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Three simple rules for Congress in the new COVID-19 relief bill

By: Ryan Ellis

Congress is usually not very good at basic lessons of economics. In fact, simple arithmetic is usually challenging for most elected officials. But as the debate over the next COVID-19-related bill continues, there are three basic rules of economics Congress should keep in mind.

If you want more of something, subsidize it.

The CARES Act, the law that created the Paycheck Protection Program, was a mixture of Republican and Democrat priorities. The worst idea from the latter category was to create a kind of “super-unemployment” program. The main feature of this “super-unemployment” was a federal booster payment of $600 per week on top of regular state unemployment benefits. The Congressional Budget Office estimates that as a result of the extra money, 80% of unemployment recipients are paid more in benefits than they were paid in their old job. That’s led to anecdotal accounts of businesses (think restaurants) not being able to bring back their old workers because they cannot pay as much as unemployment does.

Thankfully, these extra unemployment payments expire on July 31, and we should expect an improving labor situation to get much better virtually overnight. Congressional Democrats want to extend the $600 supplemental payments to the end of the year, which will result in more unemployment in 2020 and less economic growth in 2021, according to the CBO.

If Congress wants more unemployment, it should subsidize it. If Congress wants less unemployment, it should stop subsidizing it. End the extra $600 on schedule, and watch the unemployment rate fall back to Earth.

Price controls lead to scarcity, and scarcity leads to rationing.

Another item Congress is considering involves slapping government price controls on surprise medical bills (when you get billed by your insurance company for services done by an out-of-network provider even though you were at an in-network facility). The fundamental fairness argument is intuitive — if you go to an in-network hospital, but they assign you to an out-of-network radiologist, that is not something that should be your problem.

The White House has floated simply outlawing this practice. Indeed, this blunt solution almost made it into the CARES Act. This idea begs the question of who gets stuck with the bill if not the patient: Is it the provider conducting the service, the hospital where the service was provided, the insurance company, the taxpayer? No one seems to know.

The leading bipartisan congressional legislation (a product of the Republican Senate HELP Committee and the Democrat House Energy and Commerce Committee) would impose a government price control on surprise bills. To oversimplify, the patient could not be charged any more than the in-network rate for an out-of-network service. This is a very favorable solution to insurance companies and very detrimental to doctors, lab technicians, and ambulances.

A week ago, a team of conservative groups called the Coalition Against Rate Setting sent a letter to administration officials and Capitol Hill to remind policymakers that conservatives always have been and always will be opposed to government-imposed price controls, in any context and for any reason. The Center for a Free Economy, which I founded and manage, is a co-signer of the letter and a member of the coalition.

The reason is simple. When the government imposes a low-ball price control, the provider of the good or service is sent a price signal to produce less of that thing (in this case, medical services). This artificially low price distorts the market, resulting in scarcity of the product (that is, not enough doctors and lab workers and ambulances). This scarcity results in the government (that would be the same government which created the problem in the first place) having to ration the product. The government breaks it, and the government tries to fix it. Price controls never work, they only make the problem the government is trying to solve worse.

Paying for something tomorrow is better than paying for it today.

This lesson ought to be simple. Who doesn’t understand that being able to pay a bill next week is better than having to pay that bill this week, assuming the same price? Congress and Treasury Secretary Steven Mnuchin can let the entire economy benefit from this simple insight.

Back in March, Mnuchin used his legal authority to push a bunch of tax payments into July, specifically, balances due on income tax returns, excise tax payments, and estimated tax payments for businesses. At the time, that seemed like a long way off. The virus lasted a lot longer than people hoped, and states have been slow to fully reopen their economies. It no longer seems like a good idea for businesses to pay up to a trillion dollars to the IRS and state tax offices all at once.

That’s why leading conservative groups released a joint letter this week urging Mnuchin to push all these July payments into 2021. Let the economy get back on its feet, make sure the fiscal and monetary relief gets out the door, get past the riots, etc. The same tax bill, six months later.

If Congress and the Trump administration can keep these three simple economics lessons in mind, they will make much better law this summer.

Ryan Ellis (@RyanLEllis) is president of the Center for a Free Economy.

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