Thoughts on Coronavirus Economic Policy, Thinking as “Economist Mom”

L to R: Johnny, Diane (Mom, holding Taco), Grace, Allie, Becca, Bill (holding Tammy), Emily, and Danny

I know I haven’t been here very often since I “rebirthed” my Economist Mom blog!  But every glass half empty is also half full.  The coronavirus crisis and its required “social distancing” have provided me both the calling and the opportunity to think about the possible economic policy responses, not just relying on the same old economist’s toolkit but with the benefit of wisdom from my own children—who are experiencing this crisis much more than I.  I have come to the conclusion that the fastest, most helpful policy the federal government could implement would be to immediately put in place a tax deduction for donations to service-sector small businesses adversely impacted by the coronavirus shutdowns, which tax filers could claim off their 2019 returns that they are filing now.  How I got there is explained below—in my Economist Mom kind of way.

My husband Bill and I are really lucky.  We work as economists—policy “experts” they call us—in salaried positions where we can easily work from home or take paid sick leave.  The coronavirus pandemic affects us only in truly superficial ways that I am ashamed to even bring up: I am bummed that our planned trips to see family were cancelled and that we can’t otherwise spend our leisure time going out around town, and Bill is pretty lost without March Madness.  Today we took advantage of having few of our usual weekend pastimes to work on our 2019 tax return—a full month ahead of the April 15 “Tax Day” deadline.

Our own children: not so lucky.  We have six adult children between us.  Danny (Bill’s son) works for Amazon in Seattle.  A co-worker who works in an office near his has been diagnosed with the coronavirus, and Danny has been on mandatory work from home (WFH).  Becca (Bill’s daughter) works at Cedars Sinai in LA where several coronavirus patients are being treated.  Allie (my eldest daughter) works for Coursera in Mountain View, CA –another “hotspot” for coronavirus cases; she and her boyfriend, who together share an apartment with another roommate, are all on mandatory WFH in a really-too-small apartment to serve as an office for three.  Emily (my second daughter) and Grace (my youngest daughter) both live in Brooklyn, NY.  Emily is a Ph.D. student at NYU, adjunct teaching this semester at her undergrad alma mater, Sarah Lawrence College, in Bronxville, NY.  (Look that up in a map, and you’ll understand why we stayed in a hotel in New Rochelle when we attended Emily’s college graduation—and you’ll understand why Emily started teaching online last week and why she’s at high risk for being exposed.)  Grace is a 2019 graduate from NYU and works part time at the service counter and as wait staff of a high-end bakery in Brooklyn on a combination of low hourly wage and tips.  Her other part-time job is with a consultant who plans and stages events.  (They have no events planned now.)  She commutes to the bakery by subway and is face to face with customers all day long.  Her bakery is complying with the 50% capacity restriction by having removed half the tables in the café, but otherwise business is booming; on Saturday the customers lined up to buy out all the bread they had made that morning –so Grace had plenty of contact with many, many customers.  She tweeted out this morning that she cried while she was at work yesterday, so scared about how difficult it is for her to stay safe from this pandemic.  And that broke my heart.  Even my youngest, my son Johnny, a junior attending William and Mary, has not come out unscathed despite having gone straight from an indoor track championship last weekend in Boston to a spring break beach week in Charleston, SC with his track buddies.  While on break, he and his teammates learned their entire spring season was cancelled—which broke all their hearts.  (The ruling of the NCAA that spring season athletes will be granted another year of eligibility provides some compensation and consolation, but now we can expect to see a lot of track athletes with master’s degrees!)

I tell you about all the hardships on our children to provide context for the reason I write this post: their situations have made me see that the debilitating effects of the coronavirus pandemic on the economy require a very different kind of economic policy response from anything (“boomer”?) policy “experts” have thought about and worked on before.  The whole reason for the economic shutdown is because we’re trying to prevent the spread of the health problem.  If we could easily tell when someone was sick with or carrying the virus (i.e., if we had universally available and quick/instant testing), then we wouldn’t have to tell everyone to stay home.  But the invisible, stealthy nature of this virus and how fast it spreads requires that we all stay at home and practice safe “social distancing.”  This is not a problem for me and Bill who can work in social isolation all the time (as many economists like to do, but not me).  It is a much bigger hardship for our children—especially Grace who only gets paid when she shows up for work, relies more on tips than her hourly wage, and who works in an intensely face-to-face, hand-to-hand job.

Congress and the Administration are trying to come up with an economic policy response to the coronavirus crisis by dusting off policies from past economic crises.  (OK, Boomer…)  But those policies such as payroll tax cuts or enhanced unemployment benefits are not going to help hourly-wage workers like Grace who will either continue working as usual, worried about being or getting sick, or will work fewer (or no) hours and earn lower (or no) wages and tips.  What we really need is for workers like Grace to be paid their usual wage to stay at home.  But this is a totally radical concept for economists who overly obsess about price incentives in normal times: what, pay people to not work?  These are not normal times or a “normal” economic crisis.

