Weekend reading: The federal government’s role in the coronavirus response edition [feedly]

Weekend reading: The federal government's role in the coronavirus response edition
https://equitablegrowth.org/weekend-reading-the-federal-governments-role-in-the-coronavirus-response-edition/

This is a post we publish each Friday with links to articles that touch on economic inequality and growth. The first section is a round-up of what Equitable Growth published this week and the second is relevant and interesting articles we're highlighting from elsewhere. We won't be the first to share these articles, but we hope by taking a look back at the whole week, we can put them in context.

Equitable Growth round-up

Now that Congress has passed the second round of funding for the Small Business Administration's Payroll Protection Program—which provides loans to small businesses in response to the coronavirus recession—it's time to look back at the federal government's handling of the first round and correct its mistakes. Using data on loan sizes and distributions, Amanda Fischer takes us through some lessons that policymakers can learn from the first round of small business funding, which dried up in just two weeks. Fischer explains how existing inequalities may have biased how, where, and to whom the original $349 billion was distributed, leaving big businesses and certain small businesses in specific industries more likely to survive the coronavirus recession than their less-advantaged peers. Fischer calls on policymakers to not only continue passing additional aid for small businesses but also ensure better oversight and data collection into the distribution and allocation of the funding.

Another suggestion for improving federal government intervention in the face of the coronavirus recession comes from Heather Boushey on Medium: bringing back a Great Depression-era Works Progress Administration response. The U.S. economy will not be able to recover unless and until the public feels safe leaving their homes, knowing that the virus's spread has been contained—and this is unlikely to happen without a great increase in our capacity to test, as well as track and trace individuals who have been infected. Widespread testing and a robust track-and-trace system require federal government intervention to coordinate and implement evenly on a national scale. The federal government is the only entity with the expertise and capacity to do so swiftly, and, Boushey argues, the Centers for Disease Control and Prevention could quickly step into this role: It is already trained in infectious disease tracking and knows how to manage privacy concerns around this type of data collection and surveillance.

As Congress refuses to provide additional funding for state and local governments to address the coronavirus pandemic and recession, the Federal Reserve's Municipal Lending Facility may be what saves many communities across the United States. In an op-ed published in The New York Times this week, Claudia Sahm argues that the Fed's unlimited ability to print money and backstop the short-term municipal bond market—which states use to smooth out revenues but which is facing lower lending rates by investors due to economic uncertainty—may help many communities weather this storm. However, Sahm writes, the restrictions on which communities can access this program often exclude small and midsize cities—including the 35 cities with the highest percentage of black residents—as well as rural areas. The Fed can and should lift these limitations, Sahm concludes, in order to support more municipalities facing dire economic circumstances in the face of congressional inaction.

Looking outside our borders, Pierre-Olivier Gourinchas, the S.K. and Angela Chan Professor of Management at the University of California, Berkeley, examines the coronavirus recession in European and emerging economies in a column covering his remarks at a March 24 online conference of more than 100 economists. He begins by stating that the pandemic and ensuing recession will affect all countries, despite slight differences in the timing of the onset of both the public health and economic crises and in the responses governments have taken. Gourinchas then runs through the three policy proposals the European Central Bank is considering to assist European countries in need, as well as the specific circumstances and challenges facing emerging economies and how they differ from those faced by advanced economies. While developed nations are dealing with deteriorating public health and economic situations within their borders, he concludes, we can't leave behind developing nations in the recovery and response: We are all in this together.

Links from around the web

How has the $600 weekly Unemployment Insurance add-on affected workers in each state? Ella Koeze's interactive in The New York Timeslooks at how the extra $600 compares to average weekly salaries in each state based on the wage-replacement rate to see where unemployment benefits under the new system will be greater or less than a worker's normal salary. Koeze also examines how policymakers decided upon the $600 flat figure and how it will affect workers unevenly across regions, depending on factors such as cost of living and unemployment benefit floors and caps in various states.

The new coronavirus pandemic has shown the impact that socioeconomic status has on whether a person gets sick, writes Olga Khazan in The Atlantic, and experts say this could lead to a backlash against the better-off. Wealthier people are more likely to have the ability to telecommute, reducing their exposure to the virus, are less likely to have underlying health conditions, lowering their chances of getting seriously ill, and are more likely to practice social distancing correctly than their worse-off peers. It's common for natural disasters or other crises to expose these gaps in society—and, as a result, these periods also tend to be "good for workers" as they can create an appetite for long-term social change. But, Khazan asks, will the backlash this time be against corporate CEOs or against the middle class? The answer to that question may determine how the working class views government interventions and who to blame for their socioeconomic circumstances.

