OPINION | Cracker Jack economics

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WHAT is it with Cracker Jack politicians who want a prize in every package?

Last week when Joe Biden and Bernie Sanders clashed over stimulus in a primary debate, Mr. Biden celebrated the 2009 Recovery Act, saying it “had $900 billion in it and was the thing that kept us from going into a Great Depression.” If you believe that, I’ve got a bridge to nowhere to sell you. The Obama administration touted “shovel ready” projects — they were shoveling something, all right. Then again, remember President George W. Bush’s 2008 $152 billion stimulus in the form of tax-rebate checks? The “booster shot” for the economy was a huge dud. Sadly, here we go again — a stimulus for all of us.

What actually saved the economy in 2009 was one word: backstop. Finance froze because toxic mortgage-backed securities littered the system and, as with mad-cow disease, no one knew which ones were bad. The Federal Reserve provided a backstop to the commercial-paper market, then money-market funds and eventually banks, by buying up many mortgages to relieve default risk. Once bank stress tests took Armageddon off the table, lending restarted and the crisis ended. Spending on roads and bailing out General Motors were mere pork-barrel waste.

The economy is now grinding to a halt. Forty million Californians must “shelter in place” until further notice. New Yorkers too. Everywhere bars are (gasp!) closed. Planes are empty. Cruise ships are mothballed. Marriott and other hotel chains are furloughing employees.

Politicians need to do something, right? Yes, but it should be short-term and temporary. President Trump has a “big bold plan.” White House adviser Peter Navarro wants an $800 billion payroll-tax cut. Senate Republicans want to send $1,200 checks to a huge share of Americans. Treasury Secretary Steven Mnuchin is negotiating with congressional leaders a bailout of as much as $2 trillion. Rep. Ro Khanna, Mr. Sanders’s campaign co-chairman, ups the ante with checks of up to $6,000 for those making less than $65,000. Candy-coated popcorn, peanuts and a prize.

Mr. Mnuchin has smartly authorized the Fed, via Section 13(3) of the Federal Reserve Act, to lend directly to solvent companies, creating a trillion-dollar backstop for the commercial- paper market and money-market funds. A “lender of last resort” is needed. Airlines need capital, so lend to them at a Bagehotian penalty rate, against future ticket sales or even planes as collateral. The penalty rate is to make sure those that don’t need it don’t clog the system. The same program could shore up hotels and other still-solvent large businesses. And with support from the Fed, banks can do the same for small businesses. If the economy has a three-month hole because of quarantines and lockdowns, the Fed can provide a bridge loan across that void.

Those without jobs also need direct assistance, like debit cards for food handed out by local authorities. No one should go hungry as the economy evaporates for 90 days. Food aid could also be provided internationally — maybe using those mothballed cruise ships.

But one big puzzle is deciding the best way to help workers, many of whom are out of jobs, or are running short on tips and trips if they’re waiters or Uber drivers. We have a social safety net, and each state must temporarily but immediately lower bureaucratic barriers to collecting unemployment insurance — which obviously should include waiving the requirement that applicants seek work. Temporary sick leave is critical, as is helping small businesses continue to pay wages.

Beyond that, Mr. Mnuchin talks of “business interruption payments”: $500 billion in direct payments to households — those $1,200 checks — which would work more quickly than a payroll-tax holiday. Voting begins this week. Politicians love sending checks with their names on them to voters. But structure them as a backstop: a loan against future earnings. Direct payments as stimulus have proved ineffective, so why double down?

Like clockwork, I can guarantee we’ll soon start hearing about multipliers — you know, for every dollar of stimulus we’ll supposedly see $2 or $3 or $10 of economic activity. It’s a great talking point, but it’s bogus. Every dollar spent by the public sector is a dollar taken from the productive private sector.

How did the economy climb out of the Great Recession? Through the production and delivery of iPhones, Teslas and Lyfts (oh my) over the decade that followed. The best stimulus is the production of goods and services that the economy needs, at ever cheaper prices. By all means, let’s get immediate money to those who need it through unemployment assistance and backstop loans. But government giveaways as stimulus don’t work. It’s just Cracker Jack economics.

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