The Only Ways to Bounce the Economy Back to Full Health IMMEDIATELY AFTER the Pandemic — But We Have to Start Now.
This non-ideological article provides a clear and fundamental economic reasoning about the mothballed economy, explaining why we really only have one good choice to make: legislate a certain kind of rent relief through a clever tax and rebate system (called “Crypto-cryo-economicosis”), or else accept a deep recession.
In a time of confusion and clamor, this (somewhat) philosophical treatment of the topic IS the only playbook we have for emerging relatively unscathed from this economic storm.
For a TL;DR of this article, go here.
Ithink it’s fair to say that we’re in great distress about how we’ll manage the financial disaster that’s accompanying the 2020 coronavirus pandemic. It’s no longer news, of course, that millions of workers have already been laid off; “stimulus” packages are being passed which will, assuredly, bail out some businesses while leaving multitudes of others out to dry; the stock market plummeted weeks ago; and a large portion of the economy’s businesses have been shuttered, many of their fates seemingly sealed for the worse. Powerful people are clamoring for solutions, but none of them seem to actually think that bailouts and “stimulus” packages are anything but stopgap measures, despite their immense price tags. (One does have to wonder, after all, how the government can afford to bail out everyone at once, as the economic logic of that seems to implode.) In the US, the $1,200 relief checks are far smaller than most Americans need in order to stay afloat for very long (certainly not nearly as long as the quarantining will go on for). Furthermore, nobody really seems to think that we can avoid a fate where a vast swath of the economy is simply doomed. Newspapers have been reporting that Economists say there’s little doubt that the US is headed into a years-long, deep recession. Political leaders have put forth no coherent plan to save the economy after an extended battle against the virus —neither do they offer coherent fundamental economic explanations as they seemingly lunge at anything that strikes them as mitigating. The plans put forth by politicians, such as Ilhan Omar, would “#cancelrent”, but ultimately would create many further problems of unfairness and confusion, so that we’re still left with no coherent policy. And because leaders aren’t coalescing around a coherent policy, we are on track for a recession of epic proportions, which will produce an economy that still pales in comparison to its pre-virus levels for years after the vaccine has been perfected and distributed.
But none of that has to happen. Our fate is not doom. After all, why should an economy be ruined just because everyone went home for a few months? Why can’t things be mothballed, but bounce back (aside from a little depreciation)? Do the factories get destroyed by this virus? No. Are the people maimed en masse? No, not really. Do the restaurants get permanently fouled by the fact that the virus had once been in the air? No; no lasting biohazard here. Does the virus salt the earth? Nope. The fields are still arable. There’s nothing actually wrong with the restaurants, the amusement parks, nor any other place of business. So after the vaccine is in hand, the problem is not physical. It’s really one of accounting, and not much else. If we can figure out a way of accounting for where the money and value ownership should go, then we can solve the problem of how to temporarily shut down an economy and then bounce it back up to full steam in a heartbeat.
Crypto-cryo-economicosis
So here’s the way to do it: first of all, recognize the immutable preeminence of the problem of expectations. Unless you solve the problem of expectations, you can’t really solve anything. We need a uniform set of lowered expectations during the economic freeze. When an economy runs at full steam, profits are to be gathered; but if you freeze the economy temporarily, yet unexpectedly; then those who expected a certain level of continuous profit, spun out of their previous investments, should no longer be allowed to legally compel their expectation of it to be fulfilled for the duration of the freeze. If they ARE allowed, contractually, to extract profit from the economy during the freeze, then that value is going to be picked from someone else’s pocket. Landlords, let’s call them, are the ones who have set up contracts to extract value from property so that they can legally expect profits either from businesses or individual renters, who may, in turn, be landlords themselves. If landlords are able to continue to get their expectations met (in the form of profits ultimately derived from rents), during the freeze, from those whose income streams are diminished due to the pandemic; then when it comes time to unfreeze everything, the economic landscape of who owns what will no longer be the same. Previously healthy businesses will have been burdened with debt and bled dry by their landlords. This, in turn, will lead to instability on a wide scale, forcing prices and purchasing powers to warp, resulting in an extended recession. And this stands beside the other even more apparent mechanism: that many landlords will continue to demand rent until their tenant business is forced to fold; which, of course, means the business won’t be there when we’re ready to patronize them again after the freeze. (That, in turn, represents a vast amount of effort and value lost, which we will never get back — just the same kind of value loss as happens when a hoodlum breaks a car window to steal someone’s CD music collection, then sells each CD on the street for 20 cents. The economy will slowly recover as it rebuilds, but the value sunk into creating those folded businesses is lost, so can’t, for example, just be taxed back into existence.) So shuttered businesses need to not fold during the pandemic, AND they need to not be bled dry. Fundamentally, what needs to happen is that landlords need to temporarily expect lower rents to whatever degree their investment’s renters are affected by the virus. To the degree that landlords are empowered to collect more than that, it becomes a disproportionate hardship for the rest of the economy since the rest of the economy has shrunk.
