It’s time to print money and send 10K cheques directly to individuals

The virus issues are causing a complete and extremely rapid social breakdown into fear, panic, paranoia, and finger pointing. This is due to a combo of social media, major media outlets, and politicians all accepting the complete breakdown os social fabric while being inept or clueless (or both) OR adding fuel to the fire of division and paranoia (Trump style). I would dare say all are wrong in their respective approaches, but we could “hold things together” for a while by helping individuals directly.

And I am FOR the closing of schools and many other measures. But there are things that are happening that are over reactions and also simply BAD reactions that are causing social fabric to break down… and the EPIC economic and financial chaos that is about to hit are going to add massive pressure on this explosive combo. How do you reduce pressure?

First, central banks can help and are helping by providing emergency lending to essentially ALL businesses that can have access to these loans. This helps, but it is not nearly enough to hold the floor from falling apart under our feet… and it is LOANS, hence debt… and some small businesses and individuals simply can’t afford debt. They need direct payments without debt.

This is a crisis of liquidity. We are not less intelligent than before, we do not have massive misallocation of resources. We do not have problems with innovation. We just need to “survive the storm of the virus” and that will take about all of 2020. And ALL actors are in this… and small businesses and individuals do not have the access and knowledge of markets and “the big picture” to access the money market and the huge spaghetti of “government programs.”

Knowing this, the State is ALSO providing “emergency relief” in targeted aid to the unemployed and small businesses that are hit by the economic fallout of the very stupid idea of closing an entire economy for what would be at least a year if we respected the idea that there is no vaccine and hence no vaccine = no possibility to start activity again = stay closed. Closing an entire economy on a global scale and thinking “it will be OK” is completely insane and irresponsible. I forgive all non-politicians and non-economists to live in this dreamland where nothing bad happens when no value creation is happening for an extended period of time, but I do NOT forgive politicians who should have access to competent economists OR, for that matter, to competent sociologists, both groups having what it takes to describe the rapid deterioration into negative feedback social norms and economic chaos.

No doubt, virologists and WHO people are suggesting policies to reduce the death toll created by the virus, and that is all good: they don’t want to be accused of “not doing enough” and indeed, closing the world and forcing people into their homes can’t be tagged as “not enough”… but they do not have the full picture of society as a whole, of social norms, of geopolitics, of economics, of the psychology of people stuck in extremely reduced freedoms for extended periods of time, of social psychology… They just have an incentive to watch and focus on ONE variable: the virus and its spread. Fair enough.

There is much to say about this and I may well write a post about this at one point, but that is for another time. This post is about preventing a complete breakdown of the economy, of individual income security and sanity, and of what will come if nothing is done to prevent these things from happening.

The economic and financial hurting has barely begun and ALL indicators in ALL countries point to a very deep shock… close to the order of the Great Depression. This is not good, and I don’t just mean for “the economy” and “corporations”… actually I do not particularly care at this point about these things. What I DO care about a great deal is fragile individuals, who are the majority of the population (by the way!!!!) and social order / peace.

Federal authorities have been throwing a lot at the problem, but they have not yet thrown the kitchen sink at it, and I assure you, it is time to throw the kitchen sink at it!! The return to normal will not come earlier than Spring 2021, EVEN if all “measures” are removed (which may not be a good idea anyways, especially in regards to long-period-high-contact places like schools and bars, especially everything indoors).

It is time to send a no-string-attached, one-shot payment of about 10 000$ to ALL working age individuals, without any form of condition. Why no condition? To avoid jealousy and extra social breakdown and also because this is the most powerful way to hold the floor from falling apart. A ONE-SHOT payment of 10 000$ (or more) to ALL individuals 15 years old or more. Yes. I mean it. And I am an economist.

How to finance this?

This type of payment can’t be done every year, because it would mean either much higher and unrealistic taxes OR way too much inflation… BUT, as any model of basic monetary theory will tell you (stuff I also teach in university), a one-shot “helicopter drop” of money will create temporary and moderate inflation with the amounts I am suggesting.

Very pragmatically: the current federal 10-year bond yield is almost at 0%. This means the government can sell bonds to the central bank and pay essentially zero on it, while at the same time getting the proceeds back anyways, since the profits of the central bank are paid to the government anyways! The only fear about such policies is that they are always very inflationary when done too much… but this would NOT be “too much” and would hold things together for a while.

The case of the USA:

There are about 280 million individuals of working age, that is 15+… yes, the 100 year olds also. 10 000$ to each of these individuals = 2,8 trillion (2800 billion dollars). Lets say 3 trillion (3000 billion). Yes, this CAN be done and will not create hyper inflation if it is done ONCE.

The case of Canada:

There are about 28 million people aged 15+ in Canada, so the total cost for Canada of a one-shot 10k CAD payment would be around 280 billion dollars, which Canada could ALSO pay and finance with directly printed money if it is a ONE-shot payment.

This would buy us some time and would help people struggling to access all those “special programs”, the fragile “gig workers”: Uber, Airbnb, musicians, movie set workers, construction workers, people helping high-risk individuals such as the elderly, people with lung fragility, etc. No need to micro manage everything: send the cheques to EVERYONE. Yes, including those few millionnaires (they are not many, so the cost to sending them 10K is nothing in the total cost and you don’t get all the jealousy and finger pointing).

It would create TRANSITORY / temporary inflation in 2021, which any competent monetary macroeconomist will explain to you. It would also devalue the currencies USD and CAD versus the rest of the world, but that is not a bad thing, as the international debts of the USA and CAD are mostly denominated in their own currencies anyways. This would frustrate foreign USD asset holders, but too bad.

The challenge would be to preserve “long run inflation expectations” (5-year-5-year metric), but that could be done for all countries with highly-credible monetary institutions, which IS the case of Canada and the USA.

If we are to extend any form of measures to contain the virus while we wait AT LEAST A YEAR (!!!!) for a vaccine, you can’t expect things to hold together all that time without things getting very out of control, while police state policies become “logical” (but immoral and indefensible) due to the social tensions. Do not go there.

DO IT NOW!!!!!!!!!!!!!!!! Not in 6 months. NOW NOW NOW. PRINT!!!! It is time to throw the kitchen sink while the floor is still holding and it will buy us several months.

Pascal Bedard