Wednesday , August 5 2020
Home / Tony Yates: Long and Variable / Vouchers: with poor timing, perhaps the worst kind of counter-covid recession policy

Vouchers: with poor timing, perhaps the worst kind of counter-covid recession policy

Summary:
I am crystallizing my concern about retail vouchers, part of Rishi Sunak’s latest package [and recommended by others, including one of my affilliations/clients, Resolution Foundation], and mostly thanks to a Jason Furman tweet. Sunak has seen his challenge as wanting to target stimulus and support policies at the sectors hardest hit by the covid19 crisis.  This motive is understandable.  Despite what the MMT headcases will tell you, fiscal support involves the government using scarce current and future tax raising powers. So you want to maximise the bang for your buck.  Why give money, in this case, to sectors or people that were not particularly hard hit, and therefore don’t need it? A related issue of waste-avoidance is giving money to people who are not short of money, and

Topics:
Tony Yates considers the following as important:

This could be interesting, too:

FRED Blog writes New details on mortgage rates : What impact does a FICO score have?

FRED Blog writes Are jobs in education still recession-proof? : Studying employment data in the education sector

FRED Blog writes Location, location, location in house price data : Manufactured home prices help separate the house from the land

FRED Blog writes Mapping U.S. unemployment claims

I am crystallizing my concern about retail vouchers, part of Rishi Sunak’s latest package [and recommended by others, including one of my affilliations/clients, Resolution Foundation], and mostly thanks to a Jason Furman tweet.

Sunak has seen his challenge as wanting to target stimulus and support policies at the sectors hardest hit by the covid19 crisis.  This motive is understandable.  Despite what the MMT headcases will tell you, fiscal support involves the government using scarce current and future tax raising powers.

So you want to maximise the bang for your buck.  Why give money, in this case, to sectors or people that were not particularly hard hit, and therefore don’t need it?

A related issue of waste-avoidance is giving money to people who are not short of money, and therefore might save it and not spend it.   ‘Forced’ saving by those able to carry on working from home during the covid19 crisis has been pronounced.   Borrowing to give those people even more money to save is rightly judged not to be a good use of future taxes.  Money saved lowers the cost of finance for those who want to borrow, but this is low anyway.  The effect on others’ income and spending power if government handouts are spent is much greater.

A solution to both of these problems is to give people time-limited discounts or spending vouchers, aimed at the sectors that were hardest hit.  The money is attached to spending and can’t be saved.  And in the case of the restaurant discounts it is obviously only of value there:  part of the hospitality sector hardest hit by the pandemic.

However, the clear problem with this is that it is straining to encourage us to engage in the risky, contact and infectiion-inducing behaviour that the government itself banned at the start of the lockdown.

Unless the risk of infection had passed [the small numbers infected so far means still a lot suceptible] or the activities that were risky were now no longer risky [social distancing measures are required, but they seem lax and are not going to eliminate risk, or be perfectly enforced], this activity is going to generate more covid19 cases.  Videos of Rishi Sunak playing waiter, not socially distancing, holding customers plates with his bare hands, and not wearing a mask, are not a good signal of the government’s strategy to transform formerly risky activities into safe ones.

The dilemma is that the policy that maximises a naively-interpreted stimulus impact is also one that maximises new covid19 cases.

I say ‘naively’ here, because, as Stephen Bush pointed out in his morning email today [subscribe if you don’t already, it’s great], the vouchers not only amount to a reversing of course for the lockdown policy, but they have to lean against the fears people have for their own health when they contemplate resuming social activities that now carry new risk.  Stephen gives the example of hypothetically slashing taxes on cigarettes, hoping people will ignore the health risks.

For vouchers to be the right policy  you would have to believe that consumers are overestimating the risks they face;  and that you will persuade them to spend in spite of the risks.  Even then, the risk overestimation needs to factor in that going to a restaurant entails risks not only for themselves, but in making themselves a vector for the rest of us.  An ‘externality’, in the jargon.

Returning to analogies, the restaurant discount is like paying people to drink and drive:  doing so stimulates the economy [more alcohol sales] but puts in mortal peril those on your route home.

If there were spare capacity in the test/trace/isolate system in the UK, you might believe that the extra infections generated by encouraging risky restaurant attendance could be contained successfully.

Assessing the efficacy of this system from the outside is not easy, but there are lots of discouraging signs.  Tales of confusion, accidental and deliberate, in the test statistics;  pseudonymous anecdotes penned by idle and farcically managed trainee testers;  evidence that local authorities are not getting timely and accurate information about the case load in their own jurisdictions [see, for example, Leicester].

Most discouraging of all is that the reopening and stimulus policy is so rhetorically detatched from how it is made possible [or limited] by test and trace.  It is almost as if the virus had just gone away and there was something about its nature now that meant we did not have to worry about resuming our old ways.  That would only be approximately true if, contrary to most of the evidence so far, it turned out that enough people had acquired immunity one way or another [either by exposure to covid19, or some other condition] to make it hard for infected people to encounter new vectors to propagate the virus.

It is hard to quell the thought that the government know that test and trace is not up to it, but hope that we are so desparate to get going again that we will forgive a new surge of deaths, or somehow judge it to be an unfortunate error only with hindsight.

In the absence of firm hope and evidence that test and trace can mop up infections after restaurant goers and other risk takers have had their fun with government vouchers, it would be better simply to give those sectors hardest hit money, [or rather to continue to do so] without using us consumers as virus vectors to carry the funds to them and demand that they put themselves at risk working for those funds.

Tony Yates
Economist. Consulting, lecturing, a book. Ex Prof at Bham, Ex BoE staffer. Macro, policy, monetary econ, occasional nonsense.

Leave a Reply

Your email address will not be published. Required fields are marked *