A16| Friday, March 20, 2020 THE WALL STREET JOURNAL.
Bank Risk System From 2008 Has Problems
Regarding “Let the Fed Adminis-
ter an Antiviral Shot” (op-ed, March
16) by Kevin Warsh: The Federal Re-
serve’s most recent interest-rate cuts
and quantitative easing repeat ac-
tions from this past crisis, demon-
strating how little regulators learned
from that experience. The risk-
weighted capital standard that regu-
lators insist is the best measure of
bank soundness has both discour-
aged banks from holding commercial
loans and weakened the industry.
Risk-weighted capital standards for
U.S. banks require that they allocate
more of their own capital to fund
loans than is required to fund nearly
any of their other assets, e.g., banks
are required to use far less capital to
fund mortgage-backed securities,
collateralized loan obligations, deriv-
atives, or sovereign loans. These as-
sets are as risky as any loans, yet
regulators bias banks to direct funds
to these asset classes.
Relying on risk-weighted mea-
sures also leaves the impression that
banks are adequately capitalized
when, in fact, they’re marginallycapitalized at best. Banks report cap-
ital levels exceeding 14% of risk-
weighted assets, but when capital is
measured against all assets, to in-
clude on-and-off the balance sheet
items, the ratio plummets to 6.7%.
This inadequate capital standing is
reflected in the markets’ harsh dis-
counting of bank stock prices over
the past several days.
The one difference in this crisis
versus 2008 is that, for whatever
reason, the largest banks have
agreed to stop using all of their
earnings to buy back their own
stock—for now. This is crucial, since
they’ll need this capital to absorb
losses that will follow this crisis and
then be in a position to lend to busi-
nesses when the crisis subsides. Un-
fortunately, should they focus on
growing their loan portfolio it will
be despite the current capital stan-
dards which will steer banks toward
acquiring other assets and buying
back stock once the panic is over.
THOMASHOENIG
Mercatus Center
Arlington, Va.LETTERS TO THE EDITOR
Letters intended for publication should
be addressed to: The Editor, 1211 Avenue
of the Americas, New York, NY 10036,
or emailed to [email protected]. Please
include your city and state. All letters
are subject to editing, and unpublished
letters can be neither acknowledged nor
returned.
“He was an open book—
unfortunately it was fiction.”THE WALL STREET JOURNALA Degree Doesn’t Equal a License to Practice
Your editorial “Mississippi’s Big-
gest Loser” (March 16) correctly pin-
points the danger of state occupa-
tional licensing boards promulgating
regulations in the name of patient
safety but that are really meant to
stifle competition. This was ad-
dressed in the 2015 Supreme Court
decision inNorth Carolina State
Board of Dental Examiners v. FTCin
which the court ruled that occupa-
tional licensing boards, to be immune
to antitrust law, need to be actively
supervised by the state.
However, there is a slippery slope
when broadly challenging the author-
ity of occupational licensing boards.
Degrees in the health sciences act
only as an entry-level platform upon
which students need to build to gain
hands-on experience in approved
training programs followed by dem-
onstration of ongoing competency by
standardized evaluations. Just be-
cause a person has a degree in sports
medicine doesn’t qualify him or her
to be an athletic trainer. The same
could be said for persons aspiring tobe physical therapists, occupational
therapists and even dietitians.
Clients could be paying for filet
mignon but end up with baloney. Li-
censing requirements, when carried
out fairly, represent a reasonable
standard by which patients or clients
can judge the qualifications of their
providers.
EM.PROF.BERYLROSENSTEIN,M.D.
Johns Hopkins School of Medicine
BaltimorePoor Data and Confirmation Bias Mislead
Phillip W. Magness and Stephen C.
