Amid uncertainty, a clear need for action

J.P. Szafranski, BridgeTower Media Newswires

“The path ahead continues to be highly uncertain.” So said Federal Reserve Chairman Jerome Powell during his testimony this week in front of the U.S. House Financial Services Committee. Powell drove home the point that our future economic health depends not only upon public health efforts to mitigate SARS-CoV-2 but also on the fiscal and monetary policy actions taken by government officials.

Chair Powell is right to highlight the uncertainty, at the risk of playing the Captain Obvious role. While the economic outlook is unsurprisingly ambiguous at this stage of a global pandemic, some of our collective current circumstances are distinctly obvious.

Let’s quickly define three problems that we all should be able to agree on. Unemployment is still painfully high. The back-to-school situation is messed up. And, state and local government budgets are under pressure.

What can be done to alleviate these pressing challenges? At the federal level, politics and ideology have driven us to a total standstill. This is unnecessary and unacceptable. The most important thing is for federal fiscal policy makers to do something. Before we all put our red and blue hats on and line up behind our chosen team this election year, let’s push for something radical: congressional cooperation and compromise.

The unemployment rate has dropped by 6.3% since April. That is welcome, but let’s hold the Champagne since we still sit at 8.4%. That remains a historic crisis level and should be treated as such. The House Democrats passed an extension of the extra $600-per-week unemployment benefit through early next year as part of their $3 trillion stimulus bill, which never had a chance of becoming law. Opposition to that benefit level as a disincentive to find work is perfectly reasonable. But again, the best answer to this crisis is probably a compromise of somewhere between $0 and $600.

Students need in-person school. Schools have a moral obligation to emphasize health and safety. These competing priorities have us stuck in limbo across the country. Virtual learning is suboptimal for students and entire families with near-term and longer-run economic impacts. Throwing federal funding at this is not a panacea. However, why shouldn’t we try some targeted federal funding for health and safety measures at schools? We could reward responsible and creative approaches to incentivize a return to classes. That would be more productive than tweeting, “OPEN THE SCHOOLS!!!”

Finally, Senate Majority Leader Mitch McConnell’s stated concerns about bailing out spendthrift state and local governments with a blank check are reasonable. However, the fact is that states and municipalities are constrained by balanced budget requirements, with many being dependent upon volatile sales tax revenue. In a recent working paper for Harvard Business School, Daniel Green and Erik Loualiche wrote, “A back-of-the-envelope aggregation exercise suggests that sales tax exposure alone can explain over 660,000 of the state and local government jobs lost in April.” Let’s find a number between $0 and the Democrats’ $875 billion to apply some targeted relief aimed at preserving essential government jobs like police, firefighters and public health workers.

The crisis is not over. Fiscal stimulus now can help a lot of folks and by extension help the economy recover more quickly and sustainably. Government intervention isn’t costless, can’t fix everything and will have some unintended consequences, but that doesn’t mean we should lay down our fiscal firepower and do nothing.

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J.P. Szafranski is CEO of Meliora Capital in Tulsa (www.melcapital.com).