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You are here: Home / Zero Hedge / The Three Best And Worst Ideas Of The Crisis

The Three Best And Worst Ideas Of The Crisis

June 13, 2020 By Zero Hedge Leave a Comment

That said, I believe that possibly the worst one, hands down, is the matter that I wrote about in this space last week: that’s the way Congress designed the unemployment-insurance expansion. My issue here is less that government expanded the benefit – under the current UI system the federal government always does so during recessions – but by how much these benefits have been expanded.

In response to the COVID crisis, benefits were expanded by $600 a week to most people unemployed or furloughed, including those who weren’t eligible for such benefits before and who decided to quit their jobs (as opposed to being laid off). The disincentives to work are and will continue to be huge since 68 percent of those getting benefits now make more by not working than they did when they were working. It’s clear to me that these benefits in their current form should not be further extended past July. Better yet, the UI system should be reformed entirely.

The second bad policy put in place is the bailout of airlines. Bailouts are never the right way to address a company or industry’s financial troubles. Such handouts create serious moral hazard and other perverse incentives going forward.

You see these terrible incentives with the airline bailouts. Gary Leff and I laid out the case here. But as with all bailouts, one of the worst things about these in addition to the cronyism of it all, is the bad precedent that it sets. Bailouts beget more bailouts without financial accountability. It is not surprising that airlines, many of which were bailed out in the past, were the first ones to beg for federal help out of the gate when the crisis started.

This fact is even more infuriating given that these companies have a perfectly good and safe alternative available to bailouts – namely, bankruptcy. Airlines have gone through bankruptcy in the past. Moreover, bankruptcy does not prevent them from flying safely during the process.

The last bad policy that I highlight is actually a mix of all the many policies implemented. (I was tempted to pick the design of the PPP, including or maybe mostly because someone thought it was a great idea to have the aid flow through the Small Business Administration, an agency that has an impressive track record of messing up emergency relief.) Instead, I focus on the incoherent and conflicting approaches bundled together in the CARES Act.

Rather than figuring out whether we should rescue companies or individuals, Congress tried to rescue both. And when it gave money to individuals, Congress didn’t just send individual checks; it also implemented paid leave, as well as massively expanded unemployment benefits and more.

Adding insult to injury, unemployment benefits, as explained above, created incentives to drop out of the workforce, while PPP’s requirement for loans to be forgiven was that companies needed to keep their employees. This COVID-19 response was, to say the least, irresponsible and poorly thought through, and more about pushing through policies Congress already wanted before the pandemic but couldn’t get through.

Original Source zerohedge.com

Filed Under: Zero Hedge

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