Miller’s “The IRS Proves the Left’s Fa-
vorite Economists Wrong” (op-ed,
March 13), while largely correct, fails
to consider the impact of employment
(FICA and Medicare) taxes on mar-
ginal rates. Assume a young, single,
self-employed taxpayer earns $55,000,
which, after the standard deduction,
places him in a 22% marginal federal
tax bracket. Employment taxes add an
additional 15.3% and state income
taxes often add an additional 5% or
so. Even after considering the partial
offset for the “employer’s share” of
employment taxes, that young tax-
payer is paying over 40% in taxes of
each additional dollar earned. Earn
$100 and pay $40 in taxes—perhaps
that explains why so many young peo-
ple have less incentive to earn more
taxable income. It also provides an in-
centive to earn money “off the books.”
If the source of a rich person’s in-
come is capital gains or qualified divi-
dends, the marginal rate may be only
20%, plus the 3.8% net investment in-
come tax, plus, perhaps, 5% state in-
come tax for 28.8%. It should come as
no surprise that the young taxpayer
described above has no capital to in-
vest, and is resentful of this tax struc-
ture. While few younger people are
aware of these specific tax rates, I canunderstand their general attraction to
Sen. Bernie Sanders’s tax proposals.
Many taxpayers feel that the solution
may have less to do with tax reform
than with less government spending.
STEWARTW.FLEISHER
DenverThe Emmanuel Saez-Gabriel Zuc-
man analysis entered the media echo
chamber as confirmation that Presi-
dent Trump’s tax cuts exacerbated in-
equality in America and the tax sys-
tem now perversely favors the rich. It
wouldn’t be wise to hold your breath
while waiting for most reporters to
disclose that actual IRS data don’t
support the gross income-inequality
narrative based on the inaccurate
Saez-Zucman analysis. Once a pro-
gressive narrative takes hold in the
media, journalists move on and rarely
look back because of new or conflict-
ing information. If such information
gets an airing, as the Magness-Miller
analysis gets in the Journal, while
most in the media ignore it, do the
actual data truly undermine the origi-
nal story? The answer depends on
whether the truth beats settled per-
ception of the truth in today’s skewed
media environment.
DEANRICHARDS
Annapolis, Md.Compassion for Refugees
Fleeing Violence Abroad
By allowing the “Remain in Mexico”
policy to remain in effect, the Su-
preme Court, without any reasoning,
has effectively rubber-stamped a pol-
icy that forces asylum seekers to
abandon their claims to relief (“Asy-
lum Policy Can Be Enforced,” U.S.
News, March 12).
We’ve seen firsthand how asylum
seekers, particularly survivors of gen-
der-based violence, have been im-
pacted by this harmful rule. Survivors
are seeking refuge from persecution,
and instead are being sent back into
dangerous conditions where they
could face further harm or even death.
We will continue to fight to end this
heinous program. Our country has a
legal obligation to provide a safe ha-
ven to all people fleeing life-threaten-
ing violence at home.
RICHARDCALDARONE
Tahirih Justice Center
Falls Church, Va.Pepper ...
And SaltWomen Need to Step Up as
Coaches for Women’s Sports
“What’s Next for Women’s Sports”
(The Future of Everything: Sports,
March 12) is likely more of the same
pattern that exists now unless women
get more involved in coaching girls’
and young women’s sports. Years ago,
a call went out for a Butler University
faculty member to be the adviser for
the newly formed women’s lacrosse
club. I waited several days so a
woman could volunteer. When none
did, I volunteered to be the adviser.
That same pattern exists for girls.
More women need to become coaches
of girls’ softball, basketball and soc-
cer. With Coach Muffet McGraw, I,
too, hope the 60-to-40 male-to-fe-
male college-coach ratio will change,
but the biggest gains will come if
women step up and coach girls at a
young age.
RICHARDJ.MCGOWAN
IndianapolisRethinking the Virus Shutdown
F
inancial markets paused their slide
Thursday, but no one should think this
rolling economic calamity is over. If this
government-ordered shut-
down continues for much more
than another week or two, the
human cost of job losses and
bankruptcies will exceed what
most Americans imagine. This
won’t be popular to read in
some quarters, but federal and
state officials need to start ad-
justing their anti-virus strategy now to avoid an
economic recession that will dwarf the harm
from 2008-2009.