Well why is that so bad?
The reason that it would be so bad if a rapid shift of society’s value goes over to the landlords is that it means that the middle-class and lower will have less disposable income, so they can’t spend as much money on regular things, meaning that the sales volumes will drop for non-luxury items all across the board. So when we’re trying to start up the economy again, yet sales volumes just won’t rise; the producers will realize that they can’t afford to try to produce as much; so after they’ve recalled their furloughed workers, they just have to fire a lot of them, or pack up shop. That will be especially likely to happen because the business would’ve taken on so much debt, and so will be especially likely to go bankrupt — and go bankrupt in a very bad way, where there’s not a lot of value to divvy up afterwards. Because ordinary businesses will be unable to raise sales volumes to the expected levels, and will effectively be generating unanticipatedly few profits or else just going bust; investors will feel the pinch and will circle their wagons as they see their investments dry up. Money will be harder to come by, businesses will be much, much harder to start, and we will fall into a properly extended recession, even though we now have the vaccine. At the same time, more services will arise to cater to the wealthy; and, although a greater percentage of the middle-class may be able to make a new niche for themselves in servitude for the wealthy, the rapidity of the shock to the system will cause such disruption in where people are working (not to mention changes in pricing and production) that it will take a long time for everyone to find their footing. Likely, this would lead to an extended malaise for almost a decade — long after the shock produces a recession that we slowly recover from. Anything which would so quickly swing such a disproportionate amount of value into the pockets of the wealthy will have this same effect. As it is now, with so much of the economy as shut down as it is during this epidemic; landlords will take a big bite, and the wealth will swing over to them tremendously.
So this is what has to be done:
A way must be found to keep landlords’ profits in proportion with the shuttered economy despite the fact that the landlords hold contracts to extract higher amounts of value; thus we need to find a way to not pay for, but to economically delete a degree of tenants’ rent obligations. Having the government pay for the rents is not the solution, since the people, generally, pay for the government, and this would simply put all of society on the hook for slowly paying the value back to the landlords. IF the government paid rents for affected businesses and individuals, it would be better than nothing since landlords pay disproportionately high taxes, but it would only be mildly mitigating — think of it as a 20% solution to the problem.
[ For the rest of this article, I’ll talk about The United States’ specific problems, which entail legal hurdles that are perhaps greater than many other countries’, since the US has a federated system, etc.; but similar things may be applicable elsewhere.]
[Before going on, another note: I am a philosopher, so I speak in theoretical ways. Just because I point out that one thing solves a problem doesn’t mean I’m advocating for that one thing. By the time you finish reading the article, you should realize that I’ve explained multiple variations, and explained how some things that are actually unfair to some people will actually solve the problem for everyone else, so don’t make up your mind too quickly. Remember: I’m a philosopher, and I do things like define terms as I go and teach mechanisms so that we can understand something more complex later on.]
[Furthermore, trust me. I’m Even, of www.TheSideofGood.com. I have good intentions, and am neither Left Wing nor Right Wing. If a person listens to another with too much skepticism, it’s not long until they tend not to listen carefully anymore, then they don’t end up understanding, and I say this because it seems almost everyone who has read the article so far has misunderstood this playbook to some degree. I want to make it clear that what I advocate for means that nobody takes the fall. Not businesses, not landlords, not employees. Everyone retains the ownership and control that they had before the pandemic started. Nobody gets taxed out of the game; no double standards are applied to one groups’ profits at the expense of another. Everything pops back to normal when the vaccine is in hand. And when it’s all over, the Mr. Potters of the world haven’t bought up half of their respective towns.]