Predicting recessions is hard for economists even when the world isn't facing a global pandemic, writes Amelia Thomson-DeVeaux on FiveThirtyEight. In the best of times, it requires tons of research and often more than a few mistakes—and now, with countries around the world struggling to contain the public health and economic fallouts and all the usual sources of economic uncertainty flipped on their heads, it's even harder to try to predict how long the downturn will last, what will turn things around, or how quick the recovery will be. Thomson-DeVeaux runs through why it's so difficult to predict and properly diagnose recessions and recoveries, and how the coronavirus recession is as challenging, if not more so, to map.

Friday figure

Figure is from Equitable Growth's "The coronavirus recession exposes how U.S. labor laws fail gig workers and independent contractors," by Corey Husak and Carmen Sanchez Cumming.

The post Weekend reading: The federal government's role in the coronavirus response edition appeared first on Equitable Growth.

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Trump executive order to suspend immigration would reduce green cards by nearly one-third if extended for a full year [feedly]

Details on the executive order: has nothing to do with virus prevention. Just Nazi nationalism and racism. 

Trump executive order to suspend immigration would reduce green cards by nearly one-third if extended for a full year
https://www.epi.org/blog/trump-executive-order-to-suspend-immigration-would-reduce-green-cards-by-nearly-one-third-if-extended-for-a-full-year/

President Trump's April 22 executive order to "suspend immigration" has the potential to reduce the number of migrants who can obtain green cards, i.e., become lawful permanent residents (LPRs), by hundreds of thousands if it remains in place for a substantial period of time beyond its initial 60-day duration.

Table 1 lists the categories of green cards that are affected by Trump's executive order, along with the number of green cards that were issued in 2019 in each of those categories to applicants who were "new arrivals," meaning they applied for their green cards from abroad. (The executive order does not suspend green cards for applicants who already reside in the United States.)

As Table 1 shows, there were one million total green cards issued during all of 2019, and 316,000 green cards issued under the categories suspended by Trump's new executive order. The executive order is initially valid for 60 days (two months); a 60-day suspension of these categories would result in an estimated reduction of 52,600 green cards, or a reduction of 5.1% of all green cards relative to the total number issued in 2019.

However, it is impossible to know whether the executive order will remain in place for just two months, multiple years, or somewhere in between. Each additional 60 days would reduce the number by an additional 52,600, or an additional 5.1% of the annual green card total. If the executive order remains in force for one full year, it would result in a reduction of 316,000 green cards, or 31%, nearly one-third, of the one million green cards issued in 2019.

Table 1

The irony about Trump issuing the executive order now is that nearly all forms of temporary and permanent immigration to the United States have already been stopped or suspended as a result of the coronavirus pandemic. For example, there are virtually no permanent or temporary visas being processed abroad in U.S. consulates, except for temporary H-2A visas for migrant farmworkers, and there are travel restrictions in place with numerous countries. Refugee applications are not currently being processed. And at U.S. land border crossings, nonessential travel is restricted and asylum seekers are not being allowed to enter the United States, a practice the United Nations has suggested is inconsistent with international law. That's why in practical terms the executive order may end up being only a symbolic gesture—i.e., if it only lasts 60 days and is not renewed. But, of course, if it is extended longer than 60 days, it could have a major impact on the U.S. immigration system.

Scapegoating immigrants has long been a tactic used by the Trump administration as a way to distract from the administration's many failings. The new executive order is simply one more example. While President Trump justifies the executive order on the basis of protecting the U.S. labor market, it is patently obvious that instead, it's a convenient way to take attention away from the administration's botched response to the coronavirus pandemic and to blame immigrants for all of society's ills.

The reality about immigrants, of course, is that they are a vital part of the U.S. labor force, and even more so now: Immigrants make up 17% of the U.S. labor force and are overrepresented in industries that are critical to keeping America fed and functioning during the coronavirus pandemic.

The executive order is also about Trump taking advantage of a crisis to implement bigger and longer-term reductions in immigration, especially with respect to immigration based on family ties and through the Diversity Immigrant Visa program for migrants from underrepresented countries, most of whom hail from Africa, Asia, and the Middle East—reductions that Congress so far has not been willing to enact, but which have always been a major goal of the Trump administration.

In addition, Trump's executive order is a perfect manifestation of, and is consistent with, the many other anti-immigrant but also extreme corporatist policies of the Trump administration. In other words, it's a policy that will prohibit only those migrants who will have labor rights and a path to citizenship from coming to the United States. The administration has already reduced the number of refugees who are granted LPR status and can become citizens to historic lows, and now the executive order will put in place emergency measures to reduce the number of green cards issued in the family and immigrant worker categories.