DC’s most beloved restauranteur and chef, Jose Andres, just announced today that he is closing all his restaurants to reduce the risk of spreading the virus among staff and customers, and that he is increasing production of to-go meals in his community kitchens (many of which will operate inside his restaurant kitchens, keeping his healthy staff working).  The DC community is fortunate to have such a successful business owner be also such a generous man.  But other food service businesses cannot afford to keep their workers working and earning as usual when people aren’t coming out or the business is required to cut the number of customers they serve.  At the same time, people like me and Bill who are lucky enough to keep our usual paychecks and who would normally go out to eat and drink still have the discretionary income, and the desire, to support our favorite food and drink establishments—even if it means helping them make payroll and rent while they are forced to shut down.

Now, anyone could choose to help out their favorite local bar, restaurant, or bakery, by donating to that establishment’s Go Fund Me page if they were to set one up to help continue to pay their hourly workers even as their business is shuttered or reduced.  (I do recommend that small service-industry businesses do that; your usual patrons will support you!)  I’m here to help out my daughter Grace if she is forced to or wants to stop working at the bakery, and certainly if Bill and I were to benefit from some new tax cut we don’t need, we would most likely immediately hand it over to Grace and our other kids.  And while Congress may be trying to come up with legislation that better gets at the fundamental problem of steering dollars to the workers who will have to stay home because food and entertainment establishments and schools are shut down, let’s face it, nothing that government can do will happen soon enough to get people to stay home soon enough (as in right away) and stop spreading the virus. 

So that brings me back to Bill and I working on our 2019 tax return today.  Why not allow people to make individual financial donations to small service-providing businesses that have to shut down operations, and why not let government subsidize this by making such donations tax deductible?  (Current law allows deductions only for donations to charitable or nonprofit organizations, not any for-profit businesses.)  And why not take advantage of being in tax filing season by letting people immediately write off coronavirus donations (made now, in March 2020) from their 2019 taxes?  This is a way a government policy could have immediate impact.  No figuring out how to cut checks or send debit cards!  No need to send those checks to everyone (including people like me and Bill, who don’t need it).

If service-providing businesses reduce or shut down their human-facing operations, it provides a public good (reduced spread of the coronavirus) but at private cost (lost revenue).  Internalizing this positive externality requires that the good-for-society behavior (shutting down face-to-face, hand-to-hand services) be subsidized.  That subsidy can come from private individuals who care about the social good, but ideally comes from government as well.  Doing policy through the tax system can be handy when it sets up a public-private partnership of sorts: private citizens choose to make charitable contributions to the organizations they wish to help, and government matches the donation at a fraction equal to their marginal tax rates.  (Doesn’t have to be limited to the itemized deduction mechanism though—in fact, this is a perfect occasion to bring in the “above the line deduction.”)  And I just said all that as an economist, but it’s the mom in me (and the dad in Bill) that really motivates this policy idea.  We need to quickly get relief to businesses like the bakery Grace works for.  It’s critical to addressing not just the economic fallout from coronavirus but the underlying root of this crisis: the uncontrolled, invisible, and rapid spread of the virus.

Talking about “paying for stuff”–like an economist who’s also a mom

Sorry I have been pretty AWOL for awhile. It took a nice article in today’s NYTimes and last night’s Saturday Night Live show to spur me to post again. I loved last night’s SNL “cold open” (and Kate McKinnon’s brilliant rendition of Elizabeth Warren talking about how she would pay for “Medicare for All”) for its reference to how moms talk about stuff (vs. dads), and how economists explain things (see back of whiteboard in the skit). And a bonus for me: in this morning’s New York Times, Jim Tankersley quotes me about how little economists *actually* know about what the economic effects of a 6% tax on the highest wealth of the very wealthy would be:

Perhaps the biggest unknown is how the capitalist American economy would function with levels of taxation and spending more comparable to the social democracies of Scandinavia.

“It’s as much an art as a science, trying to figure out the economic effects of policies we haven’t seen before,” said Diane Lim, a former economist for congressional Democrats and senior economist at the White House Council of Economic Advisers, who now works for the Penn Wharton Budget Model. “I’m worried it’s unrealistic. It’s just unknown.”

Jim Tankersley, New York Times, Nov. 3, 2019, Section A, Page 1, “Trillion-Dollar Pledges Cement Democrats’ Bet on Taxing Rich.”

I’ve been working for Penn Wharton Budget Model as a “senior advisor” for a few months now–hoping to better connect their highly sophisticated, academically “rigorous” economic models to real-world policymaking, especially as the presidential campaigns heat up and begin to include (more specific) policy platforms. The policy ideas we’re already hearing about–like Warren’s Medicare for All and the taxes to pay for it–are really big and bold but also huge in terms of economists’ unfamiliarity with them. We will be relying on a lot of economic theory but not a lot of “economic practice” in offering our “expert” perspective. (In other words, we’re not exactly “experts” on this.)

Here is where the “art” within an economic model can actually inform the science, because where we don’t have previous real-world experience with such a policy, we can kind of “make up” and “try on” different kinds of behavior at the individual household and business levels and see how they add up to different outcomes for different types of households and the entire macroeconomy–and we can evaluate how likely the candidates’ tax proposals would actually raise the levels of revenue needed to pay for the candidates’ spending proposals.

I’ll try to keep my blog updated with news of Penn Wharton Budget Model’s analyses on presidential candidate proposals; we are still working on them now. My take here will always have that perspective that comes from my being a mom first (who will talk about the hard choices and realities very openly) and an economist second (who can translate the “econ-speak” of my profession into plain(er) and hopefully more useful English).