This is how we can actually save the economy from coronavirus — though some politicians don't want to hear it

No, Elizabeth Warren, this isn't the time

For all the talk on the paranoid right about the federal government’s “black helicopters,” we’ll all be glad to see Washington’s helicopters when they are dropping tons of money on our suddenly distressed economy.

But how can we do it right? By this, we mean how to do the most good with the least ancillary damage?

This is being worked out in real time, and this humble column just one voice of advice among many. But we know enough to lay out some core principles:

Go Big, As We All Go Home

The economic part of this crisis is truly of crisis proportions — there are 6,000 coronavirus diagnoses total in the US since January, and 6,000 people applied for unemployment insurance on Monday alone. As New York Times economics maven Binyamin Applebaum points out, that’s 1 per cent of the state’s workforce getting laid off over a weekend.

We’ll know the short-term toll Thursday, when nationwide data on last week’s new unemployment insurance claims are released. (And even more the following Thursday, when the impact of closures of restaurants, casinos, gyms and everything else this week show up). The worst claims report ever showed 695,000 new cases in a week, says the Calculated Risk blog. That record’s going down.

For starters, this means goodbye to the 1.2 percentage point improvement in the unemployment rate since President Donald Trump took office. That would require about 1.88 million lost jobs. Give that until May, maybe. More than 17 million people work in leisure and hospitality industries, including travel and restaurants. Few were getting rich even before coronavirus. Treasury Secretary Steve Mnuchin is talking about 20 per cent joblessness — which is a little much, but another illustration that things are indeed bad.

Either way, the response has to be big, and it has to be fast. The president’s offer is shaping up as an $850 billion stimulus — almost 4 per cent of GDP— most of which will be $1,000 checks for ordinary people. The package will include small business assistance, relief for airlines, and more. Paid sick leave, at least for now, is a given.

“The pace with which this gargantuan bill is being shoveled through Congress tells you how alarmed policymakers are by potential social and economic wreckage this microorganism can cause,” Economic Outlook Group economist Bernard Baumohl says.

It probably should be a bit bigger — Baumohl thinks $1.2 trillion is likelier than $850 billion. Either one, coupled with banks giving consumers relief on late payments, it would get most households through the three-month storm we expect now.

Second principle:

Don’t Use This Short-Term Crisis to Make Long-Term Policy

Everyone’s old chestnuts are coming out of the woodwork now. Trump’s people briefly floated corporate tax cuts before getting laughed out of the room, and Sen. Rand Paul is trying to extract a US withdrawal from Afghanistan as part of a coronavirus testing bill.

And then there’s the bad ideas of Elizabeth Warren, who has decided now’s a grand time to remake American corporate law, capital allocation and labor law on about five minutes’ worth of consideration.

Warren’s calling for a range of policies she has always been for, from a $15 minimum wage to a ban on corporate stock buybacks. She also wants to cancel student loans — a $1.6 trillion “stimulus” on its own.

Each idea can be debated on its own merits. None has anything to do with this crisis. Including them in any package will simply delay it, making the current situation worse and longer lasting, and risking bad policy decisions.

If Warren wants to raise the minimum wage, which 21 states did at the beginning of this year, she should run for president and do that in non-crisis times. (Oh, wait!) If she thinks she knows better than the men and women who run American business how to allocate capital in every single company, no matter its circumstances, she is free to begin explaining why 100 years of American corporations law that leaves private companies to be run privately is wrong. Just not now.

What we can do is put small strings on federal aid, narrowly tailored to the specific circumstances at hand.

Take buybacks. One problem here is that a lot of companies, including airlines, were caught with too little cash on their balance sheets to cope with a sudden shutdown of their businesses. But that’s not unreasonable — nothing like this has ever happened, so cash needs like what we see now couldn’t have reasonably been anticipated.

Neither does this crisis change the fact that very often companies make more profit than they can quickly, profitably reinvest in their businesses — United Airlines only needs so many planes at once. Washington isn’t going to magically learn enough to make those decisions, for everyone, just because companies weren’t liquid enough to cope with coronavirus.

On the other hand, if companies are getting federal loans, the lender of last resort can surely attach temporary strings. Companies that take Washington’s money can be made to suspend buybacks until the loans are repaid. The priority for all capital now — and the point of making the loans in the first place — is to keep workers on payrolls.

The precedent for this is the government’s loan programs for next-generation cars, which financed Tesla’s California factory. That deal let the government buy Tesla stock at $7.53 a share — a ridiculously low price, as it turned out — but only if the loan wasn’t repaid. Little wonder, it was repaid early.

The right approach is to give companies incentives to use Washington’s money now, serve the public purpose intended (saving jobs) and pay back the loan as fast as possible. It’s simple, and targeted to the problem at hand. The best lure to achieve that is the promise of being able to get back to business as usual if they do their part to prop up the economy now.