The Pandemic Relief Challenge Ahead: Ending It

(Bloomberg Opinion) -- How and when to phase out Covid-19 relief programs is one of the most difficult policy problems that the Biden Administration will have to solve. Eventually the virus will be vanquished, and the U.S. government won't be able to keep large swathes of its economy on life support forever. Each relief program presents its own challenges in a phase-out.

The simplest will be the quasi-universal checks. That's because they're really just a series of ad-hoc spending measures, limited by income to a part of the population. President Joe Biden is already having trouble with his push for $1,400 checks, so expect this to be the last round unless the pandemic comes roaring back. Down the road, maybe memories of the relief checks will increase support for policies like universal basic income, but for now this is a program that will phase itself out -- though possibly too soon.

Pandemic unemployment benefits are another matter. Once Covid-19 is under control, the bulked-up payments -- which Biden would keep at $400 a week per person through the end of September -- will need to be phased out. As long as everyone knows that the benefits are only temporary, the payouts won't discourage many people from working, since retaining a job is better than collecting checks for a few months and then still being unemployed after benefits expire. But if people think the extra money will be extended indefinitely, some might drop out of the labor force. So there has to be a clearly broadcast sunset to the program.

One good indicator of when it's safe to phase out the program will be the number of customers returning to eat at restaurants, tracked by the reservations website OpenTable. This data currently shows how depressed the economy still is.

When the restaurant scene begins to revive, it's time to start phasing out the pandemic unemployment bonus. Normal unemployment benefits will suffice for a normal recession, and eligibility can be extended if the economy fails to bounce back rapidly.

Government support for businesses -- which has already shrunk, and which features less prominently in Biden's plan than in previous bills -- will also need a carefully considered phase-out.  Though some pandemic-stricken businesses will bounce back, others will never be viable again, and we shouldn't waste money trying to keep them alive.  Perhaps people will decide they're perfectly happy staying at home to watch movies on Netflix and Amazon Prime, leaving  movie theaters to wither away.  In that case, companies like AMC Entertainment Holdings Inc. will probably have to be wound down. Or perhaps commercial property developers will be thinned out if the shift to remote work turns out to be permanent.

If non-viable businesses that fall victim to long-term demand shifts are sustained with cheap loans, it could lead the U.S. to repeat Japan's experience with “zombie” companies in the 1990s. In that country, steady flows of below-market bank loans kept a bunch of doomed businesses on life support, sucking resources away from healthier businesses. The U.S. economy can't afford that loss of dynamism, so business-support programs should be wound down at about the same rate as the unemployment premium. Don't worry -- new businesses will spring up to replace the ones that die.

That leaves the thorniest issue of all: Evictions. So far, a long-predicted wave of evictions has been held at bay by a patchy system of federal and state moratoriums. Biden's plan would extend these through the end of September, delaying the inevitable reckoning.

In fact, a surprising number of Americans have been able to keep paying their rent through the pandemic, thanks to the government's generous relief bills:

But even a couple percentage points of decrease represents millions of Americans who haven't been paying rent -- either because they were unable to, or because they chose to delay rent payments in the hope of a negotiated reduction after the pandemic. And a far bigger total number of households may have missed one or two payments over the last year.

Some taxpayers will inevitably balk at the idea of some renters' getting a pass on paying back rent. After all, that might reward a few people who could have paid but chose not to! But logistically, there's just no feasible way for the government to figure out whether people missed rent because they were unable to pay, or unwilling. So in the interests of not kicking millions of Americans into the street, we're going to have to encourage landlords to negotiate settlements with their tenants.

The easiest way to do this is with a financial incentive. Landlords who negotiate partial reductions in back rent should get at least some of that reimbursed by the government. After all, landlords are taxpayers, too, and though landlording is and should be an inherently risky endeavor, some partial bailout as part of an incentive program for negotiated settlements would smooth out this looming upheaval.

All of these relief programs were important in helping sustain our economy and our population through the dark days of the pandemic. As we finally begin to contemplate life without Covid-19, we should also be planning for the end of these programs with a thoughtful, orderly wind-down.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.

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