Eakinomics: A
Post-CARES Policy Platform
The 2nd quarter of 2020 will experience a dramatic economic
collapse, with gross domestic product (GDP) falling at rates in excess of
20 percent (annual rate). The Coronavirus Aid, Relief, and Economic
Security Act (CARES) is designed to provide an economic lifeline
across this chasm, with the Payroll Protection Program and Federal Reserve
loan facilities preserving businesses and jobs past the peak of the
pandemic. (Other aspects of CARES will bolster the newly unemployed through
this period.) Thus, the 3rd quarter will hopefully arrive
with the economic infrastructure largely intact. If so, this will represent
an enormous policy success.
Nevertheless, any growth will face headwinds. There may be aftershocks
as the virus re-emerges, and businesses will not be focused on expansion
and growth. Instead, they will be retrofitting workplaces, providing
redundant offsite capabilities, and otherwise fortifying their operations
against a future viral disruption. These are supply shocks that raise the
cost of doing business.
Demand-side stimulus – checks, government spending, etc. – does nothing to
offset such supply shocks. Instead, the policy platform should include
permanent, supply-side growth policies. Since the federal government will
be beginning from a position of high debt and a large deficit, these
initiatives must be paired with a strategy to slowly stabilize the ratio of
debt to GDP.
Such a platform could contain four key planks. Plank 1 is the pro-growth
policies. Examples include making permanent the Tax Cuts and Jobs Act
individual tax rates and other provisions, making expensing permanent, and
reversing the planned amortization of R&D expenses. It could also
include a disciplined infrastructure
initiative targeted at national economic connectivity (e.g., a modern air
traffic control system).
Workers and firms will likely have to adapt to a different work
environment, with more telework, some physical distancing, and some
redundant capabilities in case of lockdowns. Plank 2 is adapting the work
environment to the continued presence of the virus. It could include such
things as a tax-free wi-fi/broadband benefit for those who work from home
(analogous to travel/commuting allowances now) and a tax credit for COVID
workplace testing.
Plank 3 is an acknowledgement that the United States will have to enhance
the medical capabilities that may be brought to bear on a future public
health threat. It should contain a focus on tests, therapeutics, and
vaccines through an increase in the R&D credit for advanced
medical products, an expanded “patent box” for the overseas sales of
advanced medical products, and an enlarged national vaccine stockpile.
The aftermath of the peak of the pandemic will likely have tens of millions
more uninsured individuals. And it will feature a hospital sector that will
be politically empowered to claim more reimbursements. It will be
imperative to promote policies that offer choice and competition in the
delivery of care and greater options to cover individuals.
Finally, the pandemic has revealed some real rigidities in policy toward
providers. Plank 4 is to make permanent the recent reforms related to
telehealth, occupational licensing, physician supervision, and more.
Similarly, the Food and Drug Administration has moved toward more rapid deployment
of testing, treatment, and prevention. These should also become a permanent
part of the landscape.
Notably not part
of my approach is a “phase-4” stimulus or “rebuilding the economy.” As
noted above, the former does nothing about the supply of aggregate income
or health care goods and services, while the latter raises the specter of
DC-oriented central planning. The economy will grow and reshape, but these
changes can be driven by market forces that have lowered the return to
providing cruise ships and theaters and raised the value of
public-facing, front-line workers across the economy. Policy should support
growth while these natural adjustments occur.
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