The Way Forward

Policy proposals from the Mercatus Center to jump start America's economy now

The COVID-19 pandemic is causing an almost unfathomable strain to America’s health care infrastructure, significant economic consequences in terms of growth and employment, and a terrible human toll throughout the country. As policymakers prepare to “un-pause” the economy in the coming weeks and months, here are ideas developed by the Mercatus Center community for a quick, entrepreneur-led rebound.

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Economic and Fiscal Policy

Improve State Fiscal Outlooks through Pension Reform

The decline in economic activity will sharply reduce tax revenues in most states in the coming months. Despite claims to the contrary, states’ public pensions are underfunded by over $1 trillion; the decline in tax revenues and equities valuations may cause states which are already on the brink of pension insolvency to seek a federal bailout.

Ideally voluntarily, and certainly as a condition of any federal bailout (either explicit or implicit), states should transition their pensions from defined benefit (DB) plans to defined contribution (DC) plans to avoid insolvency and cascading negative consequences. This will allow states to cap their unfunded liabilities and pay them down over a reasonable period of time, making any bailout a one-time affair and not a regular occurrence in any economic downturn.

Relax Lending Rules and Lines of Credit to Allow Homeowners to Tap into Their Wealth

The economic fallout from a global pandemic is exactly the sort of “rainy day” that households save for. If ever there was a time when it is important to make sure that Americans can tap into their wealth in order to get through a tough time, it’s now. 

Americans currently have $19 trillion of savings in the form of home equity–more than ever. But post-financial-crisis regulations make it very difficult for many families to tap into that wealth. If banks are willing to hold new cash-out refinances or HELOCs in their own portfolios, we should temporarily remove the mandates and threats of penalties that have discouraged them from making those loans to many homeowners since the financial crisis. This is a way for Americans to help each other that doesn’t require adding to the national debt.

Don’t Try to Reignite the Economy Through Taxpayer Subsidies

Many businesses and their employees are facing financial calamity through no fault of their own as a result of the COVID pandemic. Labor and capital need to be able to go where they can do the most good for society. That is truer now than ever. Policymakers should be mindful that a safety net for firms may discourage the sort of reallocation of labor that is desperately needed right now. 

Instead of slapdash bailouts for firms, regulatory, trade, and tax provisions that constrain firms should be adjusted or suspended. For employees, the federal, state, local and private programs that already exist should be adjusted to provide aid to those who need it. In response to this pandemic, policymakers should be guided by the principle that safety nets should be for the people, not the firms. The already problematic “bailout culture” will be strengthened further if firms receive the bailout wish lists they provided to policymakers.

Don’t Use Infrastructure Stimulus to Try to Boost Demand or Put People Back to Work

Last week, a record 3 million Americans filed for unemployment benefits for the first time, suggesting that the demand shock caused by COVID 19 pandemic may lead to millions of Americans being unemployed in the coming weeks and months. In the next phase of coronavirus fiscal stimulus, lawmakers have their eye on publicly-funded infrastructure projects as a means to create employment opportunities for the newly unemployed. 

But Mercatus research on the 2009 American Recovery and Investment Act (ARRA) suggests that infrastructure spending is not a reliable way to quickly increase aggregate demand or to put the newly unemployed back to work. Instead, infrastructure spending ought to be evaluated on the merits of the project.

Eliminate Tariffs to Boost Economic Growth

If the Trump administration wants to boost the US economy immediately, it can start by lifting all the Section 232 and Section 301 tariffs it imposed unilaterally in 2018 and 2019 and postponing all tariff hikes currently in the pipeline until the COVID-19 crisis passes. Studies by the New York Fed and NBER have shown that Americans, not foreigners, are paying the direct cost of the approximately $50 billion in additional annual tariffs the administration has imposed. 