The only employment-based green card category that was spared by the executive order is the EB-5 immigrant investor program—a scandal-ridden cash-for-visas scheme that allows wealthy applicants to receive green cards if they make financial investments in the United States. In recent years there have been bipartisan calls to reform the program while companies affiliated with President Trump's son-in-law Jared Kushner have profited from it.

At the same time, the issuance of nonimmigrant, temporary work visas, which restrict the rights of migrant workers and make them particularly vulnerable in the workplace, has not been suspended or restricted. That should surprise no one considering Trump's companies hire hundreds of guestworkers every year—often preferring them to local U.S. workers and finding ways to avoid hiring U.S. workers—and Trump has even used discretionary legal authority to increase the number of temporary work visas during every year of his administration.

Temporary work visa programs have long been a top immigration policy priority for corporate America. This was reflected in recent New York Times reporting about the executive order, which detailed that Trump declined to suspend temporary work visas because of "intense pressure from business groups," including technology and agribusiness firms, who reportedly "exploded in anger" at the notion that their access to temporary work visas might be suspended or restricted.

It is important to remember that the 1.6 million migrant workers employed with temporary work visas in the United States—who account for 1% of the labor force—face many challenges. Many are paid low wages relative to similarly situated U.S. workers. They cannot switch jobs or employers because of the terms of their visa status and, as a result, they are often subjected to workplace abuse, wage theft, exploitation, and even human trafficking. This has been documented through many reports from the media and advocacy organizations, as well as government audits. And since temporary work visa programs don't offer migrant workers a direct path to a green card and citizenship, they have to depart from the United States after they finish their jobs. They are, in many respects, cheap and disposable labor for U.S. employers.

While taking emergency measures to reduce permanent, green card immigration, the Trump administration's policies will nevertheless continue to prioritize and expedite the admission of migrants if they're coming to work for U.S. employers with temporary work visas—where many will be indentured and underpaid and will never have a path to permanent residence or citizenship.

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Dean Baker: Comment on the Recovery from the Shutdown [feedly]

You can tell Baker is an economist by his sense of wit, and his skepticism about "rational" behaviors in conflict with economic incentives. Note the number of "hopes", "optimism", "could be"s in the writing. When he does this, I tend to read it as Bakers Baits: daring you to draw a sweeping zero/one all/nothing conclusion!

Comment on the Recovery from the Shutdown
https://cepr.net/comment-on-the-recovery-from-the-shutdown/

The Congressional Budget Office came out with its new economic projections and they look realistically bad to me. They show the economy declining at a 39.6 percent annual rate in the current quarter and then rebounding at a 23.5 percent rate in the third quarter and closing out the year with a 10.5 percent increase. Unemployment averages 14.0 percent in the current quarter and rises to 16.0 percent in the third quarter. It falls back to 11.7 percent in the fourth quarter, but still averages 10.1 percent in 2021.

While this looks like a pretty bad story to me, I saw comments on Twitter arguing it was too optimistic. The gist of these comments was that people will be too scared when the shutdown period ends to carry on anything like their normal life.

I don't really see that. First, as we know, there are plenty of jerks who never took the pandemic seriously. Given a green light to go shopping, get a haircut, or a tattoo, many will be quick to do so. The fact that all of these people are not going to die will cause others to follow.

But, we are making progress in learning how to limit the spread. Unfortunately, the U.S. is basically nowhere in the testing and tracing department, but that hopefully will change over the next couple of months. Also, there are many simple commonsense practices that will substantially reduce the risk.

Wearing masks in public places is an obvious one. Limiting the number of people allowed in stores and restaurants is another. Presumably ventilation also matters. This is a worldwide problem. Several European countries have already begun to reopen and others will do so soon. We should be able to learn best practices from each other.

This is not a zero/one story where there is either zero risk or an intolerable risk, the issue is one of reducing the probability of catching the virus so that more people can feel comfortable engaging in normal activities. (Improvements in treatment will also be hugely important.) Unfortunately, Donald "America First" Trump is probably not interested in learning from the experiences in other countries, but the best money forward thinking governors will ever spend will be carefully monitoring the successes and failures in re-openings elsewhere and finding ways to adopt the successes here. Until we have a vaccine we will not be completely safe, but there is enormous room for reducing risks and that should be the top priority for people in policy positions.

The post Comment on the Recovery from the Shutdown appeared first on Center for Economic and Policy Research.a

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McConnell to Every State: Drop Dead [feedly]

McConnell to Every State: Drop Dead
https://www.nytimes.com/2020/04/23/opinion/mcconnell-coronavirus-states.html


text only

Covid-19 has killed tens of thousands of Americans, and will clearly kill many more. The lockdown needed to contain the coronavirus is causing an economic slump several times as deep as the Great Recession.

