Real World Economics: Businesses closing for good? Lets recognize that – TwinCities.com-Pioneer Press

Our nation is not doing well at limiting infections and deaths from COVID-19. Perhaps we can say, Well, we did better than Belgium, Italy or Spain. However, we not only are doing badly compared with other high-income nations, weve also fallen behind some countries with much lower incomes that took more coherent measures early on.

We are also failing in how we are sharing the economic costs of the pandemic across our society. Some groups are paying a high price in terms of unemployment, lost incomes, medical bills for treatment, evictions and small-business bankruptcies. At the same time, others, especially those with white-collar jobs who can work remotely, see little economic harm. And a small minority have seen sharp increases in their income or wealth.

Given the degree to which long-established infection-limitation measures have become politicized, it is not clear that there will be marked improvements on the public health side until the benefits of widespread vaccination become established. Given the disproportionate mortality levels among older people, particularly those in nursing homes, a well-administered program of vaccinating the most vulnerable may reduce deaths well before community spread in the overall population is ended. Hope for the best.

What we can do, however, is drastically reduce the economic unfairness stemming from the pandemic and the needed responses to limit it.

Understand that for some, the question of whether people in financial need deserve help or not has become a fetish. Our collective values are such that we think it fine for some people to routinely get Medicare or Social Security benefits worth 10 or 50 times the actuarial value of what they paid in to these systems. Yet when people get unemployment compensation or SNAP benefits for extended periods, many condemn them as lazy bums.

However, the pandemic against which we struggle is an act of God, or nature, of a magnitude we have not faced for a century. No unemployed cook, Uber driver, bartender, cosmetologist or travel agent did anything wrong to put them on the street. Nor did the owners of cafes, bars, fitness centers or personal care salons who face bankruptcy of businesses into which they have poured wealth, years of labor, hopes and dreams. These people are not miscreants in any way.

All the while, engineers, programmer analysts, accountants and therapists can work remotely. They see no reduction of income or wealth. Ditto for column writers, contract editors, attorneys and the like. They have no particular moral superiority to those seeing their unemployment compensation run out while getting eviction warnings.

And considering the now-ailing service economy makes up the majority of U.S. workers, a permanent game-changing adjustment in the way people work and play, via the internet and fostered by the pandemic, also carriers with it the dangers of enlarging a permanent underclass at least until the service industry adjusts.

Meanwhile, there is a small cadre of very wealthy people, including those who have started up internet-age businesses over the last 20 years, who have seen the value of their stock soar in recent months. This is not due to any special effort or brilliance on their part, but because the Federal Reserve is flooding the economy with additional cash. Some of that inevitably boosts share prices in key subsets of corporations. Add to that the increased demand, and dependence, of the not-doing-so-badly professional class, distant-learning students and the like, on many of these companies digital products and services, and you further understand Wall Streets thinking.

But we can do more as a society to share the financial burden fairly. This can include federal and state governments picking up the tab for pandemic-related outlays and extension of unemployment benefits to 39 or 52 weeks as we regularly have done in the past.

Most importantly, we need to add a program of substantial payments to the restaurants, bars, health centers, salons and other small businesses being crushed by necessary public health measures, including complete closings.

Public health officials are correct that if these establishments operate, rates of transmission of COVID-19 increase. People get sick and die. Closing them produces a public benefit. But the public as a whole is not compensating the owners and employees of such businesses for their financial losses necessitated for the public good..

Government taking property or arbitrarily making citizens provide services in kind has been a concern from the beginning of the republic. For example, the constitution bans the forced quartering of soldiers in private homes as was done by the British while we were colonies. More importantly, the Fifth Amendment, part of the Bill of Rights, bans the taking of private property for public use without fair compensation.

The government can exercise eminent domain and take ones land to widen a street. Better streets and roads may benefit the public. But the public collectively must pay for the property taken.

In contrast, if government forces a steakhouse or tavern to close weeks on end for the public benefit of limiting the spread of disease, few elected officials see a need to compensate for a financially crushing limit on the use of property. This is wrong in terms of simple fairness even if no court rules that forced closings constitute a Fifth Amendment taking.

More importantly, from a practical political point of view, making a subset of small-business owners bear a huge cost for the benefit of the rest of us engenders vocal resistance to needed measures. I dislike the recent coordinated mass defiance of the law by such businesses. But we should be treating them better.

Yes, in Minnesota, Gov. Tim Walz and the Legislature have passed measures to funnel some compensation to such companies. But more is needed. Congress should include this in the assistance package being hammered out right now.

Who should pay for it? We have a strong bipartisan aversion to making anyone pay taxes. Yet we are in an unprecedented emergency. At times in the past, we have had temporary tax increases to raise revenues to face specific challenges. The last was in 1968 when the Johnson administration asked for and got a two-year surtax added to personal income taxes. European countries have had temporary taxes on high net worth during wartime. The United Kingdoms current Conservative Party government headed buy Boris Johnson is considering one right now.

Initiating a new tax on net worth of this type is complicated. But a two-year 5 percentage point surtax on personal income from all sources above some threshold like $500,000 would raise a lot of money that could very justly be given to small-business owners forced to close to limit COVID spread.

St. Paul economist and writer Edward Lotterman can be reached at stpaul@edlotterman.com.

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Real World Economics: Businesses closing for good? Lets recognize that - TwinCities.com-Pioneer Press