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Small businesses are the economic engine of the U.S. — and they are about to seize up because of lack of oil. What can we do to help them survive and prosper? Although the Federal Reserve has lowered rates to zero, pumped liquidity into the system, and is engaging in QE (quantitative easing), these initiatives are likely to have little impact on our small businesses and Main Street.
The bigger issue, and bang for the buck, will be a fiscal policy response.
There have been several articles in the popular press that have focused on some useful ideas such as buying restaurant gift certificates, takeout, and using online delivery —but these ideas are not enough. We need to go big or go home. The coronavirus will have long-lasting economic implications — much worse than the Global Financial Crisis — if policy makers don’t move quickly to address the immediate needs of these firms.
We learned a lot from the Global Financial Crisis — what worked and what failed. I believe, as do many economists, that fiscal policy is critical at this point. The consumer drives the U.S. economy and is especially critical to local small business.
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What should we do?
Step 1: Help the consumer
The priority for everyone at the federal level and on down to the states and towns, should be to ensure that individuals and small businesses get the assistance they need to get through this crisis.
Give money directly to consumers
First, the government needs to put some money in people’s pockets so they can support our small firms. Providing support to the consumer helps local small business. People living on the margins, e.g. low income, gig workers, etc. will be hurt the most. We need to help them first. That means an immediate $500 to every child and $1,000 to every adult.
Also read: Romney, other lawmakers call for sending $1,000 checks to Americans as part of coronavirus response
We are in a recession already. First-quarter GDP numbers might show some growth due to a good first two and a half months, and the shopping burst over the last weekend, but the reality is that we are in a recession and need to act fast.
Make sick leave possible
Second, we also need to consider providing not only low-cost or zero-percent loans, but also possibly grants to small business in the form of government-paid sick leave for their workers. Physical health equals economic health. We need to make sure people who are sick are financially able to stay home!
The current proposal with the Senate includes paid sick leave, with exemptions for employers with greater than 500 and less than 50. That leaves out 80% of all workers, including small businesses and individuals who will be most adversely affected. The Senate needs to move on this bill as a first step, but more will need to be done, otherwise the economic downturn will extend beyond this crisis.
Tax relief
Third, we need to provide immediate tax relief to small firms. This may include things like an extended tax holiday or possibly tax rebates at both the state and federal levels.
Credit loosening
Fourth, almost as important as willingness to lend going forward, banks need to work with their borrowers to extend loan maturities and grant temporary relief. The Small Business Administration can play a critical role is subsidizing credit, and I am certain that they will roll out “Corona-Express” types of loans quickly.
It’s important to emphasize, however, encouraging lending will only be effective if the consumer can spend.
Shop local
Finally, we all need to support these businesses. Shop and do business locally. To be realistic, we probably won’t have much choice. Let’s not bail out Wall Street. We should focus on consumers and small business to increase the odds of successfully emerging from this crisis.
The ongoing vitality of local small business is critical to the success of the U.S. economy. Budget deficits don’t matter right now. Money is cheap. The consumer will be the key to small-business survival and policy makers need to act accordingly. Let’s hope they have the will power to do it.
Peter Nigro, Ph.D., is a professor of finance at Bryant University. He previously served as an economist with the Office of the Comptroller of the Currency in Washington, which regulates all national banks. He is an expert on the Federal Reserve, monetary and fiscal policy, financial saving, credit risk, and fair lending issues.
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