Yet this necessary slump doesn't have to be accompanied by severe financial hardship. We have the resources to ensure that every American has enough to eat, that people don't lose health insurance, that they don't lose their homes because they can't pay rent or mortgage fees. There's also no reason we should see punishing cuts in essential public services.

Unfortunately, it's looking increasingly likely that tens of millions of Americans will in fact suffer extreme hardship and that there will be devastating cuts in services. Why? The answer mainly boils down to two words: Mitch McConnell.

On Wednesday, McConnell, the Senate majority leader, declared that he is opposed to any further federal aid to beleaguered state and local governments, and suggested that states declare bankruptcy instead. Lest anyone accuse McConnell of being even slightly nonpartisan, his office distributed two memos referring to proposals for state aid as "blue state bailouts."

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A number of governors have already denounced McConnell's position as stupid, which it is. But it's also vile and hypocritical.

Refer your friends to The Times.

They'll enjoy our special rate of $1 a week.

When I say that we have the resources to avoid severe financial hardship, I'm referring to the federal government, which can borrow vast sums very cheaply. In fact, the interest rate on inflation-protected bonds, which measure real borrowing costs, is minus 0.43 percent: Investors are basically paying the feds to hold their money.

So Washington can and should run big budget deficits in this time of need. State and local governments, however, can't, because almost all of them are required by law to run balanced budgets. Yet these governments, which are on the front line of dealing with the pandemic, are facing a combination of collapsing revenue and soaring expenses.

The obvious answer is federal aid. But McConnell wants states and cities to declare bankruptcy instead.

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This is, as I said, stupid on multiple levels. For one thing, states don't even have the legal right to declare bankruptcy; even if they somehow managed all the same to default on their relatively small debts, it would do little to alleviate their financial distress — although it could cause a national financial crisis.

Oh, and the idea that this is specifically a blue state problem is ludicrous. Fiscal crises are looming all across America, from Florida to Kansas to Texas — hit especially hard by crashing oil prices — to, yes, McConnell's home state, Kentucky.

And if states and local governments are forced into sharp budget cuts, the effect will be to deepen the economic slump — which would be bad for Donald Trump and could cost Republicans the Senate.

So yes, McConnell's position is stupid. But it's also vile.

Think of who would be hurt if state and local governments are forced to make drastic cuts. A lot of state money goes to Medicaid, a program that should be expanding, not shrinking, as millions of Americans are losing their health insurance along with their jobs.

As for the state and local government workers who may be either losing their jobs or facing pay cuts, most are employed in education, policing, firefighting and highways. So if McConnell gets his way, America's de facto policy will be one of bailing out the owners of giant restaurant chains while firing schoolteachers and police officers.

Last but not least, let's talk about McConnell's hypocrisy, which like his stupidity comes on multiple levels.

At one level, it's really something to see a man who helped ram through a giant tax cut for corporations — which they mainly used to buy back their own stock — now pretend to be deeply concerned about borrowing money to help states facing a fiscal crisis that isn't their fault.

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At another level, it's also really something to see McConnell, whose state is heavily subsidized by the federal government, give lectures on self-reliance to states like New York that pay much more in federal taxes than they get back.

We're not talking about small numbers here. According to estimates by the Rockefeller Institute, from 2015 to 2018 Kentucky — which pays relatively little in federal taxes, because it's fairly poor, but gets major benefits from programs like Medicare and Social Security — received net transfers from Washington averaging more than $33,000 per person. That was 18.6 percent of the state's G.D.P.

True, relatively rich states like New York, New Jersey and Connecticut probably should be helping out their poorer neighbors — but those neighbors don't then get the right to complain about "blue state bailouts" in the face of a national disaster.

Of course, McConnell has an agenda here: He's hoping to use the pandemic to force afflicted states to shrink their governments. We can only hope both that this shameless exploitation of tragedy fails and that McConnell and his allies pay a heavy political price.


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Early lessons learned from the U.S. Small Business Administration’s first round of lending from its Payroll Protection Program [feedly]

Early lessons learned from the U.S. Small Business Administration's first round of lending from its Payroll Protection Program
https://equitablegrowth.org/early-lessons-learned-from-the-u-s-small-business-administrations-first-round-of-lending-from-its-payroll-protection-program/

Underscoring the direness of the coronavirus recession, Congress just reached an agreement to provide another $380 billion in rescue funding for small businesses, just one month after the passage of the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act. The small business loans authorized in the CARES Act and expanded this week are known as the Small Business Administration's Payroll Protection Program. These funds were among the first sources of rescue funding to be vacuumed up by desperate borrowers, whose businesses have been shuttered or severely hamstrung by the pandemic.

