I'm about 5/6th of the way thru this post linked-to by Tyler Cowen:
I couldn't help but think of something Cowen described in his podcast with Russ Robers on March 19th:
Tyler:
I worry that we don’t know how many businesses are bouncing back and how many cannot be kept on life support. Again, if it’s a month or two, I think almost all of them can be kept on life support, and we could throw money at the problem, and then in two months just pick up the pieces and be the America we once knew. But if it’s becoming five or six months or longer, then the amount of money you have to send, and people just being kept in unproductive activities… You actually want some of those restaurant owners maybe to end up as UPS drivers. Right? We don’t know how many. The degree of optimism or pessimism, it really seems to matter for economic stimulus. If you’re a relative optimist about the progression of the virus, I think you should be relatively pro-stimulus, like, “Just keep it running for now. Things will be back.
To the extent you have a more dire forecast, you even worry a bit about the government’s own budget constraint, and you also start asking, “How many of these people,” it’s like a new world, “need to be doing something else?” Maybe you don’t want to hasten that at the fastest possible speed, but you’re not aiming to just keep every business going, say, with loans from the Fed either.
Some more quotes describing the same thing:
One has to be very careful with that word bailout. People mean so many different things by it. I don’t think our government should let all of the major corporations fail, which are likely to fail if we do nothing. That said, at this point, I remain agnostic as to exactly what we should do. On one hand you don’t want to be in a position of picking winners and losers. But on the other hand, I think one needs to realize maybe cruise ships are not really coming back in a big way and maybe they shouldn’t.
and:
Here’s one of the tricks when it comes to bailouts. It’s a common line to say, well we want to keep services up and running, but we don’t want to bailout shareholders. You and I probably share that intuition in a very significant majority of cases. But look, think about the airlines. Why do you feel safe flying? To a modest degree it’s because of government regulations, but mainly it’s because there’s equity capital in those companies and the shareholders want to keep the flight safe because they don’t want to lose their capital.
Or, more succintly (and edited for my own taste):
How many of us need to be doing something else?
And that question perfectly captures something I find so fascinating living thru this pandemic. What should we all be doing instead? I've been thinking about this for a long time but a crisis throws things into much sharper relief.
This reminds me one of my favorite of Arnold Kling's phrases post-last-crash: 'easy to fix versus hard to break'. Allow me to do my version of a Louis C.K. bit I love: Of course we all want to prevent our human world from breaking! Of course! ... But maybe ... maybe we should be doing something else.
Maybe we should let our human world – our societies – break, or at least parts of them. Maybe a lot of us should become UPS drivers, or farmers. Maybe something more like a debt jubilee than regular bankruptcy proceedings should take place. We'd have to figure out who ends up with what, e.g. who owns various commercial real estate properties, and a lot of 'paper wealth' will evaporate. But we're going to have to figure out who ends up with what regardless.
One fact seems undeniable: We're not as wealthy as we thought we were.
Something that seems relatively clear to me now is that there aren't really 'supply shocks' or 'demand shocks'. The problem is never a fall (or soar) in supply or demand – the problem is the shock of new information.
Returning to the example in the first link, we can ask: What is U.S. commercial real estate worth now? I'd expect not much! In a lot of places in the U.S. currently, only 'essential' businesses are allowed to operate. (I hope owners of commercial real estate properties, especially those that are empty or not leased, are offering the use of their properties for the pandemic response.)
Commercial real estate really isn't – currently – as valuable as it once was. And if the financial edifice that supported its current ownership and use can't survive the pandemic ... maybe it shouldn't. Maybe we should do something else with those properties.
Any maybe a similar logic holds for residential real estate. What is the value of an apartment building in NYC now? (It's not zero. Apparently some people have thought of the crisis as being a perfect opportunity to buy or rent an apartment in NYC for cheap.) Maybe some government should seize rental properties and gift them to their current inhabitants. And not because that's just but because it's simple and expedient and possibly capable of unwinding a lot of financial and legal uncertainty about these properties. I imagine it is effectively impossible now for landlords in NYC to evict tenants for not paying rent. Because courts, and legislative bodies, at all levels in the U.S., have not already figured out to continue operating at anything like their previous (and already slow and sclerotic) capacity, a lot – maybe most – property rights cannot be normally enforced.
What would make all of this (relatively more) easy to fix is if we could subsidize as much as possible in the short term, encourage everyone to grant one another forebearance as much as possible in the medium term, and figure out how to unwind everything as quickly as possible in the long term.
We're not as rich as we thought we were. We need to act like that's true, discard bullshit, and rebuild given what we now know.