The unfolding response to the COVID-19 disease is helpful in clarifying both the limits to government and the wisdom of our federal system. What most of us are now learning is that our most useful governments are local. The farther away government gets from us, the less useful it becomes in matters that directly affect our lives. This is not only a good lesson, but a fine fact of governance.
Many of us look to the federal government for guidance in all matters of policy. In reality, the federal government is responsible for very little of the public sector’s influence on our lives.
The events of the day should make it clear that this is a fortunate truth. While it is true there are the Centers for Disease Control and Prevention, most of the world’s experts on communicable diseases work in universities around the country. There are economists in the federal government who can help design policy responses, but most of the new ideas come from universities and think tanks dispersed around the nation. Our expertise on these critical issues is broad and diffuse.
Likewise, we cannot rely on the military for broad assistance in a pandemic. Our military forces are too few to take on this challenge. And, as the recent North Korean missile launch demonstrated, our enemies are likely to take advantage of any crisis. This will be especially true if disease threatens their regime’s stability. Our military has a national focus unconnected to local spread of disease.
The federal government really only has two important roles: offering reassurance and spending money. On the former, there are mixed results. On the latter, they are moving too slowly. In the coming weeks, the U.S. economy may need significant stabilization. This is an unprecedented example where fiscal policy can support public health. There is compelling reason to move quickly to make our prevention efforts and economic stabilization work together.
Many American workers will be just fine while we take efforts to prevent the spread of COVID-19. Factory workers will be provided protective clothing and many of us can work from home for lengthy periods.
But it is mostly the better paid who will be economically unaffected by COVID-19. Folks working in restaurants, retail or part-time positions are at greatest risk of economic disruption from the coming recession. These workers are also least likely to have sick leave or vacation. It is precisely these people who will face the strongest financial pressure to work when ill, and ironically, will also be the most needed to stay home if they are sick. Fiscal policy must take into account these workers.
Tax cuts, firm bailouts, monetary policy and even payroll tax cuts will do nothing for people without sick leave, or those who lose their jobs in restaurants or stores. These workers most directly need a stimulus plan. I admire the idea of a direct payment of $1,000 a month per person ($500 per child), as proposed by Jason Furman. This payment will help keep sick people home, without financially devastating them for decisions that benefit the public good.
There are easier programs to implement, such as a payroll tax cut. Those would be better than nothing, but direct aid to low-income workers and those most at risk of job losses should be the overwhelming priority in Congress and the administration.
Ironically, with long-term bond yields in negative territory, it is hard to imagine a fiscal stimulus that would not have benefits that exceed its costs.
We also need to help sustain small businesses through this. An immediate line of credit for small firms who were incorporated prior to the law would prevent numerous bankruptcies. This is a complementary policy because it would also keep more workers employed at a critical time. We should also offer a rebate for sick leave, which would allow small businesses to recoup the cost of such a policy.
The federal government can do these stimulus plans because they can print money and borrow at a negative interest rate. Beyond that, there is little we can expect from Washington, D.C. Any other help will come from state, and especially local, leaders. The experience thus far should be encouraging. Here in Indiana, the governor’s announcement of our first case on March 6 was a model of communications.
The local public schools are providing superb communication to parents and students. My local school, Yorktown, has reviewed preventative measures with students and are talking about it in science classes. Through a variety of communications, families are informed enough to be ready for whatever happens tomorrow, much less weeks from now.
I’m especially proud of Ball State, which has provided clear information and reviewed travel and contingency plans for classes and dormitories. They’ve even installed hand sanitizers in every hallway, and prevention posters across campus. They’ve done this without panic or alarm, respecting a broad set of concerns by faculty, staff, students and our families.
Anyone who has participated in crisis management knows how good communication instills confidence. Colleges, schools and employers will make tough calls in the coming weeks and months. Because of their respectful and clear communication, I have no reason to second guess the decisions by Indiana state government, Ball State or Yorktown schools. I hope many readers feel the same about their local governments and employers.
The next few weeks will reveal a great deal about the effectiveness of Congress and the Trump Administration in handling COVID-19. It is too early to make a definitive judgement about either, but it is clear that state and especially local governments are doing just fine.
Michael J. Hicks is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University.