"Stimulus" Is the Wrong Paradigm

The current economic problem is utterly unlike any normal economic setback or recession. In a recession, the economy slows because of one or more economic factors—the business cycle, an oil shock, a financial meltdown, an unwise tax increase, etc.  Thus, the solution to such a slowdown is to create new and better incentives for savings, investment and job creation. That’s what we mean by economic stimulus.

With the economic problems caused by the COVID-19 virus, however, literally the opposite is true. The economy was going along at a healthy clip until government entities started demanding that businesses close and Americans stop engaging in most forms of commerce.

So recession and economic stimulus is the wrong paradigm for the current situation. That hasn’t stopped many of our conservative friends from turning to the tried-and-true solutions of tweaking tax incentives, which don’t directly address the problem.

In this environment, “stimulus” isn’t the point. No matter how much we cut taxes or encourage business investment, what’s the point if the government is banning employees from coming into work and from going to restaurants, stores and other establishments? Cutting or suspending the payroll tax does nothing to help laid off employees who don’t even have a paycheck, much less a payroll tax to cut. It might help businesses that are only marginally affected, but will do nothing for those most harmed.

A more accurate way to view government’s role at the moment is through the lens of a “taking,” and insurer of last resort.

The Constitution allows government at all levels to take private property for public use, but it must provide just compensation. We most often encounter a takings through things like eminent domain, but it also shows up in times of disaster, such as when a government actor must seize a building to use as an emergency hospital, or purposely set fire to a house or other structure in order to create a firebreak. Our Constitution gives government these powers, but the government must provide just compensation when it uses them.

That’s the paradigm though which proponents of limited government and fiscal responsibility can argue that the federal government has an obligation to make people financially whole who are being harmed by government shutdown and shelter-in-place orders. If such orders are necessary for the good of the public, very well, but there must be just compensation.

So the point isn’t to stimulate economic growth—the government is purposely discouraging economic growth. The purpose is to compensate Americans for the costs they incur for sacrificing for the public good, for however long they must.

The solutions currently being considered by Congress are helpful but insufficient, despite the $2 trillion price tag. No one believes a couple thousand dollars for every household is going to be targeted properly or sufficient to compensate for all the current economic harm. More effective, more targeted and more fiscally responsible solutions will be needed, and we’ll have more to say about those soon.