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.
Safety nets should be for the people, not the firms
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.