people not to work. Normally you want to avoid such incentives, but in this case it is exactly the behavior we are trying to achieve.

I work at an office where we are given ample paid sick leave and even if we didn't I am sure no one would go hungry if they missed a few days of pay. Yet it is all too common that people come to work sick, as they don't want to be seen as being "slackers". From what I hear the on-site child care center is even worse as no one wants to miss a day of work because their child is sick. Now if people who still get paid to stay home when they are sick don't stay home, then what is the likely hood that someone who is living paycheck to paycheck will? The "windfall" is needed as the ~ 10 million people who filled for unemployment in the past 2 weeks would like to keep working, but they have been forced to stop to help save the lives of those in their communities. Those people should not be punished just because their line of work was not deemed essential and they don't have the luxury of being able to do their work from home.

The last element, the business bailout, is also essential. Several industries have been specifically hurt by this pandemic. Some of their businesses would have been naturally impacted (cruise lines and airlines) others were impacted in advance by companies being good stewards (Disney when they shut down their parks) and finally there are the businesses that were shutdown by government decree (initially restaurants, but now it covers many more). This businesses should not be shutdown for their help in fighting the pandemic.

I agree that some of these companies put themselves in a bad place due to over leveraging themselves. Politicians have been vilifying companies who have been buying stock back the past few years and are now on the brink of insolvency. I don't think the issue is the stock buy backs but rather the unsustainable level of debt. I would understand the concern that companies will come to rely on government more in times of disruption. But given the strings that will likely be attached and the political backlash for using it for anything deemed unfit companies will wish that they had the freedom of the companies still in good standing (ie. Microsoft, JnJ, GOOGL).

The real issue with this bill is not the bill at all. The issue is that for the last 10 years we have had a decreasing unemployment rate and a healthy economy and we chose to cut taxes and increase spending. Our government basically took the same position as the companies loading up on debt and using their money for share buy backs.

Compare the companies and the governments cash ability to weather this pandemic to that of the Church of Jesus Christ of Latter-day Saints. The church also drew the scrutiny of people in the church and out a few months ago when a whistle-blower claimed the church had amassed a fortune of $100 Billion. Many questioned if it was right for any organization (especially a non-profit) to accumulate so much wealth. It became apparent in later SEC filings that it was actually less than $40 Billion. That the church had built up so much should not have been a surprise to anyone. In each general conference the auditor says the church lives by the principles it teaches living within a budget, avoiding debt, and saving for a future time of need. If we had all only followed similar principles. With the recent stock market crash the church account is probably close to ~ $25 Billion. The church will of course see a drop in tithing receipts this year, they will see a large increase in demand at the bishops storehouse (the church run food bank), they will see an increase in humanitarian aid request, mission cost will stay high, and they still have the cost of operating temples around the world. But even with all of these changes the church will be able to continue to their planned construction of new Temples across the world.

If we had taken advantage of the recent growth in the economy by reducing our debt, then this $2 Trillion dollar pill would be a little easier to swallow. So that leads me to the advice for Nathaniel and others who are getting their cash payouts. Save/Invest it! We haven't seen the worst of this yet. Many more of us will be out of work before it is over. It is very possible that if you don't need it today you will need it in a month or two. And if you are fortunate and you don't see any impact to your income. Then in theory we will need to pay this back in the form of higher taxes eventually. If that day ever comes, you will be ready for it and just like the church you will be able to continue with everything else you had planned without any financial disruption.

For my Father's view on this topic, click here.

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1 comment:

  1. These are both great articles and comments. It certainly give a mother a lot to think about...and I will. But one thing I do know and that is if there was a fire, I would not throw gasoline on it to put it out.