The first problem is that to do — in the most straightforward manner — what needs to be done economically, it would almost certainly be unconstitutional in the US. Even though the president’s controversial “emergency powers” are frighteningly broad, it seems that the president can’t simply make a decree that landlords stop collecting rent from those economically affected by the virus. So to accomplish what’s economically most desirable, we must go about it in a circuitous manner. Let me admit that I’m no constitutional scholar nor tax scholar, and I’m not fully familiar with the debates about the 16th Amendment nor the “emergency powers”. So don’t expect me to address specific laws. However, we all know that landlords have their profits taxed at a rate, and that this number can be changed. Whether by the Federal government or by a State government, what needs to be done is that the rate for affected properties needs to be temporarily set at 100%, so that any landlord would be rationally indifferent between collecting the rent and not collecting it. We should also ask them nicely not to collect it. Some landlords may collect it regardless; in which case, there should not only be an additional program to immediately fund their tenants with emergency circular loans that will come right back to the government through the 100% tax; but there will need to be heightened attention to the possibility that the landlord will try to hide their rent profits or dump it into a tax haven. Profit hiding has to be made impossible or extremely unlikely, of course, in order for the plan to work and the economy to be saved.
What I’ve just described is not a tax on passive income, broadly. It’s a tax on a certain kind of real property that has a contract upon it to make money… only when the property is rented by tenants economically affected by the virus, and to the degree that they are. It’s a tax on profits from holding mortgages, owning a downtown building, owning a rental storage facility, owning an apartment complex, or of owning a rented helium tank that is sitting dormant but full at the local clown college. It’s not a tax that steers a country toward communism — it’s a tax that is meant to keep the means of production in the hands of the entrepreneurs.
Landlords and investors can take the hit. Businesses and people cannot without changing (or going bust).
When landlords and investors take a hit, the likes of which I speak; they simply see their yearly profits from passive income drop from, say 7% to, say 2% or 0%, and their profits will pick up again next year. Not a big deal. Businesses that take a hit, the likes of which I speak, may lose everything; which is the same scale of cataclysm as lone employees who may have their lives wrecked by laying all of the quarantining costs at their feet. Remember, the economic goal is to not change the economy; everything needs to spring back to full health right after the epidemic is over, just the way it was. So it should be clear that if one had to choose to lay costs at the feet of landlords or else businesses and tenants, one of these choices is the right choice: put the tax on profits derived from a percentage of rented property.
Let’s examine how such a tax might work for someone who owns an apartment complex free and clear. Landlord A’s apartment complex has 200 units, all of them occupied, out of which 120 are inhabited by tenants who have decreased income streams due to the pandemic requiring the closing of their places of employment. The landlord employs an apartment manager and another assistant to manage the place, plus two handymen-landscapers. The cost to pay these employees is laid at the feet of all tenants, uniformly, and amounts to $85 per unit. Add to this $85 all other costs; like “sewage”, “water”, etc.; then subtract this total from the tenant’s bill and you get the true rent portion of the “rent” tenants pay. Suppose, in this scenario, all other services amount to $15 per tenant. So each tenant is really paying $100 in services when they hand money to the landlord’s agents. One of these tenants who’s been impacted is a semi-retiree who was previously on call only two days per month, but now no longer due to their workplace shutting down for the pandemic; so the financial impact they feel is small but real for their limited budget: a loss of $400 monthly, yet their payment for the unit is $1,000 monthly. The tax applies to property rented by tenants affected by the pandemic, so only $400-worth of the property rented by the semi-retiree’s unit is affected; in the end, the semi-retiree should pay $600 total per month for the duration of the pandemic. Another tenant is home due to the virus, but is telecommuting; his income is unchanged, and so is his rent. About 110 tenants each only pay $100 per month for the services and nothing else — the 100% tax doesn’t apply to this part of their bill to their landlord. Landlord A still collects about half the money he used to collect from his tenants. This 100% tax is applied to the NET INCOME, not the gross income, for that is the true rent of the “rent”.
[And were the landlord not to own the apartment complex free and clear, but, rather, have a mortgage or equity partners; the mortgage payments and payments due to the equity partners would ought shrink in proportion to the shrunk revenue from the rent part of the “rents”. So let me make it totally clear, for those who haven’t been reading with a fine-toothed-comb, that I’ve already DEFINED landlords earlier in this article (“Landlords, let’s call them…”) to include equity partners and holders of mortgages, etc. This means that anyone who legally expects profits down the line from its origin of rented property (and could, if the more near-to-the-property landlord(/s) went belly-up, lay claim to the property) would also be considered a landlord. So let me reiterate that the law imposing a decreased net income would also apply — in the exact proportion that the property’s renters are affected by the pandemic (excluding service costs) — so that it would transfer this tax on net profits all the way up the line of what are now termed “landlords”: landlords who have creditors, who have creditors, who have creditors (who are all therefore landlords), and so on. It could go on like that for a thousand iterations and this law takes it into account to give them all a soft landing. So any one of them isn’t going to be bankrupted by this tax — their expectations are all simply going to have to be lowered.]
