In this Economy, Coronavirus Needs a More Liquid Response

Source: Federal Reserve.

From a DSA member who needs to maintain confidentiality in this uncertain economy. His nom de pixels comes from an Irish nationalist(1846-1902) who fought for home rule and land reform. (Ed.)

The first stimulus checks from the federal government have been spent by now, and more is desperately needed. At the heart of any past or future economic stimulus is the concept of liquidity: cash must be available and spent in an economy in order for it to reproduce itself.  Unlike during the 2008 recession, tfhe United States has responded to the COVID-19 pandemic with significant liquidity provisions up-front. The largest appropriation of cash in the federal stimulus bill–the CARES Act (Coronavirus Aid, Relief, and Economic Security Act)is an estimated $US565 billion to citizens and employers. These unprecedented liquidity provisions include income-contingent cash payments, an increase in unemployment benefits, and unemployment insurance for freelance workers, among others. Liquidity is provided to small businesses via forgivable loans through the Small Business Administration (SBA). In addition, the CARES act includes additional liquidity assurances for industries and private sector companies needing relief. 

The liquidity injected into the economy by the CARES act is intended  to maintain spending by individuals– whether they are consumers or employers. The COVID-19 pandemic has forced authorities to place the economy into an induced coma in order to stem the spread of the virus. The liquidity at the heart of the political response, which is ensured and provisioned by the federal government, nonetheless reinforces the power of the state in the economy and the harmful marriage between it and capital that undermines the well-being of America’s working classes. 

 The most pernicious aspect of provisioning liquidity through the CARES act is the way the act perpetuates indebtedness on working Americans for the benefit of capital. The SBA loans to small businesses, for example, are distributed by banks at varying rates of interest according to credit history and risk determinations. The two mechanisms – the Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL)—advance the interests of capital by stipulating payments to debt mechanisms as one such required use. In the case of the PPP specifically, 25 percent of the total loan must be used for costs other than payroll, which include interest payments on existing debt. Similar conditions apply to EIDL loans. In both cases, small businesses are offered cash–public money–for immediate needs by turning it into capital for banks. Instead of providing payments directly to small business owners and distributing money through banks, the government  perpetuates the creditor-debtor relationship and the role of money as a commodity. Under these conditions, the post-pandemic economy will not emerge as one better for workers or the poor. 

The decision to inject liquidity through banks is a political decision, not an economic necessity. The United States has the ability to inject as much liquidity into the economy directly via businesses as it is directed to by policymakers, or as the Federal Reserve deems sufficient to meet its dual mandate of full employment and moderate inflation. The decision not to issue relief directly to applicants and instead through banks turns public money into the type of private, surplus-value creating commodity at the heart of Karl Marx’s critique of capital. True to form, recent data demonstrate capital’s abuse of the liquidity facilities offered through banks to advance their interests, with banks increasing the leverage required to obtain SBA loans (“tightening” in finance-speak.)

What the data reveal is a standard required of small businesses that has not been observed since the Great Recession. Such tightening decreases the number  of customers seeking these loans, raising the interest rates for the others who do meet these higher standards, and thus advances the interest of capital and the use of money as an indebting mechanism. Similarly, the bailout money issued directly to companies or industries, bypassing banks and the interest they would otherwise charge companies comprising the industry, further highlights  the political nature of liquidity provisioning. Although industry bailouts offer the government leverage to demand reforms from recipient industries and companies (leverage it does not typically take advantage of), the decision to rescue these industries en masse with grants instead of conditioning their rescue on the same market mechanisms that small businesses face paints a stark and predictable picture of political favoritism over and above any belief in the necessity of an invisible hand regulating free markets or the needs of working and poor Americans.

When the crisis subsides, there will be millions of people with insurmountable debt and jobs lost. On the other hand, big-spending industries and companies will continue to thrive by avoiding the same indebting mechanisms that harm working and poor Americans. Any response on behalf of the working class and poor Americans must avoid harming their immediate needs. A working-class politics that embraces the use of tools for  liquidity provisioning to smooth the harmful effects of the current economic coma should therefore advance short-term goals that ensure fair access to liquid cash without debt while looking toward the long-term possibility of eliminating the political favoritism and the perpetuation of class inequality inherent within the current system.

For example, there is a disconnect between educational attainment and real income, and more borrowers with associates degrees or less hold more student loans than those with bachelor’s or professional degrees. Student loan forgiveness for those eligible for the full amount of the stimulus money, therefore, would immediately increase the amount of liquid cash to the working class. Such loan forgiveness could be a step toward  a debt-free public college option in the long term while immediately releasing them from the debt-trap created by money when it is provisioned by banks as a commodity. So, too, might an immediate moratorium on consumer debt collection (including rent, credit cards, mortgages, and other debt mechanisms) pave the way for the elimination in the medium term of predatory lenders who are likely to take advantage of the workers and businesses not deemed worthy of relief by the existing credit system. 

 Other immediate possibilities include the temporary nationalization of industries that make supplies necessary for combating the pandemic. Currently, the Centers for Disease Control (CDC) identifies eight goods that fall under the category of Personal Protective Equipment (PPE). Unsurprisingly, a lack of any federally run program to produce and distribute these goods has led to shortages, price gouging, and bottlenecks. Some states have responded to the absent federal program by convening regional purchasing monopolies to make-up for the federal government’s inept, market-driven response. 

Harvard ethicist Michael Sandel similarly suggests that temporarily mandating the production of essential goods and services domestically through legal triggers like the Defense Production Act would temporarily eliminate the abuse of market mechanisms that are exploited only for profit, and at the expense of typically poorer and minority communities that are more affected by the pandemic than others. Such temporary measures could prove helpful in arguing for antitrust regulation of contemporary capitalism’s increasing problem with monopoly–an anti-market outcome in its own right. Confiscatory wealth taxes, on any corporation turning public money into profit through the pandemic today, is also a short-term possibility with longer-term implications for redistribution from capital to workers. 

A working-class strategy must also not sacrifice the democratic nature and communitarian spirit of its goals in whatever strategy it advocates. Immediate and necessary federal aid to states could be conditioned on mail-in balloting in this year’s election and for all elections in the future. Industry bailouts should automatically terminate unless bi-partisan democratic extensions of such bailouts occur. Conditions on industry bailouts that mandate easier unionization, worker representation on corporate boards, equity stakes for workers, and limits on executive compensation and stock buybacks are all elements of a fuller program that aims for corporate accountability through democratic processes.

Simultaneously, automatic renewals or increases of the enhanced unemployment benefits could be conditioned on a compulsory voting requirement, thereby increasing the democratic voice that many entrenched interests today rightly fear. Whatever the ends, targeting the use of liquidity provisioning by the state is one means to undo a key mechanism that tends to favor capital’s interests over those of the poor and working class.