The Congressional Budget Office recently estimated that leaving those tariffs in place will reduce average household income this year by $1,277—cancelling out a good chunk of the income support payments just approved by Congress. The tariffs are also disrupting access to global supplies of medical devices, thermometers, and protective gear for doctors and nurses. Reducing and postponing tariffs would help alleviate these shortages, raise real household incomes, and boost business and investor confidence across America. 

Regulatory Policy 

Reform Occupational Licensing Laws to Increase the Supply of Health Care Workers 

The COVID-19 pandemic has imposed a significant strain on the US healthcare system and on the supply of healthcare providers. State occupational licensing laws seriously exacerbate this problem by constraining who is eligible to provide healthcare. In response to the pandemic, states should consider a series of temporary measures to address these self-imposed limits, including a blanket expansion of medical scope of practice laws, waiving licensure requirements for medical professionals, and issuing out-of-state licensing. These reforms will help provide the capacity the healthcare system needs to meet extraordinary demand.

Institute State Regulatory Reform to Encourage Entrepreneurial Resilience

Small businesses have been among the hardest hit by government-ordered closures due to the COVID-19-pandemic. In many parts of the country, these businesses have already long been burdened by regulatory growth, which makes it harder to start and successfully run small businesses. 

Policymakers in states like Virginia, Idaho, and Ohio have been making “significant headway when it comes to reviewing old regulations, estab­lishing budget infrastructure for regulations, and setting benchmarks for reducing red tape,” as James Broughel notes. Continuing and even accelerating this trend will go a long way to reduce the burdens that small businesses are facing across the board. 

Create a BRAC-Style Regulatory Review Commission to Remove Unnecessary Red Tape

The immense volume of regulation in the US slows economic growth, limits innovation, and disproportionately burdens small businesses and low-income households. The importance of these effects are underscored by a recent finding: had the volume of regulation not grown between 1980 and 2012, the 2012 US economy would have been $4 trillion (or 25 percent) larger. 

A BRAC-style regulatory review commission (modeled on the bipartisan Base Realignment and Closure commission that closed many underused military bases following the end of the Cold War) provides a way to objectively identify and remove large amounts of unnecessary or ineffective red tape without interference by the special interests who benefit from these regulations at the expense of the broader population.

Monetary Policy

Institute NGDP Level Targeting to Stabilize the Economy

By setting an NGDP (nominal Gross Domestic Product) level target in place of an inflation target, the Fed will stabilize the growth of total spending in the economy, which in turn will stabilize household and business incomes. This is especially important during crisis periods because it will keep incomes in line with people’s previous expectations of income growth. Although NGDP level targeting does not prevent the economy from falling into recession, it prevents the recession from worsening because it helps people and businesses continue to make regular payments such as mortgages and payrolls.

Allow the Fed to Buy Other Assets When Interest Rates are at Zero 

To make monetary policy effective and minimize the damage from economic crises, the Fed needs to convince markets that it has enough monetary policy tools to achieve its targets of full employment and two percent inflation. Although in theory, a central bank can always inject more money into the economy by buying assets, the Fed is legally restricted to only purchasing US Treasury bonds and mortgage-backed securities and cannot easily buy riskier assets such as corporate bonds and stocks. 

Congress should give the Fed explicit permission to buy these other assets as part of its normal operations, but only when interest rates are zero and the Fed cannot engage in traditional monetary policy operations. Giving the Fed this expanded but clearly-defined power would prevent markets from panicking over the Fed’s ability to respond to recessions, which would actually make it less likely that the Fed would need to intervene in the first place.

Health Policy

Use Surplus Property to Expand Health Facilities

The United States has far fewer hospital beds per capita than other developed nations. Germany, for example, has 8 beds for every 1,000 people, while the United states only has 2.8. The federal government has plenty of underutilized facilities that could be employed in this crisis; the Government Accountability Office (GAO) discovered at least 7,000 surplus properties in 2015. 