One can see that this sort of arrangement will easily save restaurants, barber shops, and many other types of main street businesses from permanently going under even though they may be shuttered. The ongoing service costs; such as internet connectivity, security at amusement parks, and electricity and liquid nitrogen at cryo-labs; will be minimal compared to rent costs. Governments could require businesses, such as internet providers, not to charge service fees for services going unused by the client due to shuttering if the client requests it; but hopefully no law would be required and businesses would be willing to do this without laws needing to be passed. The governments, too, should give waivers for things like vehicle registration fees when businesses have shelved vehicle fleets. Ultimately, when the lights are turned off and the employees have gone home with no pay and the rent need not be paid, the cost to keep businesses mothballed will be minimal.
Now that we’re square on how this temporary tax works and saves vast swaths of the economy, we’ve got to go on to the other things that must be done; namely, how to deal with the people’s costs. The people’s costs cannot be paid by the government if the government is forced to pay the people enough to then pay the landlords. (There’s not enough money nor credit to do so without fundamentally destabilizing the distribution of assets and consumer purchasing power; this fact will manifest one way or another. That’s the TL;DR for the rest of this paragraph.) If 5% of the population were furloughed at home, then it wouldn’t amount to much destabilization of our society’s assets for the government to go ahead and pay people to live and pay their landlords. But because it’s an incredible percentage of the economy that is shuttered (somewhere in the ballpark of 50% or more), then it becomes impossible to keep paying the same percentage of value to landlords without severe destabilization of distributed assets and consumer purchasing power, particularly because the smaller the real economy relative to the legal contracts landlords have, the greater the bite they take out of it. When the percentage shuttered is as bad as it is now, there’s no way to suck it up — prices will become too warped, incentives will change, everything becomes re-evaluated and it won’t be worth it for many things sold to continue to be sold after the pandemic is over. If the government conjures money up at a rate that far exceeds the rate of economic growth — in fact, the two rates would be going in the opposite directions: the economy has shrunk tremendously — then it will cause inflation to try to pay the landlords while the people are working so much less. One way or another, assets will slide into the pockets of the landlords, regardless of the government paying for peoples’ rents or not, because the people pay for the government.
All of this means that all of the next policy solutions only work because they’re dependent upon the preceding ones (or another close version of them). Pay attention now.
Keep in mind that now that rents and mortgages need not be paid by individuals who are furloughed by the pandemic, their upkeep drops significantly. Many Americans don’t have savings to last more than a month or so without income. But with no rent, with decreased transportation costs, and a halt to student loan payments; the infusion of cash that a typical American can get by on becomes manageable, from the perspective of the government, as long as not everyone stays home of course. (And right now, this is no worry — enough workers are at their jobs, fighting against depreciation to easily keep it at bay; and note that the shuttered businesses and empty public places now require even less work to fight against depreciation and entropy, due to fewer people out there making messes). Most of the factories are either still up and running or else only idling due to decreased “demand”, and online retail places and courier services have ramped up capacity to make more home deliveries of goods possible. So people should still be able to buy lots of stuff… it’s just that they need money to do so. This is why furlough pay, by the government, would be a good temporary solution. Workers who are essentially mothballed (furloughed) by their employers can receive something like 25% or 35% of their normal salaries. Incomes (effectively speaking) for furloughed workers do need to drop because services are being less often rendered to them (since so many businesses are shuttered and everyone does need to tighten the belt to represent that). But money needs to be in the hands of consumers in order to buy things desired from factories and supply chains that are still producing. The amount of money that the government gives to furloughed citizens then must be variable, and must change according to how the distributed money affects purchasing power and motivates the producers.
Now back to the issue of expectations. (Everyone should be expected to tighten their belts, except, perhaps, divorce lawyers, Amazon.com, streaming media services, toilet paper producers, and some other niche trades that are suddenly in greater demand.) But as far as whole categories of businesses and actors goes, those whose jobs are not affected by the pandemic should also expect to be imposed upon financially since the country bears the pandemic together, and this comes in the form of higher taxes on wages and other income. These temporarily higher taxes will provide the revenue to offset the cost of paying those furloughed workers, in addition to — likely — funding some grants to local governments that rely heavily on property tax money from landlords. If everything is balanced right, then everyone can feel the squeeze uniformly, and manageably, with no long-term effects.
Given that is our true goal, there’s actually a slightly different, slightly more complicated — yet better — way to accomplish it than the outline I’ve set forth above, and I alluded to it before. Even if it’s a little cheesy, let’s call this more ideal one “the gold plan”, and everything that has come before now “the silver plan”.
