The Anti-Stimulus Bill
By David Henderson
Yet the CARES Act cannot properly be called a stimulus bill, as an examination of the various provisions shows, nor should it be a stimulus bill. The act really is industrial policy in all but name, with a large dose of cronyism thrown in. One major provision, a federally provided $600 weekly addition to unemployment insurance, will delay a recovery until August. The law is a disgrace and the only person in Congress who comes out looking good is Thomas Massie, a Republican member of the House of Representatives from Kentucky’s 4th Congressional District. Massie insisted on a quorum but failed to get a voice vote.
This is from David R. Henderson, “The Anti-Stimulus Bill,” Defining Ideas, April 23, 2020.
On bailing out airlines:
One other prediction is that for the next year or two, people won’t want to fly as much. That makes the subsidy to airlines one of the worst aspects of the CARES Act. Without subsidies, would some airlines go bankrupt? Absolutely. Would that mean that airplanes would vanish into thin air, so to speak? Absolutely not. Indeed, you have probably flown on airlines that were in bankruptcy. Adding to the dysfunction is that to qualify for the subsidy, airlines must fly a minimum number of times a week, even if they carry few, or no, passengers. So the subsidies cause airlines to waste valuable employee time and millions of gallons of fuel by flying almost empty planes.
Two airlines, JetBlue and Spirit, realizing the idiocy of this, petitioned the Department of Transportation (DOT) to let them drop certain routes. According to the Wall Street Journal, “JetBlue had asked permission to temporarily suspend service to cities including Albuquerque, Minneapolis, Dallas and Houston. Some of those are major hubs for competitors, and JetBlue said it was struggling to fill flights.” The Journal article noted that passenger numbers “have fallen by 95% or more from pre-pandemic levels.” And how did the DOT respond? It denied most of JetBlue’s and Spirit’s requests to cut routes and/or flight frequency. The DOT stated that the airlines had “not persuaded the Department that we must strike a different balance.”
On how we are guaranteed massive unemployment at least through the end of July even if all the lockdowns end immediately:
I’ve saved one of the worst provisions of the CARES Act for last: the $600 per week addition to normal state unemployment insurance (UI) benefits through the end of July. This one provision assures that whatever recovery we have, it will not begin until August. If you believe that the federal government should supplement state unemployment benefits, the responsible way to do that would have been to increase benefits as a percentage of previous pay. State unemployment benefits typically cover about 50 percent of previous pay. Putting philosophical objections aside, could it have made sense for the federal government to add, say, 30 percentage points so that UI would cover 80 percent of previous pay? That would have made workers who lost their jobs almost whole, while still maintaining some incentive to work.
But by adding $600 per week, the federal government ensured that over 10 million, and possibly 20 million, unemployed workers would be paid more by remaining unemployed than they would be paid if they return to their jobs. I warned about this on March 25 while the bill was still being debated. Interestingly, a restaurant owner named Maria Martz commented on my post on April 8 that she applied for Paycheck Protection, but that it requires her to retain or rehire the same employees. She then wrote, “My employees will make more money getting unemployment, so why would they want to keep working???” Indeed. She beat fellow restauranteur Kurt Huffman to the punch by 13 days. In the April 21 edition of the Wall Street Journal, Huffman wrote that many of his employees are making hundreds of dollars more per week by staying unemployed than by returning to work. Jamie Black-Lewis, owner of two spas in Washington state, thought she hit the lottery by getting enough money through Paycheck Protection to keep her employees on the payroll. Wrong! Many of them were angry because they realized they would be paid more if she laid them off. Asked the frustrated Black-Lewis, “On what planet am I competing with unemployment?”
Do read the whole thing, especially if you want a response to your comments.