The American and global economy and the system of trade which took about 12 years to build after the 2008 crash has incredibly and effectively shut down in about a month due to the Novel Corona Virus (COVID-19); forcing The United States government to pump an unprecedented about of cash to support businesses and individuals.
The United States Congress and the Administration moved fast, unleashing a colossal $2 Trillion stimulus package with breathtaking scale considering the response to the 2008 implosion was “only” about $900 Billion. Government turned on the spigot and funds flowed fast with brute force. Stimulus money was sprayed seemingly everywhere, like a hose swinging wildly when too much water is pumped through it. Many people are still left wondering when they’ll be receiving their stimulus checks. As for businesses, the process in its initial phase put strains on banks, the SBA and borrowers alike.
The stimulus’ intent to support the economy with a focus on businesses and individuals is absolutely right. Yet, the elephant in the room is the American Consumer, and she is being served peanuts.
The American economy has largely grown and prospered on the back of the American Consumer. It seems like putting dollars in the hands of people who can spend it locally would better position the American economy for success considering.
It is from this lens that I approach this proposal and pose the following questions:
- How is the American economy, one that has effectively been built on the backs of the consumer, supposed to recover at a meaningful pace when 30 million Americans are unemployed, and more coming?
- If people continue to spend their savings on food and necessities, what will that do to discretionary spending and the economic ecosystem supported by that spending?
- What will happen when people deplete their savings?
- How are businesses supposed to have confidence buy more supplies and/or hire people which pumps money to suppliers and employees alike if consumers don’t have purchasing power?
$1,200 is inadequate to support a consumer driven economy and leaves our economy and people at their most vulnerable position. Political leaders and policy makers know that in most parts of the country from Houston, Dallas, Miami, Atlanta, Mobile, Memphis, New York, Chicago, Seattle…literally every part of the country, a one time payment of $1,200 for 10 weeks for won’t cover rent let a lone food and necessities. Americans for good or bad have long accepted deficit spending as the cost of doing business, there should be no lack of support for making putting a money in the hands of consumers right now, and considering it a priority.
I would argue this makes both good business and a national security issue. Many people, including former Presidential candidate Andrew Yang and others are advocating for universal basic income, with Yang at this time calling for putting “$2,000 a month into everyone’s hands for the duration of the crisis." I agree. I also believe we need an immediate shock to the supply side system in order to generate the demand we’ll need to grease the wheels of our economy.
Trickle up economics is exactly what’s needed right now.
My proposal is below:
- Strengthen the Consumer: Immediate infusion of $10,000 per household making less than $100,000. Every person making less than $100,000, including children, receive $2,000 for 12-months
- Strengthen our Banking System: This infusion allows better positions our banks to support consumers and businesses, ensuring necessary liquidity in the system to conduct business.
- Build Business Confidence: With the consumer supported, businesses can have the confidence that their patrons will return, perhaps in the beginning not at the same rate, but businesses know that consumers will now feel more comfortable to spend and there by order more from suppliers or hire more people.
This proposal costs about $5 Trillion. Economists have wide estimates of the stimulus needed to make a strong comeback. The Roosevelt Institute and Urban Institute estimate around $2.3 to $3 Trillion. A CNBC Fed Survey indicated an additional $2 Trillion to the $2.5 Trillion already deployed is needed for a full recovery by 2020. So that puts us about $5 Trillion. The number may actually be higher as the economic ripple effects continue.
I am not an economist, I am an entrepreneur who also operates a small business serving large corporations, middle market and small businesses. Here a practical view from the ground up and why this proposal could work.
My firm serves a variety of clients including healthcare, financial services, associations, but let’s consider the following scenario as it affects only the dental sector of our economy:
- Unemployed who have lost income and savings depleted will not or cannot spend. Unemployed also lose their health insurance, that coupled with people drawing down their savings will make it less likely for them to see the dentists.
- Dentists can’t continue to employ people or buy more supplies if patients aren’t coming for their appointments. Business confidence down because the consumer is weak. No money in the bank, banks are weakened, lending gets tighter.
- Dental office workers also become unemployed or their hours will be reduced losing income and health insurance…draw down savings to spend on food and necessities. No money in the bank, banks are weakened, lending gets tighter.
- Suppliers, who are usually large and/or middle market companies, suffer declining sales, will lay people off. People who work for suppliers will lose their jobs, losing income and health insurance. No money in the bank, banks are weakened, lending gets tighter.
- Dental supplies manufactures will suffer market share loss because they can’t sell to suppliers who can’t supply dentists because dentists aren’t buying. They lay people off causing them to lose income and heath insurance. No money in the bank, banks are weakened, lending gets tighter.
- People who work for dental supplies manufacturers will lose their jobs causing them to lose income and health insurance. No money in the bank, banks are weakened, lending gets tighter.
- See the cycle?
Now take dentistry, and multiply it by every industry in the United States. Following these scenarios one can more easily come to the inescapable conclusion that strengthening the consumer ought to be priority one.
I don’t know if the one time payment of $10,000 is right, it may $7,000 or $5,000. We can certainly tweak the recipient criteria to make it fair. There are people much more qualified than me who can weigh in on that. The point is, this one time meaningful investment in the consumer, The United States government makes a powerful statement to businesses of all sizes that the consumer is armed with dollars and (eventually) confidence. By following through with the $2,000 payment for the next 12 months, we can build more confidence and our economy month by month.
COVID-19 continues to wreak havoc on people’s lives in many ways. Limiting tragic loss of life and keeping everyone safe and healthy is at the forefront of our fight right now, while facing many uncertainties. What is certain? We won’t have a healthy economy if we don’t have healthy people. And, by injecting cash directly into the bank accounts of the American consumer we can rebuild our economy from a position of strength.