Many of these facilities still exist and remain underused. They could be repurposed to increase the supply of health facilities. The Office of Management and Budget (OMB), the General Services Administration (GSA) and the Department of Health and Human Services (HHS) should collaborate to quickly identify underutilized facilities and transfer them to state governments, local governments, and medical institutions so that they can be used to promote public health.

Relax Rigid Regulatory Procedures to Allow Vaccines and Drug Therapies to Come to Market Faster, without Compromising Safety

To curb the health and economic costs of the COVID 19 pandemic, we need to bring therapeutic, prophylactic, and vaccine treatments to market. The standard outlook is that a vaccine will not be readily available for at least 12 to 18 months, and new drug development, on average, requires 6 to 11 years of testing and regulatory reviews. 

To shorten these timelines, the Food and Drug Administration (FDA) could collaborate with industry and researchers to make new drugs or vaccines available to patients after the Phase I safety trial has been completed. This would allow patients to access promising therapies in early 2021, instead of years later. To accelerate the development of coronavirus vaccines, Congress could create an expedited process to allow patients, with informed consent, to use vaccine candidates that have not yet completed the full FDA approval process.      

Repeal CON Laws to Improve Access to High-Quality Health Care 

Certificate-of-need (CON) laws are in place in 36 states and the District of Columbia. CON laws require that those wishing to offer certain healthcare facilities, services, or devices first receive authorization from a state regulatory authority. Four decades of research shows that CON laws lead to restricted access, lower quality, and higher costs of care. A full repeal of CON laws can dramatically improve patient health in the states that undertake it. 

If political obstacles from incumbent providers arise, state legislators should consider repealing some (but not all) of their CON requirements, institute a time-bound phase out, provide administrative relief to applicants, simplify criteria used in the determination of need, and increase transparency surrounding the application and approval process.

Expand Pharmacist Practice Authority to Improve Healthcare Efficiency 

Given their medical training, pharmacists are able to perform medical tasks well beyond what most current regulations allow. Pharmacists have better knowledge of pharmaceutical drugs than other healthcare professionals and interact with patients much more frequently than physicians do. Yet prescribing authority for pharmacists remains limited across the United States. 

To tap into pharmacists' expertise and routine access to patients, states can allow online prescribing, remove restrictions to Clinical Laboratory Improvement Amendments (CLIA) waivers, accept out-of-state pharmacist licenses or enter into reciprocity agreements with other states (like Idaho did), relax restrictions on telepharmacy, and reduce restrictions on pharmacy technicians. In response to the current public health crisis, states should consider allowing pharmacists to conduct antibody tests for COVID-19 and administer FDA-approved vaccines.

Expand Access to Telemedicine to Diagnose and Treat Patients  

Telemedicine is the use of telecommunications technologies to remotely diagnose and treat patients. It is especially promising in healthcare delivery because it is a convenient way to minimize exposure to other patients and facilities. However, multiple state-level policy barriers stand in the way of telemedicine expansion. To enable fast adoption of telehealth services, states should allow online prescribing, reimburse Medicaid providers at parity for store-and-forward telemedicine and for remote patient monitoring, allow broad Medicaid reimbursement by provider type, and eliminate telepresenter requirements.

Ease Federal Restrictions to Allow State and Local Authorities to Facilitate Drone Delivery Services

The use of drones for medical, parcel, and grocery deliveries would be enormously beneficial as part of America’s response to COVID-19. These benefits are not just theoretical; drones have been effectively deployed in China in the wake of its COVID 19 outbreak. 

The barriers that prevent drone delivery services from scaling up in the United States is not technological, but institutional. The Federal Aviation Administration (FAA) and White House, perhaps through a statement of policy, could resolve some of the ambiguity in federal airspace law that would allow state and local authorities to demarcate and lease the airspace above public roads. States could undertake reforms that allow for the creation of drone highways for medical and parcel deliveries. The federal government could also implement changes that will help facilitate the widespread use of drones for medical deliveries.

Photo by FREDERIC J. BROWN/AFP via Getty Images