What would better achieve the goal of a uniform squeeze than the landlord tax previously described is if we were to put not only a 100% tax on passive income from real property whose renters are affected by the pandemic, but also increase the taxes on all passive income, including all passive income on real property NOT affected by the pandemic. Then, take the money from that additional tax and apply it as a rebate directly to the lack of returns some landlords experience with their affected properties — the effect is meant to be that, at the end of the day, the returns of profit that landlords receive from both types are averaged, and the same. This would be better, of course, if the rebate given to landlords who are affected by the 100% tax are given the rebate rapidly — it should be done within a month, one would think, or else it would cause financial problems. (Landlords sometimes have specific plans for their incomes.) So this would be much better for them than the silver plan, obviously. And if it could be quickly known how much rental property were being affected, compared to the rest, and if the accounting were done efficiently; then any two landlords would be in the same boat, whether they own a block downtown that is rented out to a dine-in restaurant (shuttered, of course) or else own the land upon which a still-profitable factory sits — the return on their investments, in terms of a percentage of the rent due (in the end), will be averaged. In this way, it won’t be a crap shoot. Not only would no landlords have to take the fall, as the silver plan would lead to, but the diminished returns would be spread among all landlords so that none of them are especially put out. If it were possible to average all returns on passive income together, that would be ideal, and perhaps even more legally simple because creditors such as equity partners may not really be considered landlords under the law, and the line between what I’ve called “landlord” and someone who owns a financial mechanism that ultimately doesn’t derive value from property might be hard to parse out right away. In any case, temporarily raising the tax rate quite a bit on all passive income (then rebating those who are hit with the separate 100% tax) would cause landlords not to try to dump their properties in favor of other financial mechanisms that still do yield full profits on the investments.
There will be many other details to attend to, based on precisely which course is taken (especially when it comes to dealing with issues related to multinational conglomerates and tax havens, not to mention the issue of how to relieve shuttered businesses from their side of the health insurance burden that results from retaining their furloughed workers); but this is the outline of what must be done and why. Of course, the laws also need to be passed immediately, before ownership starts to swing away from the employees and entrepreneurs/businesses and into the hands of the landlords, which would go on to lead to a greatly increased disparity in income distribution.
It may be wise, also; before these laws are fully in effect; to stop landlords from offering a sort of gouging deal to their business tenants. As shuttered businesses continue to legally be on the hook for rent, landlords continue to extract the rent money, and many businesses may only persist in their existences by taking on loans, etc., until, at last, a business can do no more, so the landlord offers the business owner a deal: the business can pay in equity. The landlord might offer to accept 20% equity in return for rent, repeated each month. If accepted, the landlord would eventually own the business for pennies on the dollar, just like Mr. Potter does when he buys up half the town in “It’s A Wonderful Life”. We can’t let this happen, to say the least. A very temporary law against this kind of shenanigan (as well as against unfair loans directly from their landlords) could be enacted at the state level while the passive income tax laws are being perfected and passed.
So there you have it. These are the ways to solve the problem. Since both of the silver and gold plans save the economy, they both fall under the same heading, which I hereby dub “Crypto-cryo-economicosis”. (Cryptobiosis is what tardigrades — waterbears — do when they dehydrate into a suspended-animated state for months or years on end.) But, obviously, the gold plan is much more fair, and is what I recommend.
And if, in the end, the criticism is leveled at this plan that it requires too much fuss and attention — requiring more watchful eyes on the ledgers spread far and wide than are had — well, we’ve got a bunch of people sitting at home doing nothing. Perhaps enlist some of these furloughed workers who are trying to think of ways to make use of their time more profitably than, say, baking bread and hawking it to their neighbors. Ultimately, this unfolding crisis is only a question of accounting — don’t forget that. Despite the country’s leaders seeming not to fully understand how to properly manage the situation, nor to believe that there’s a way it can be done; it CAN be managed properly, and everything can snap back to normal within a month after the vaccine is distributed, with minimal government debt*. But, for that to happen, these changes have got to be done now. Right now. Or else, yes, disaster.
On a final note: …I’m … not… famous. So almost no one knows this playbook exists. It’s up to you to let those in power know. There are still a few weeks left to change course.
[*…minimal government debt, that is, as long as planned corporate bailouts are cancelled and the just-passed corporate handouts are mostly retrieved.]
Visit Even’s website: www.TheSideofGood.com
Even’s (facebook page), (Patreon) ,and (Paypal).