The vast social-distancing project of the last
10 days or so has been necessary and has done
much good. Warnings about large gatherings of
more than 10 people and limiting access to nurs-
ing homes will save lives. The public has re-
ceived a crucial education in hygiene and disease
prevention, and even young people may get the
message. With any luck, this behavior change
will reduce the coronavirus spread enough that
our hospitals won’t be overwhelmed with pa-
tients. Anthony Fauci, Scott Gottlieb and other
disease experts are buying crucial time for gov-
ernment and private industry to marshal re-
sources against the virus.
iii
Yet the costs of this national shutdown are
growing by the hour, and we don’t mean federal
spending. We mean a tsunami of economic de-
struction that will cause tens of millions to lose
their jobs as commerce and production simply
cease. Many large companies can withstand a
few weeks without revenue but that isn’t true
of millions of small and mid-sized firms.
Even cash-rich businesses operate on a thin
margin and can bleed through reserves in a
month. First they will lay off employees and then
out of necessity they will shut down. Another
month like this week and the layoffs will be mea-
sured in millions of people.
The deadweight loss in production will be
profound and take years to rebuild. In a normal
recession the U.S. loses about 5% of national out-
put over the course of a year or so. In this case
we may lose that much, or twice as much, in a
month.
Our friend Ed Hyman, the Wall Street econo-
mist, on Thursday adjusted his estimate for the
second quarter to an annual rate loss in GDP of
minus-20%. Treasury Secretary Steven Mnuchin’s
assertion on Fox Business Thursday that the
economy will power through all this is happy talk
if this continues for much longer.
If GDP seems abstract, consider the human
cost. Think about the entrepreneur who has in-
vested his life in his Memphis ribs joint only to
see his customers vanish in a week. Or the retail
chain of 30 stores that employs hundreds but
sees no sales and must shut its doors.
Or the recent graduate with $20,000 in stu-
dent-loan debt—taken on with the encourage-
ment of politicians—who finds herself laid off
from her first job. Perhaps she can return home
and live with her parents, but what if they’re laid
off too? How do you measure the human cost of
these crushed dreams, lives upended, or mental-
health damage that result from
the orders of federal and state
governments?
Some in the media who
don’t understand American
business say that China man-
aged a comparable shock to its
economy and is now beginning
to emerge on the other side.
Why can’t the U.S. do it too? This ignores that
the Chinese state owns an enormous stake in
that economy and chose to absorb the losses. In
the U.S. those losses will be borne by private
owners and workers who rely on a functioning
private economy. They have no state balance
sheet to fall back on.
The politicians in Washington are telling
Americans, as they always do, that they are rid-
ing to the rescue by writing checks to individuals
and offering loans to business. But there is no
amount of money that can make up for losses of
the magnitude we are facing if this extends for
several more weeks. After the first $1 trillion this
month, will we have to spend another $1 trillion
in April, and another in June?
By the time Treasury’s small-business lend-
ing program runs through the bureaucratic
hoops—complete with ordering owners that
they can’t lay off anyone as a price for getting
the loan—millions of businesses will be bank-
rupt and tens of millions will be jobless.
iii
Perhaps we will be lucky, and the human and
capitalist genius for innovation will produce a
vaccine faster than expected—or at least treat-
ments that reduce Covid-19 symptoms. But bar-
ring that, our leaders and our society will very
soon need to shift their virus-fighting strategy
to something that is sustainable.
Dr. Fauci has explained this severe lockdown
policy as lasting 14 days in its initial term. The
national guidance would then be reconsidered
depending on the spread of the disease. That
should be the moment, if not sooner, to offer new
guidance on what might be called phase two of
the coronavirus pandemic campaign.
That will surely include strict measures to iso-
late and protect the most vulnerable—our elderly
and those with underlying medical problems. This
should not become a debate over how many lives
to sacrifice against how many lost jobs we can tol-
erate. Substantial social distancing and other
measures will have to continue for some time in
some form, depending on how our knowledge of
the virus and its effects evolves.