Despite hiccups in getting the program running, the $349 billion funding first deployed by the SBA on April 3 evaporated in just two weeks—a significant policy accomplishment but also a testament to the pent-up demand for help. What early lessons can we learn from the rollout of this first round of lending? There are several, but first, policymakers and economists alike need to understand the already existing skeins of economic inequality that, in large part, biased how these funds would be disbursed.

Previous research from the Washington Center for Equitable Growth documents how small business formation has declined over the past four decades in lockstep with an increase in economic inequality and discusses how these two phenomena may be interrelated. Equitable Growth also documented how policymakers in the CARES Act and via Federal Reserve lending facilities reinforced existing advantages for large businesses and how that might exacerbate inequality, including gaps in wealth by race, ethnicity, and gender.

The result: Large businesses, and the most advantaged small businesses, may come out the other side of the coronavirus recession intact—or even stronger than before—while others are forced to either close or significantly downsize.

The long-term implications for business dynamism and inequality in the United States as a result of the coronavirus recession and the resulting policy responses may not be known for years. But there are ways to glean early lessons from the first round of small business funding, specifically by looking at:

• Data on loan sizes and distribution in the Payroll Protection Program
• Data on sectoral distribution of the Payroll Protection Program funding
• Anecdotal stories about gaining access to the Payroll Protection Program

Let's examine each of these more closely.

Download File
Early lessons learned from the U.S. Small Business Administration's first round of lending from its Payroll Protection Program

Data on loan sizes and distribution in the Payroll Protection Program

The data we have on the first round of funding show that 1.66 million loans were made under the Payroll Protection Program, compared to 30 million small businesses nationwide, 6 million of which are firms with employees (versus sole proprietorships). This means Congress reached just one half of 1 percent of eligible businesses, or around 28 percent of all firms with employees.

While the Small Business Administration touted that nearly three-quarters of the loans made under the Payroll Protection Program were for amounts of less than $150,000, the full picture is a bit more complicated. A breakdown of the data show that just 4 percent of the loans made accounted for nearly 45 percent of the total pot of money made available under the program. Just a few loans at the top accounted for a sizeable share of the funding, with 0.03 percent of the loans made having been for more than $5 million, representing a whopping 9 percent of all funding. This lopsided distribution means that certain larger qualifying small businesses managed to secure an outsized portion of the total funding.

Data on sectoral distribution of the Payroll Protection Program funding

Data released by the Small Business Administration also paints a curious picture in terms of which sectors benefitted from the loan program. The construction industry, for example, received more than 13 percent of total loan amounts despite representing only 4 percent of nonfarm payroll job losses in March 2020—the first month in which job losses amid the coronavirus pandemic became apparent. Meanwhile, retail and hospitality, mainly food and drinking establishments, represented 65 percent of job losses last month but only received only around 9 percent of available small business loan amounts.

While we do not have clear data on why this is the case, one hypothesis is that individual construction loans may be larger, on average, than individual retail and hospitality loans, given the capital-intensive nature of the construction business. But because these loans are for payroll protection and are capped at $10 million, this likely isn't the case. Indeed, the construction industry received both an outsized percentage of the total amount loaned out and the total number of individual loans—meaning that the industry dominated both in the rescue aid delivered and the number of firms assisted.

A more compelling hypothesis is that the construction industry is more likely to be deemed "essential" than other business sectors. One construction industry state-by-state tracker showed that the industry is permitted to stay open, with some public health guidelines in place, in all but a few states. In contrast, restaurants in every single state are subject to strict public health restrictions, including a prohibition on dine-in services. This suggests that small firms whose business models remain the least disrupted are the most likely to receive loans—a perverse outcome for a program designed to help the most vulnerable firms.

This deeply unequal distribution of the Payroll Protection Program funds is perhaps a reflection on some of the punitive and complex aspects of the program itself, including restrictions on use of funds and the requirement to quickly rehire employees. In other words, the businesses that were most confident in their survival, where COVID-19 (the disease caused by the new coronavirus) has imposed the least damage on revenue, were also the most able to access loans.

Other estimates from Bloomberg showed that small business funding as a proportion of eligible payroll fared much better in the middle of the country versus the coasts. While there's not enough information yet to suggest why this was the case, Bloomberg hypothesized that businesses in regions hit hard by the virus, such as those in and around New York City, Seattle, and San Francisco, may have had less bandwidth to submit loan applications than those elsewhere in the country.

In addition to circumstances that would make it hard to apply for funding, program rules requiring relatively quick rehiring of employees as a condition of loan forgiveness may have been too limiting for businesses in areas with protracted lockdowns, whose chance of repayment is less likely. Finally, businesses in the middle of the country may have had more access to community-based lenders, who may have been able to process applications requiring idiosyncratic underwriting faster than large banks.

