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Monday, April 27, 2020

How Wyoming Plans to Spend CARES Act Money

As Wyoming receives its CARES Act money, our politicians are already hard at work doling it out. To politicians. Here is how.

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We are beginning to see the picture of how our state legislature intends to use the CARES Act money. As expected, the loot is being divided up by government agencies. This is a bad idea, especially in a state like Wyoming where the private sector was relatively weak already before the shutdown. Instead, the legislature should pass the money on to the private sector. The governor could make this happen by declaring an economic emergency.

As soon as the unemployment numbers for April are out, we will see just how bad the situation is for taxpayers, families and businesses around our state. Those numbers will be released by the Bureau of Labor Statistics toward mid- or late May; the March numbers were not much affected by the shutdown, but April numbers will be frightful.

The longer the shutdown remains, the worse the situation is going to be. Thus far, we still have a good chance to salvage the economy, and the main reason is that this is not a recession. It is an artificial disruption of economic activity. If our government officials will be sensible and do the right thing; if they will roll back the shutdown now; the economy will rebound, and it will rebound solidly. 

Americans want to work, they want to earn a living and they want to chart their own course through life. 

We went into the disruption with an economy that was optimistic and overall solid. The Wyoming economy was lagging behind the rest of the country, but we were nevertheless doing better than we had in many years. The national economy pulled us along; it took a breather over the winter, mostly due to the capacity expansion that came with higher businesses investments in 2018 and 2019, but that breather did not escalate into a recession. This, in turn, was due to the Trump tax cuts, which also contributed to keeping the economy strong after the Christmas shopping season.

With all that strength came optimism. That optimism is still out there, and it is going to drive the economy back to full gear again. However, no sense of optimism will last forever. The longer our state and local governments continue with their restrictions, the closer we get to the point where we simply break the back of this economy. 

Americans know that this point is approaching. They can sense it; they see it in their own checkbooks. A one-time stimulus check is not going to make a difference, especially since a good part of that money won't be paid out until later in the summer. Other measures - the payment protection program and emergency loans and grants to small businesses - will provide some relief, but as with every government program, there is bureaucracy attached to the money. Weed through it and you will get some relief; make a regulatory misstep and you won't.

People do not want to reach the point where this economy is broken. Some may cheer for it to happen - cynics who hate this country or simply do not understand how an economy works - but the vast majority of Americans want us to get back to normal again. 

A normal we determine.

This is why more and more people are choosing to go back to work, in defiance of government orders and edicts. This is why we hear more and more stories about business owners who choose to open up again, daring government to come and shut them down by force. After all, what do they have to lose? Is law enforcement going to storm their business and arrest them? Are they going to be fined out of business?

Is there a difference between losing your business to a heavy-handed government fine or a heavy-handed government order forcing you to close it anyway?

What we are seeing now is economic civil disobedience. It is not only a sign of the desperation felt by many who simply want their lives back, but it is also a tribute to free-market capitalism. It shows that ours is the only economic system that unleashes people's inherent desire to self determination. We have seen how government regulations - central planning - bring only misery. We have gotten a taste of the despair and destitution that eventually, yet inevitably, follows in the footsteps of an unruly government.

We have learned, first hand, how exceptionally important it is to protect our economic and individual liberties. 

Hopefully, our elected officials will realize that the emerging civil disobedience is a testament to the American spirit. Hopefully, they will err on the side of liberty. If they do, the tragic unemployment numbers for April will be a sore but temporary spot on our economy. 

We will see the effects of the disruption in the May numbers as well, but if Governor Gordon follows his now-established habit of leading from behind, he will now tag along states like South Carolina, Georgia and Texas and let Wyoming get back to work again.

If he does, our state will see its unemployment numbers wind down over the summer. It will go faster nationally, but we probably won't dip below six percent as a country any time before Labor Day. Not only will some states drag on with their lockdowns for as long as they can, but there is also a share of the workforce that will be comfortable taking a break on unemployment benefits. This happens every time there is a spike in layoffs, but this time the preference for idleness will be boosted by the temporary, extra money that Congress has thrown into the unemployment checks.

Governor Gordon must act fast, and he must put the private sector in the driver's seat. There is a very nice, tangible way for him to do this: declare an economic emergency.

