“What this will require, though, is a smattering of boldness, for leaders who can look beyond balancing a budget to the actual needs of our society, and take a measured risk to make all our lives better and more prosperous.”
When thinking about the facts of police brutality against black lives, and the resulting riots convulsing so many cities across the country, it can seem beside the point to be thinking about reopening our economy after the virus lockdown. Still, the inexorable grind of the calendar doesn’t stop for a protest march, and neither does the virus.
The state is slowly reopening, but it’s premature to think the crisis is behind us. The virus is not beaten — there is still no treatment, nor a vaccine — but it seems there are limits to how long we can be bottled up, especially in a world where there is no support for people who are bottled.
But reopening doesn’t mean things will be back to normal, and thousands of businesses are going to see reduced demand, be it through fewer tables at their restaurants, having to make reservations at the gyms, less foot traffic in their stores. And lots of people who are just scared to go out.
That means workers with fewer hours even where they are not laid off, and businesses barely scraping by, which in turn means less money in people’s pockets, and less money spent at other businesses.
Thousands of Rhode Islanders have found the last three months excruciating, so it seems a bit tough to say that there is worse ahead, but we are poised on the precipice of a very deep recession caused by a lack of demand — for goods, services, nights out to eat, whatever. This is obvious to everyone, which just makes it worse because even people with enough money to buy stuff think it might be smarter to save for the tough times ahead. While this is individually smart, it contributes to the lack of demand that slows the economy.
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This is exactly what the theory behind economic stimulus was invented for. Stimulus is what got us out of the Great Depression and it’s what kept the financial crisis of 2009-2010 from being much worse. I wrote about how, in Rhode Island’s 1991 demand-led recession, the state stepped in and borrowed around a third of the state budget as stimulus, and kept that crisis from being much worse than it was. Interest rates are incredibly low, so this is a good time for a similarly ambitious response. But what to do with that money? In the 1991 crisis, there was an obvious answer: give it to people who had lost it. What would be the appropriate policy response now?
These days, lots of people think economic stimulus means build a bridge, but John Maynard Keynes, to whom the idea is usually credited, had more to say about the composition of stimulus than this. He’s often quoted to say that stimulus could be as simple as paying people to bury jars of banknotes and dig them up again, but in the sentence immediately following that famous passage, he wrote, “It would, indeed, be more sensible to build houses and the like.” He thought the composition of government spending was of vital concern and that only foolish leaders would overlook that.
During the Great Depression, with automobiles and electricity changing our world, it made sense to build bridges and roads and generating capacity. The dams and electrical distribution towers of the Tennessee Valley Authority (TVA) and the Rural Electrification Agency (REA) changed the rural south and west in profound ways. The bridges and roads of the Works Progress Administration (WPA) made travel easy to a degree that had never been before.
Today, though, the truth is that we have all the bridges we need. Some need maintenance, perhaps, but the point of investment is that you can do more and better stuff afterward than before. If we replace the bridge between Providence and East Providence, I’m sure it will look nicer but it won’t change anyone’s quality of life at all, except the people who were paid to build it.
As Keynes said, that’s not nothing, but it overlooks the need for infrastructure that would make a difference. For example a massive investment in clean energy would change our state for the better in many ways. Perhaps this could mean developing solar canopies to blanket all the parking lots in the state. We could establish microgrids with big battery banks, everywhere and make each town energy self-sufficient. Perhaps we could address some of the vulnerabilities in the food distribution infrastructure laid bare by the virus by investing in local processing capacity. Perhaps we could beef up telecommunication capacity in the poorer parts of the state, now that we know how vital it is for helping people stay home to contain the spread of infection. There are a host of labor-intensive investments like these that are not typically thought of as infrastructure spending but that would leave the state better off as a result.
Beyond stimulus, though, it’s worth thinking about how to preserve what we had before the virus forced us all apart. A business is a hard thing to start. The collection of our state’s businesses represents a tremendously valuable economic patrimony that we cannot just let wither away. These businesses have been through the wringer over the past couple of months. Many will survive, weakened, many will not. A cheap loan might help some, but others need something more.
Another important component to the New Deal was the Reconstruction Finance Corporation (RFC), that invested in businesses as a partner, not a lender. It brought much-needed capital into businesses in exchange for part ownership, and then worked to extract itself over time. The idea was to prop the business up, but then work to keep it standing. If an owner wants to get out, such an agency could arrange a buyout by its employees, or broker the business to someone who wants to invest the time and effort to keep it going. Again, the collection of businesses in our state is perhaps the most important component of our state’s wealth. Preserving it must be high on any sensible policy agenda.
One could do almost the same thing in the housing market, and exactly that was also done during the New Deal. The Home Owners’ Loan Corporation (HOLC) invested in homes to prevent foreclosure or to offer workout terms to homeowners. As with the business policies, the idea would be to extract the state as soon as feasible, but above all to keep people in their homes. (The HOLC was also responsible for institutionalizing racial discrimination in federal housing policy, but that’s a sad legacy best left in the shameful past.)
Obviously renters are in need of help, too. If a landlord goes into foreclosure, tenants are not unharmed, so a suspension of rent or evictions may not be a good solution when the landlord is in debt. But the HOLC approach could be extended to landlords who are willing to accommodate rent reductions or suspensions, and help address some of the inequities in that market, too.
These programs were not quick hits. They took a long time to do their work. The HOLC, founded in 1933, did not stop operation until 1954, while the RFC, founded in 1932 (it was actually created by Herbert Hoover, but it changed a lot when FDR was elected), chugged along until 1957. They spent that time quietly and patiently putting people and businesses back on their feet. And by spending the time and doing it right, neither one lost money in the end.
So what about it? Here are successful models for economic intervention from our own past. We could borrow money to create a Rhode Island Recovery Fund, a corporation to emulate the past successes of the TVA, WPA, RFC, and HOLC. Borrowing is very cheap now and this could be done for low cost. But it would have to be done big to have a real effect. What this will require, though, is a smattering of boldness, for leaders who can look beyond balancing a budget to the actual needs of our society, and take a measured risk to make all our lives better and more prosperous. We know where we should be going. Will anyone lead us there?