Bungle

Our American friends are trying to pass an emergency finance bill to deal with the economic fall out of the Covid-19 epidemic. But Nancy Pelosi decided it would be a great idea to add layers of lefty causes to a fairly simple finance measure and, as a result, the bill has been delayed.

Our own Justine Trudeau attempted to put an Emergency Funding Act through Parliament which would have given the Canadian Cabinet the power to tax and spend without going to Parliament for 18 months. He failed. But not until more time had been wasted.

Canadians are losing their jobs. Fast. A million and half of them have apparently applied for EI benefits. The system is not designed to deal with that many applications all at once. While the one week waiting period has been waived, the reality is that there will be no new EI cheques for several days if not weeks.

The Trudeau government has announced the Canada Emergency Response Benefit which is, as far as I can see, a program designed to pay $2000 a month to people who a) apply, b) who lost their jobs, got sick, are under quarantine or have to stay home because of school closures. The application is to be online as of the beginning of April with cheques (really?) out ten days or so later.

Let’s be optimistic and imagine that the CERB goes as planned. The earliest people will get the benefit will be April 15. It is the 25th as I write. I have been broke enough to know what 20 days with no money feels like. But no money and no prospect of generating any because of Covid-19 lock downs is impossible.

Trudeau and his Cabinet lack any sense of urgency. They have not got a clue about how tough the next month is going to be for the million and a half Canadians who have lost their jobs.

A smart, decisive government would have looked for every possible way to get money into the hands of the unemployed, the stay at home moms, the older adults and the welfare recipients by the end of March. No questions asked, no applications required. The Canadian government, through its various programs and the Canadian Revenue Agency, has the name and bank account information for millions of Canadians. Simply sending $2000 to people who receive the Child Tax Benefit, the GST rebate and CPP/OAP would kick start the process. Sending $2000 to every single one of the EI applicants currently in the system, without looking at eligibility would be a solid move. Then co-ordinate with the provinces to send $2000 to every welfare recipient.

There is no time for a bureaucratically perfect solution here. People are being told to stay home. They can’t do that if they have no money. So get them money.

UPDATE: The geniuses at the BC government just announced a program to help people hit by the economic consequences of CONVID-19 deal with rent. Apparently they think $500 paid direct to the landlord is going to make a difference. Have they looked at rents in Vancouver or Victoria?

Aftermath and Clean-Up

Five days ago I wrote a post called Peak Panic. I think I called it about right. There was and still is panic around Convid-19 but there is also the sense that the curve can be flattened by people self isolating (even if they don’t have the bug), practicing social distance and by limiting social interaction and group events.

Now comes word that Trump is sending Hydroxychloroquine and Z-Paks to NYC for Drug Trials. There is strong, if anecdotal evidence that hydroxychloroquine has a rapid effect on the virus. Six days and the virus is gone. We’ll see. But we will see quickly as the treatment will be given to hundreds of sick patients and, prophylactically, to front line medical personnel. It will either work perfectly or, more likely, imperfectly but effectively in many cases.

Having a treatment option – and there will be more than one – changes the entire picture. Yes, social distance and self-isolation will still be important for some time but the idea that the medical system will be overwhelmed fades very quickly if an effective treatment can be administered.

The entire world is in the process of shutting down as economic activity is judged too risky. The markets have crashed. Helicopter money is being loaded. (Although I note that the Trudeau government missed a chance when the Child Tax Benefit arrived in the same amount as last month.) Tax deadlines – both for filing and for payment – are being deferred. Employment insurance, pensions, payments to the self-employed, to companies and to institutions hit with the virus and its disruptions are all in the pipeline.

The fact that the virus may be first contained and then controlled is unlikely to have much impact on these programs. Nor should it. The economic disruption of the last couple of weeks is not going to vanish overnight even if the medicos sound the all clear. It will cost trillions.

[My minor suggestion is that governments add a virtual year to all the “monthly” entitlements they currently pay and pay that all at once. In the case, for example, of my pension the government would add one year to my life and send along the full benefits payable for that year. This would give me cash in pocket and would be as taxable as any other pension payment.]

Putting money into the hands of consumers and corporations immediately is likely a good idea. But a better idea is to begin to plan for an economic restart complete with the resumption of air travel, open pubs, non-essential businesses and so on. The exact date of this restart is unknowable at this point because we don’t know when the curve will start dropping like the Dow. However, that should not stop political and business leaders from outlining a 30-60 day restart plan which would kick in when the virus was effectively beaten.

Economies are perfectly happy to crash on their own. But there has never been a genuine economic restart. It is claimed that the Great Depression was ended by the production demands of World War II. That may well be true but, obviously, that is not an ideal outcome.

So what is?

There will be a lot of pent up demand but it will take a lot of work and a lot of money to meet that demand. There will also be a good deal of purely psychological damage which will have to be overcome. A part of the population, perhaps a large part, will be suffering from the after effects of sheer panic.

Focusing the restart on a specific day or week may be the most effective way to marshal the supply chains, employees, and businesses. We’ve seen the success of “Black Friday” in releasing the animal spirits of North American consumers.

Combining massive sales, big discounts on air fares, hotels, restaurants and a day of celebration might well be the best way of kicking the economy back into gear. Parades, Services of Thanksgiving, a truncated knock out tournament for the Stanley Cup, a reboot of Opening Day for a short MLB season, the list of potential events is endless.

Start the planning now, even before we have solved the virus issue, because if the economy continues in “shut down” the effect of that “shut down” could be much more severe than the virus itself.

Peak Panic

Are we there yet?

States of Emergency, daily Presidential Briefings, fatality numbers, businesses closing, TP shortages, no meat, social distance, markets yo-yoing and everyone looking to “flatten the curve”: COVID-19 is scary and people are responding with varying degrees of terror and reason.

