There has been a lot of debate about moral hazard since the 2008 financial crisis. The prevailing perception was that, in bailing out banking institutions, the government had saved the same players who had triggered the crisis. Everything that resembled a bailout has been a taboo topic. But it is clear that no moral hazard concerns are resulting from this pandemic of a virus, and so the government should be even more effective in its attempts to save enterprises. Not only enterprises, but the general public as well.
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We all deserve to get a bailout during this COVID-19 pandemic and here are 5 reasons why.
1. Retail contribution to the nation’s GDP
It is no news that many people have lost their jobs during the pandemic, especially retailers. The March Jobs Report found that the retail industry lost 30,000 jobs with the most badly affected retail division being department stores. Retail is the biggest private enterprise in the United States, reportedly supporting 42 million workers, providing $1.6 trillion in labor revenue, and providing $2.6 trillion annually to the United States GDP. Since most people work in the retail sector, it will be detrimental to the national economy if the government does not provide bailouts to them.
2. Loss of insurance
If bailouts are not issued, millions of people will lose their insurance benefits. Health insurance providers would declare bankruptcy and millions of people would be denied decent health care. Not to mention life insurance, and other insurance that would have been lost, and liabilities that would never be paid. So, anyone with an unresolved obligation or a pre-existing illness would be in distress and millions of people would be caused hardship.
3. Unemployment rate
Unemployment rate would shoot immediately to about 20-25% or even higher if bailouts aren’t issued. More than 50% of companies will have to scale back substantially. This, of course, would affect the demand-supply ratio in the country. Producers would have less to supply and consumers would have more to demand (which they likely can’t afford.)
4. The struggle of renters
Many American citizens have their hours shortened at work, making it difficult to pay their rent. COVID-19 cases have exploded around the country, causing company shutdown and requiring the majority of Americans to remain indoors. The states must take action to support both tenants and homeowners.
5. Impossible economic growth
Beyond pay subsidies and welfare services, workers and their beneficiaries need more money and fewer bills. The economy will stay on hold for now; the priority is to keep everyone’s finances afloat until we are free to work again. This implies putting dollars in people’s wallets directly.
The economic recession induced by Covid-19 is unlike any in modern US history. However, with better administrative protocols and more …