All of these trends could end up having a significant impact on the shape of the recovery as, say, construction businesses in North Dakota receive help while a small restaurant in the service-industry-heavy Nevada misses out.

Anecdotal stories about gaining access to the Payroll Protection Program

Beyond the limited data, journalists have uncovered a number of stories related to which firms both loaned out and borrowed the money. Reporting indicates that small lending institutions did a better job of deploying funding quickly, perhaps because of closer relationships with community businesses, less internal bureaucracy, or a willingness to act more quickly and on less information. Some small businesses are going so far as to sue large banking institutions, alleging that those banks prioritized high-value loans first rather than taking them on a first-come, first-served basis.

Other reporting has documented how seemingly unlikely firms received small business loans. One Bloomberg report, for example, documented how hedge funds—or big pools of money whose purpose is to speculate in financial markets—qualified for the Payroll Protection Program.

Other stories uncovered how the publicly traded fast-casual chain Shake Shack Inc. received a $10 million loan and then pledged to return it after a public backlash—but not before the company found other sources of funding, including drawing down on a $50 million line of credit from Wells Fargo & Co. and raising $150 million in equity markets.

A Securities and Exchange Act filing by Shake Shack offers a window into how large chain restaurants may fare during and after the coronavirus recession. The company said that the pandemic and ensuing economic downturn may actually be positive for the firm, noting that it "believes additional and improved development opportunities may be available over time due to the impact of COVID-19 on the overall retail and real estate environment." This could be for a number of reasons, but presumably, the company thinks that the economic environment going forward may allow it to increase its market share over the long term or even benefit from cheaper commercial real estate prices as the economy heads into a prolonged recession.

Journalists have highlighted other instances of publicly traded restaurant groups receiving small business funding. In those cases, the businesses have not undertaken efforts to return the money. This includes Ruth's Hospitality Group, Inc, the owner of the Ruth's Chris steakhouse chain, which had $86 million of cash in reserves, paid its chief executive officer $6.1 million last year, and bought back more than 1.1 million shares of its own stock at an aggregate cost of $25.8 million in 2019.

But a large chain restaurant's positive news is another business's extinction event. Indeed, the National Restaurant Association predicts that 75 percent of independent restaurants may permanently shutterbecause of the coronavirus.

While neither policymakers nor economists have enough data yet to reach firm conclusions, these anecdotes suggest that the small business lending program may not be meeting all of policymakers' original goals. In fact, one New York Post story said that Wall Street executives were actually scared that bailout funds skewed too heavily toward the top, and that imbalance may inspire a political backlash.

Conclusion

Luckily, the disproportionate harm caused to small businesses by the coronavirus recession is not inevitable. Policymakers have wide latitude to shape how our economy looks coming out of the economic downturn and into the recovery. This second round of funding by the Small Business Administration through the Payroll Protection Program is an important next step, and hopefully businesses in the hardest-hit sectors, in previously neglected states, and among those smallest of small businesses seeking small-value loans will be assisted.

Banking industry insiders are predicting that the next round of small business funding could evaporate in just two days. Congress should consider massively scaling these investments, ideally making the funds guaranteed for all eligible small businesses. If this program is to reach all those that need it, it seems that at least $1 trillion in funding is required. As reports come in about certain sophisticated firms benefitting from the first round of small business funding, it would represent a big missed opportunity if Congress stopped its work after the $380 billion is allocated beginning this week.

Beyond the too-small funding amount, the biggest disappointment of the small business loan program so far is the lack of data collection on applications received and loans funded. Without a view into this, policymakers, law enforcement, advocates, and researchers will find it hard to determine patterns of who did and who did not receive rescue money.

Finally, even as Congress works remotely, oversight will be essential. Legislators, the Inspector General for the CARES Act, and the special congressional panel assembled to oversee bailout funds should conduct rigorous oversight of the Payroll Protection Program. In the case of the special congressional oversight panel authorized under Title IV of the CARES Act, Congress may need to expand the statute to provide more oversight authority, as currently the panel can only evaluate how the Federal Reserve will purchase packages of these loans from lenders. Key questions should be raised, among them whether and how lenders prioritized potential borrowers, and whether the lenders privileged applications from small businesses that owe the lender other debts.

Many challenges remain to ensuring the survival of U.S. small businesses. Congress must be diligent and see this aid through. The survival of many small firms depends on it.

The post Early lessons learned from the U.S. Small Business Administration's first round of lending from its Payroll Protection Program appeared first on Equitable Growth.

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Saving Journalism Will Require Some New Thinking [feedly]

Can't say Dean Baker is not a creative thinker! The problem he discusses is a non-trivial issue, especially when you think of the state of media today.