I can hear a string of lawyers throughout the state shaking their heads at this idea, suggesting it is illegal or impossible or otherwise not feasible. 

Yes, it is. We have just seen our governor disrupt our state's economy by simply declaring an emergency. In doing so he suspended property rights (you can no longer use your private property to earn a living), private contracts (pay-for-work agreements between employers and employees are voided) and individual liberties (you can't get a haircut or go to the gym if you so desire). Of course he can use those vast powers for something good and constructive - just as he could now do it to disrupt productive economic activity.

Let me make clear that I do not like these emergency powers per se. There are no checks and balances on them, a problem that is being put on painful display in Michigan. There, the state legislature has decided to put a leash on their unhinged governor and rein in her emergency powers. The question, of course, is if they can. If she persists in her powers, there will be a dispute that can only be settled in the courts. But what if Governor Whitmer (who is being probed as a possible running mate for Joe Biden) decided to close all courts in Michigan under the public-health emergency?

All of a sudden, the constitution has been suspended in its entirety.

None of this will happen in Wyoming, but the situation in Michigan goes to show how dangerous the emergency powers are. So long as we have them, though, there is always the possibility that our governor can use them to restore the economy after this shutdown.

His instrument is right before him: the money from the CARES Act.

The question of how that money be spent is rapidly rising to prominence. The Legislative Service Office has already drafted a bill to that effect; here is how 20LSO-0700, "Emergency expenses of government-COVID-19" proposes to spend some of the CARES Act money:

  • There will be $100 million paid out to state agencies;
  • $40 million will go to cities and towns;
  • Counties will split $20 million;
  • Another $10 million will go to "political subdivisions", possibly referring to special districts;
  • $50 million is set aside for public hospitals;
  • $15 million will go to Wyoming Life Resource Center and Wyoming State Hospital;
  • The judicial branch will get $2 million; and
  • The legislature retains $1 million for itself.

There is also a bill proposing amendments to workers' compensation and unemployment benefit programs. The bill states that the emergency spending powers related to this pile of cash will be in place until December 20 this year. (It is unclear how long other emergency-power measures will remain in place.)

In total, government entities in Wyoming stand to benefit from a total of $238 million, or roughly $1,000 for every person in Wyoming who was employed prior to the shutdown. 

Left to be doled out is a bit over $1 billion. It remains to be seen how this money is going to be distributed; in theory it should follow guidelines attached to the CARES Act, but in reality there is no federal enforcement mechanism in place. If a state legislature so desired, they could spend the money at their own discretion. 

In other words, the legislature and the governor could agree to put it all into a pass-through feature that gives taxpayers a well-deserved relief. The total $1.25 billion is enough to suspend all taxes, and all government fees and charges for six weeks. With a limited infusion of LSRA money, the legislature could give taxpayers full relief for two whole months. 

A long line of lawyers will shake their heads at this idea, suggesting it is illegal or impossible or otherwise not feasible. I do not dispute that per se, but at the same time: we have just seen our governor disrupt our state's economy by simply declaring an emergency. In doing so he suspended property rights (you can no longer use your private property to earn a living), private contracts (pay-for-work agreements between employers and employees are voided) and individual liberties (you can't get a haircut or go to the gym if you so desire). 

If the governor can do all this by simply declaring a public-health emergency, he can also override all rules and regulations that ostensibly prohibit the state from passing the $1.25 billion on to taxpayers. All he needs to do is declare an economic emergency.

There is another reason for passing the money down to taxpayers. The funds coming out of the CARES Act are all newly printed by the Federal Reserve. By using monetized deficits to pay for government operations, our state government de facto engages the same economic mechanisms that eventually trigger hyperinflation. We won't see hyperinflation in America because of the CARES Act - but we are rapidly shortening the time span before we get to the trigger point. 

If the newly printed cash goes into the private sector, the inflation-driving mechanisms are alleviated. The reason is simple: the private sector produces economic value which backs up the newly printed currency. When there is no value production underpinning the new money supply, it eventually blows into prices and sets the inflation wheels in motion. 

More on that tomorrow. For now, let us hope that Governor Gordon is as determined to declare an economic emergency to restore our state's economy as he was to declare an emergency and disrupt it.

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