I took this graph from PowerLine. It is interesting and as John Hinderaker observes there we want to be like South Korea. He was referring to the US. Canada is not even on this chart because we are a few days away from the starting point of 10 deaths. Health Canada indicates 4 deaths as of March 17 at 10:30 Eastern. We’ll get to 10 but, with luck, a little more slowly.

There is a lot of skepticism about the Chinese numbers but, apparently, new cases and new deaths have fallen significantly in the past few weeks. We’ll see if that holds as China goes back to work.

There are plenty of reasons to treat COVID-19 seriously beginning with the fact that we lack infinite medical resources to deal with the very real possibility of broad scale infection. We currently lack effective therapies for people unlucky enough to catch CV. We are at least months away from any sort of vaccine.

Panic has been useful in alerting people to handwashing and staying out of crowds. It has given social licence to people who simply want to stay at home. And those basic things may very well reduce the overall incidence of the infection. We won’t know for a while.

What we do know is that testing for COVID-19 is confirming cases across Canada. Here is the weekly case graph to the 8th of March:

So far, so good. However, I have to suspect that there will be surges in these numbers in the coming weeks as more and more people are tested.

If something like this graph holds, even with surges, Canada will have the time needed to reconfigure its medical resources to deal with the challenges presented by the virus. We will also have the time to test potential therapies: yes, an ounce of prevention is worth a pound of cure – but it would be helpful to have some cures available.

There are also purely environmental effects to look forward to. We don’t know if heat and humidity will kill the virus but there is evidence that they slow its spread.

Spring is around the corner in Canada.

As we get a better handle on the virus, its spread, its effects and, with luck, its treatment the urge to panic will vanish. It will be replaced by an understanding of what it takes to avoid contracting the virus.

In China it appears people are going back to work and production is resuming. Or so it is claimed. South Korea seems to have resumed a relative normalcy. Europe seems, at the moment, to be in the grip of the first wave where the death count shoots up and the case load is overwhelming. They have hit lockdown and there seems to be some improvement in the number of new cases in Italy at least.

Panic grabs people’s attention but it is useless unless it leads to clam, rational, action. Which is what we are beginning to see in Canada.

Helicopter Money

Canadian banknotes falling from sky.

I have, and I checked, $85.00 in my pocket. I have had that for several days. We also have a few hundred dollars in the proverbial cookie jar.

We, like virtually everyone else, use our debit cards and online banking to do 95% of our transactions. I know how much money I have by checking into my bank account online. If I get a cheque I take a picture of it and it is cashed.

Money is now, effectively, digital. So is credit but that is another story. I receive a small pension and my wife gets the Child Tax Benefit. Digitally.

We are in the middle of a health crisis but also an economic meltdown. Hundreds of thousands of Canadians will be laid off. Businesses will close, the markets are in turmoil. We are at the middle of the month but, in 14 days, rents and mortgages will have to be paid. Day to day bills have to be met and, in a couple of weeks, a lot of people will have literally no money because COVID-19 will have destroyed their income.

The Quebec government announced today that it will pay people who do not have Employment Insurance $573 a week to self-isolate. I expect other provinces will follow suit. I also expect that the Federal Government will announce some sort of allowance to get people through what is going to be an economically fragile period.

Assuming that there are 23 million adults in Canada, it would cost 23 billion dollars to give everyone of them $1000. Which is a lot of money. Even for a Liberal government. (Of course the net cost could be reduced a lot by a) making it taxable, b) restricting it to people receiving the GST credit.)

An injection of $1000 per adult would goose the economy and make getting through the next month a heck of a lot easier for Canadian families. But is it prudent or even possible economically?

Right this instant, world wide interest rates are at all time lows. Sovereign debt can be had at less than 1% and even if the entire payment was borrowed it would be a blip on Canada’s overall deficit and interest payments. Essentially, the Government of Canada would be giving its citizens a long term loan using our excellent credit rating to raise the funds. Of course, those citizens would be paying that loan back over time through their taxes; but acting quickly could reduce real economic harm to a manageable economic problem.

We may have to do this for a few months. Which is ugly for the balance sheet but probably good for the nation.

There is the obvious risk of inflation and an equally obvious risk for the Canadian dollar. But, against that, we have to recognize that the enemy here is deflation as the economy contracts due to “lockdown” and despair as individuals and families hit the economic wall.

Yes, this would be Ben Bernanke’s “Helicopter Money” . It was not actually Bernanke’s idea, it was Milton Friedman’s. Read the article at the link. The original idea of “Helicopter Money” was that it was a tool of last resort when monetary policy has run out of bullets. (And when the prime interest rate is at .25%, that is an empty gun.)

Friedman and Bernanke saw this in strictly financial terms; they did not see the possibility of a non-financial crisis. COVID-19 is just that. A health crisis with a nasty financial side effect.

I am a hard money guy. I despise the lazy pseudo-Keynesians happy to spend in the bad times and just as happy to spend in the good times. I hate deficits. But, right now, I am hoping some adult in Ottawa – there has to be at least one – is getting ready to push billions of digital dollars into the hands of a bewildered Canadian public.

Now, to be fair, they will probably spend it on “beer and popcorn” (as the lame Liberal strategist said back in 2005 blowing Paul Martin’s election chances.) But for many Canadians it would be a lifeline through layoffs, cut hours, business slowdown and having to stay home.

It can be done in an hour. 92.5% of Canadians filed their taxes online in 2019. Most will have a bank account registered with the CRA. So will a lot of us who have a pension or a GST rebate or a Child Tax Benefit entitlement.

Pushing the button and sending a chunk of money to Canadians who are reeling from lock-down, social distance and losing their jobs makes a lot of sense.

We’ll deal with the fiscal consequences when COVID-19 is done.