Saving Journalism Will Require Some New Thinking
https://cepr.net/saving-journalism-will-require-some-new-thinking/

There has been a new wave of despair among journalists in the last couple of weeks as several major news outlets, including the Los Angeles Times and McClatchy News Service, announced layoffs and/or pay cuts. The immediate cause is the coronavirus. Pandemics sharply reduce advertising opportunities, but the underlying model is clearly not viable for most news outlets.

There is a limited amount of money that businesses are willing to pay for web ads, which is now by far the largest form of distribution. This is especially the case when Facebook and Google can offer much better targeted advertising. Subscriptions can raise some money, but apart from the New York Times and a few other elite publications, this source of revenue will not go far in supporting the people who produce and edit content.  

While the immediate problem of the coronavirus forced shutdown will eventually abate, the longer-term trends in the industry are not going away. Fewer and fewer journalists will be supported through the current model, leaving us ever more poorly served. We clearly need a new model.

A New Approach

Most of the thinking on a new model involves some sort of government subsidy to existing news outlets. This is likely a political non-starter, since it is almost inconceivable that Republicans would support papers like the New York Times or the Washington Post, much less more progressive outlets. Of course, few non-Republicans would be able to stomach tax dollars going to Fox News or some of the other looney outlets on the right.

It is also hard to justify from a moral standpoint. Why should the government entrench the current structure of the media? Maybe at some point in the past people thought that certain news outlets provided valuable content, and that made them profitable (or they just had good marketing), but what is the rationale for locking in this outcome with government dollars?

There is a way around this roadblock. Instead of having the government directly give money to news outlets, we can have the government give individual tax credits to people, who could then support the news outlet(s) of their choice. The model for this already exists: the charitable contribution tax deduction.  (I discuss this in somewhat more detail in chapter 5 of Rigged [it's free].)

With the charitable tax deduction, the government is effectively picking up the tab for 37 cents of each dollar of a rich person's contribution to whatever charity they choose. If a rich person decides to give a million dollars to the local symphony, we give them $370,000 back on their taxes. The same is true if they give the money to a museum, or the Church of Scientology. 

I picked the last one to make the obvious point that this subsidy is not necessarily going to an organization that many of us would think of as serving the common good. Perhaps we should be bothered by that, but in any case, we have been living for decades with a tax code that provides large subsidies to organizations that many of us would not approve of, without it become a major political issue.

An individual tax credit would work along the same lines as the charitable contribution deduction on income taxes, with some important differences. First, it would be a credit, let's say $100 per person, that would be fully refundable. This means that every adult in the country would have the right to give $100, regardless of whether they owed taxes or not. This is far more progressive than the charitable contribution deduction, which overwhelming benefits high income people. This is in part because the value is larger for people in higher income tax brackets (it's worth 37 cents on the dollar for people in the top bracket, versus 12 cents on the dollar for the bulk of the population in the 12 percent tax bracket). Also, only people who itemize can benefit from the deduction, and the vast majority of moderate and middle-income taxpayers do not itemize their deductions.

The second difference would be that it would be used for supporting journalism and other creative work and workers. This could mean writers of both fiction and non-fiction, musicians, movie makers, and other people doing creative work. The reason for drawing the line broadly is that we don't want the I.R.S. to be in the business of deciding who is doing journalism and who isn't. If we draw the lines at creative work, we don't have to get into arguments about whether a reporter with a political slant is still doing journalism. Also, all creative work has suffered in the Internet age, as it is very difficult to raise revenue from recorded music, videos, and other material when it can be transmitted at near zero cost over the web.

There will still be boundary questions, where it can be debated whether work can qualify as "creative," but this is not likely to be a major problem. After all, someone could try to qualify as a tax-exempt religious institution by creating the "Church for Ripping Off the I.R.S." Scams do happen, but they are not frequent enough to be a major problem.

We also will need an explicit system of registration, comparable to registering for 501(c) status as a tax- exempt organization. This would mean reporting to the I.R.S. an individual or organization's status as a creative worker or an organization that supports creative work. It would require reporting what creative work a person claims to do or an organization supports. The I.R.S. would make no evaluation of the quality of the work, just as it does not attempt to evaluate the merits of a religion filing for tax exempt status. The only issue would be one of fraud, where the I.R.S. could investigate whether a person or organization is actually engaged in doing or supporting the creative work they identified.

The other aspect to filing to be eligible to receive money through the tax credit system would be that the person and/or organization would be denied getting copyright protection for a substantial period of time, say 3-5 years. The logic here is that copyright monopolies are one way the government supports creative work. The tax credit is an alternative mechanism. People are entitled to getting support through whichever mechanism they choose, but not both.

