Helicopter Money Would Help People, Not Endangered Businesses

(Bloomberg Businessweek) -- There’s a rush of interest in handing out $1,000 to every adult American—or some variant of that gambit—to soften the economic harm of the Covid-19 pandemic. Advocates of showering money on the public include fiscal conservatives such as Senator Mitt Romney, the Utah Republican, and Gregory Mankiw, the Harvard economist who was a chief economic adviser to President George W. Bush. The Trump administration wants to send out checks soon, possibly in amounts greater than $1,000 each, as part of a stimulus that could total $1.2 trillion.

Helicopter money, so called because it seems to fall from the sky, gets a lot of dollars out to a broad swath of the public. (The assumption is that the Federal Reserve won’t counteract the stimulus by sucking the dollars back out of the economy.) In contrast, a payroll tax holiday, which President Trump has advocated, helps only employed people who incur payroll taxes.

But a check from Washington doesn’t work as quickly as a payroll tax cut, which could take effect as early as April 1. Helicopter money is usually done via a tax credit that’s “refundable,” meaning you get it even if you don’t owe income taxes because your income is too low. The credits take time to enact and carry out. “In 2008, legislation approving the stimulus passed in February, while most individuals received checks amounting to $600 (twice that for joint filers) between May and July. In the current environment, a similar timeline of three-to-five months would be far too slow,” economists Carl Riccadonna and Andrew Husby of Bloomberg Economics wrote on March 13.

One problem with both kinds of tax cuts is that they’re too small for people who are in a pickle and too big for those who don’t need help. And the businesses in the most danger will benefit the least. No one’s going to splurge on restaurants, airlines, or hotels just because the government cut them a check. Alan Auerbach, an economist at the University of California at Berkeley, says one solution is to beef up and extend unemployment insurance for people working in virus-stricken industries. While that helps the workers, it doesn’t help the companies.

One out-of-the-box idea: The federal government could give money directly to companies to make up for lost revenue. In the airline industry, for example, “If demand drops by 80 percent, the government would compensate this missing demand, in effect buying 80 percent of plane tickets and maintaining sales constant,” Berkeley economists Emmanuel Saez and Gabriel Zucman proposed on March 16 in an article on Pro-Market, a University of Chicago Booth School of Business blog. “Business activity is on hold today,” they write, “but with intravenous cash flow, it can be kept alive until the health crisis is over.” —With Josh Wingrove, Laura Davison, and Saleha Mohsin
 
Read more: How Covid-19 Affects the U.S. Workforce, by Income and Industry

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