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COVID-19 Response: The Need for Speed

posted by Adam Levitin

While Congress struggles to figure out the best way to respond to the coronavirus pandemic, it is very apparent that immediate relief measures are necessary, if only to buy time for a more comprehensive approach. Layoffs are already happening and with they continue, it will result in more economic disruption from diminished consumption.

1. Sending out checks isn't fast enough (and can't happen in two weeks)

There is, fortunately, some recognition of that speed is imperative, but there's a right way and a wrong way to do it. The wrong way is what the Trump administration is proposing, namely sending everyone a check. Besides being poorly tailored—$1,000 isn't enough for those who really need help and is wasted on many other folks—the problem is it just cannot happen fast enough. No one is being honest about the operational problems. Treasury Secretary Steven Mnuchin is going around saying that he wants to get checks for $1,000 to every American within two weeks. That's just not possible, and Mnuchin should stop overpromising. 

Here's why it won't work fast enough: for Treasury to send everyone a check, it would need to know where to send the checks. It doesn't. Treasury knows where to send checks to individuals who are receiving Social Security and Disability Insurance (actually, it would be electronic transfers in almost all such cases). But what about everyone else? Treasury doesn't know (a) who is still alive, and (b) where they live. The first problem might mean sending out some checks that shouldn't happen, but the second problem is more serious, as it means that checks won't get where they need to go. Treasury is able to send me a tax refund because I give an address with my tax return. At best Treasury has year-old information, which will be wrong for many people. Those people who most need the money are the people who are most likely to have moved in the last year—economically insecure renters (see Matthew Desmond's Evicted on this). Sending everyone a check really isn't a very good solution. 

2. Foreclosure/eviction moratoria are equivalent to an immediate cash injection to the economy.

Fortunately, there's a better solution:  an immediate national moratorium on foreclosures, evictions, repossessions, utility disconnects, garnishments, default judgments, and negative credit reporting for all consumers and small businesses. The point of a national collection action moratorium is not to be nice to debtors. A national collection moratorium is a stimulus measure:  it has the effect of immediately injecting cash into the economy in that it allows people and businesses to shift funds from debt service obligations to other consumption. It's basically a giant forced loan from creditors to debtors. And it happens immediately, without any administrative apparatus. There's nothing else that will have such a big effect so immediately. Congress should move on moratorium legislation asap as a stand-alone bill to buy itself some more time for a longer-term fix.  

Now let's be clear—what I am talking about is not debt forgiveness. It is forced forbearance. The debts will still be owed and may accrue interest and late fees (there may be ways to limit those, but that's another matter). That's important because it substantially reduces the argument that the delay constitutes a Taking—government is always free to change how remedies operate, such as changing foreclosure timelines, etc. without the changes being a Taking.

This is exactly what a moratorium would be doing. A number of states and localities have already undertaken such moratoria, and FHFA and HUD have done so for federally or GSE insured or guarantied loans. But we've got a national crisis, so this should be done uniformly on the federal level using the Interstate Commerce power for the entire consumer and small business debt market. Given that all collection actions involve the mails or wires and that debt markets are national, this seems squarely within the scope of federal power. 

Now a collection moratorium is not a permanent fix and will cause some dislocations itself. Consumers/small businesses will eventually need to come current on their obligations, and they may need assistance to do so, but that's something that we can work on later when we're not in free fall. But right now what we need more than anything is time, and a collection moratorium can buy us some time more broadly and more immediately than any other possible step. 

Comments

I respectfully disagree for reasons as follows:
Sending checks is GOOD even if imperfect as far as rate of success (coverage) goes, and the best way to stop evictions and foreclosures is to CLOSE THE COURTHOUSES for public health reasons.
Here in Harris County, TX, the County Judge (chief executive) has moved to stop evictions by closing the justice of the peace courts (which handle evictions in the first instance). Only one county commissioner—unsurprisingly a Republican--was opposed to this emergency measure.
Watch her video address here: https://twitter.com/LinaHidalgoTX
In Texas, all the important steps to contain the coronavirus epidemic are being taken at the local level (county, city), the big ones under control of sensible Democrats, who listen to the docs and the epidemiologists and make tough decisions based on the best available scientific evidence. Cheers to Governor Cuomo also!
The Republican Governor of Texas, like Trump, did not take the situation seriously. As recently as March 5, 2020, he opined in a press release that “the risk to Texans remains low.” He is now listening to the county and city leaders, and is expected to give a press conference tomorrow.
Among the weighty local decisions was the decision to cancel the Houston Rodeo, announced jointly with the Mayor of the City of Houston. More recently, the restaurant closures (except takeout).
Regarding the checks:
SO WHAT IF TOO MANY CHECKS ARE SENT, as opposed to what ALTERNATIVE?
Incorrectly addressed checks may be returned as undeliverable, and others not ever cashed. What’s the downside? If only 75% of checks (or direct deposits) reach their intended target, that’s a lot better than 0.00%. Nothing is perfect, much less in a crisis situation.
Plus, this has been done before (stimulus check), though in a smaller amount. I can’t remember when, perhaps under Bush the First or Clinton.
As for garnishments, there is nothing to garnish if no pay is direct-deposited into the garnished checking account, and a stop to garnishment does not put money into the hands of folks that live mostly off tips. Such as waiters made redundant by the restaurant & bar closure.
Default judgments in collection cases are irrelevant in the short run unless the creditor immediately file for a writ of garnishment to seize money in a bank account.
Finally, mailed checks will have a psychological effect too, and reduce stress on the part of the recipients awaiting them.
If there are budget concerns (which there should not be in this time of crisis), the checks can first be mailed to the people in the ZIP codes most badly affected. Just the assurance that the checks are on their way will reduce people’s exasperation about how to make the next rent payment and avoid end up on the street or without food.
There is no time to impose and administer eligibility restrictions for better targeting on those most in need, but the IRS could prioritize all filers who claimed earned-income credit and child-care deductions, for example, or stagger disbursement batches based on the amount or gross or net taxable income, if they can handle that data challenge on short notice.
WHAT ABOUT MAILING CHECKS TO RESIDENTIAL HOUSEHOLDS?
An even more drastic alternative would be to send the check to each residential household (the Postal Service would have the address), but that would require some mechanism for verifying the address of the person who deposits or cashes the check, to reduce abuse, and perhaps a stern warnings that each person may cash only one check in each iteration.
Again, nothing can be a perfect measure, and some people may not be able to cash checks even if they are correctly delivered, such as when they are under quarantine and don’t have ability to do electronic deposit via cell phone. But even the mere possession of a monetary instrument backed by the US government would improve their precarious position and emotional/mental health.
To cover those who recently moved, the Post Office has the data on all apartment complexes and each unit typically has a cubbyhole mail box. No human contact necessary, and chances of theft minimal (expect by postal service employees) because each mail box is individually keyed. Therefore, checks could be issued to apartment addresses without recipient names on them (pay to bearer), and abuse could be worried about and tracked later based the electronic “paper” trail left by the depositing/negotiation procedure, or based on identity and address information obtained if cashed at a financial institution or functional equivalent (for unbanked recipients).

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