The reason for having a waiting period between getting money through the tax credit system and getting it from copyright protection is to avoid people using the former system to establish a reputation and then cashing in from copyright protection. We do not want the tax credit system to be a farm system for writers, musicians, and other creative workers to work their way through before making it bigtime in the copyright protected system. If people want to start out in the tax credit system, they should likely expect to stay in the system.

The nice aspect to this provision is that it is entirely self-enforcing. Suppose that we have a 5-year ban on copyright protection, that a popular singer tries to get around by securing a copyright for songs recorded three years after their last payments through the tax credit system. Since it would be public record that they had been in the tax credit system three years earlier, anyone could freely copy and transfer the new songs in spite of the singer's copyright. He would have no recourse, since the copyright was not legally issued. This requires no action from the government; it is simply not enforcing an improperly awarded copyright.[1]

 

Supporting Journalism and Creative Work in the Tax Credit System

Suppose we went the tax credit system route and chose the $100 level. With roughly 250 million people over age 18, this would imply $25 billion a year to support journalists and other creative workers. At an average annual pay of $100,000 a year, this would support 250,000 journalists and other creative workers. At an average pay of $50,0000, it would support 500,000 creative workers.

I once used this $50,000 figure in a talk and got many creative workers very angry at me, since they felt I was under-valuing their work with this number. There are two important points to remember here. First, many creative workers, such as musicians or writers, do this work part-time. In other words, they have day jobs. For these people, getting $50,000 a year for work they very much value, would sound quite good.

The other point is that being in this system does not prevent creative workers from making money through other channels. Musicians could still get paid for live performances or teaching music. Writers could get paid for workshops. In fact, nothing prevents someone from even printing out books (or newspapers) and selling them at a profit. However, without copyright protection, they probably could not hope to make too much money going this route, since a large markup would lead others to enter the market and undercut their price.

From the standpoint of the individual taxpayer this system could be made very simple. Individuals could have the option to make their $100 contribution and then file for their refund on their tax form. They would only have to identify the recipient in the event of an audit. Alternatively, the I.R.S. could provide a number corresponding to every eligible recipient of the tax credit. The person would then indicate which individual(s) and/or organization(s) they wanted to receive their $100. This could be divided among as many recipients as the individual chose.

To benefit from the tax credit system, creative workers and organizations would have to promote themselves as being worthy of people's contributions. For newspapers and television news outlets, they would have to make a case that they provide especially useful and important news or that they give a political slant that people should find appealing. Writers, musicians, and other creative workers would have to tout the merits of their work. Alternatively, organizations that support particular types of writing or music or other creative work would tout the great work they are currently supporting.

As with the current system, there is no guarantee that everyone who wants to do creative work would be able to find enough backers to support themselves. If not many people value a particular writer's work or a musician's music, then they may not be able to make a living under the tax credit system, just as is the case now.

And, there is no guarantee that the Los Angeles Times or any other news outlet would be able to maintain a full staff of reporters and editors under this system. That would depend on them convincing enough people of the merits of their work. That may trouble some people who want to ensure that such news outlets survive, but it is hard to see what case can be made, if these outlets can't convince enough people of the merits of their work.

 

Obstacles to the Tax Credit System: Politics and Simplicity

I have no illusions about the obstacles to implementing a tax credit system along these lines. A large segment of the political establishment (pretty much the whole Republican party) would be very happy if any sources of information other than Fox News disappeared. They would have zero problem if every newspaper in the country went under. Most of them don't really care about the fate of other creative workers either. That is an enormous obstacle to any effort to having a new program intended to shore up reporting and boost creative work.

But there is also the obstacle that many people who do support independent reporting can't get themselves to think beyond the current system. Many continue to believe that what we just need is direct government subsidies to the existing outlets, as though this would be politically feasible or even desirable. Looking to a whole new system is a step too far.

The proposal outlined here probably also suffers from its simplicity. I recall once having an extended exchange with a professor at a major university. I explained several times how the system worked and how it would be determined who would get how much money. He was still insistent that I needed a measure of clicks or some other unit of viewership to determine the money that outlets or individuals received. For some reason, he simply could not understand that people's contributions were the sole determinant: end of story.

Anyhow, I have never heard a remotely compelling argument as to why a system along the lines I have outlined would not work. I get the political obstacles, but if someone says we don't have a way of supporting journalism in the Internet Age, they just haven't done much thinking on the issue.

[1] We also would need some rules to prevent simple types of fraud. For example, to prevent two people from trading their credits with each other, we could set a minimum level (say $3000) for someone to be able to get money through the system. People could still scam the system, but it would require a lot of effort for not much payoff.

The post Saving Journalism Will Require Some New Thinking appeared first on Center for Economic and Policy Research.

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