But no society can safeguard public health for
long at the cost of its overall economic health.
Even America’s resources to fight a viral plague
aren’t limitless—and they will become more lim-
ited by the day as individuals lose jobs, businesses
close, and American prosperity gives way to pov-
erty. America urgently needs a pandemic strategy
that is more economically and socially sustainable
than the current national lockdown.No society can
safeguard public healthfor long at the cost of
its economic health.
The Emergency 401(k) Button
A
s the coronavirus threatens to stall the
U.S. economy, a relatively easy counter-
measure is to hit the emergency 401(k)
button: Congress should allow
people to take a certain sum,
say $10,000, from their retire-
ment accounts without facing
penalties or taxes.
This is a way to tap liquidity
that already exists. Among
nonretired adults, 54% have some kind of de-
fined-contribution plan, such as a 401(k) or
403(b), according to a Federal Reserve report
last year. Also, 33% hold an individual retirement
account. For Americans overall, it represents a
huge pool of money, estimated by one survey at
roughly $17 trillion.
Early withdrawals generally face automatic
tax withholding. Plus there’s a 10% penalty, with
narrow exceptions. Congress created a new ex-
ception in December when it passed the Secure
Act: Up to $5,000 can be taken out, penalty free,
“in case of birth of child or adoption.” In hind-
sight, lawmakers should have added a provision
“in case of global coronavirus pandemic.”
In the past, Washington has given increased
withdrawal flexibility to victims of hurricanes
and California’s wildfires. What’s needed this
time is bigger, since the coronavirus pandemic
is nationwide and economic idling will affect
millions. But the mechanics appear relatively
straightforward. Lawmakers could pass legisla-
tion saying that early distribu-
tions during a defined period
won’t incur the 10% penalty.
Maybe they could waive the
usual income tax and with-
holding, too.
This idea has many advan-
tages, compared with the talk of giving every
American a federal check for $1,000—or is it up
to $2,000? It provides an option for people who
need the cash, without blanketing everyone. Un-
der Washington’s current plan for a Coronavirus
Basic Income, the government would take out
debt to pay everyone. Further, each dollar pulled
from a retirement account would cost the Trea-
sury only a fraction of that in forgone revenue,
for a multiplier effect.
Not everybody has a retirement plan, but a
limited period of allowing free-and-clear with-
drawals would encourage parents, brothers, un-
cles and so forth to act as a financial backstop
to younger and less-fortunate family. That’s a
much healthier dynamic than simply telling
Americans to sit tight, crank up “Ride of the
Valkyries,” and wait for the government helicop-
ters dropping $100 bills.A withdrawal exception
could help Americansweather the pandemic.
De Blasio Scares, Cuomo Soothes
T
hank you, Andrew Cuomo. On Tuesday
Mayor Bill de Blasio did his best to
scare the 8.5 million residents of New
York City with unhelpful
speculation about an imme-
diate order to shelter in
place. He told NBC’s “Today”
show the decision would
have to come in the next 48
hours. Within an hour Gover-
nor Cuomo countered with a healthy dose of
common sense.
First, he clarified something even Mr. de
Blasio was then forced to admit: It’s not the
mayor’s call. It’s the Governor’s. And Mr.
Cuomo was categorical: “I have no interest
whatsoever and no plan whatsoever to quar-
antine any city.”
Partly, he said, it was because a shelter-in-
place order limited to New York City would
not be effective so long as surrounding areas
were not covered. But as important is the im-
plicit rebuke to Mr. de Blasio for irresponsibly
speculating in public about a drastic move
that was not coming.
“I wouldn’t approve shel-
ter in place. That scares peo-
ple, right? Quarantine in
place—you can’t leave your
home,” Mr. Cuomo said on
The Daily Podcast. “The fear,
the panic is a bigger problem
than the virus.”
In other words, self-distancing is one thing
but ordering everyone to stay home is far
more draconian and frightening. One result
was to scare thousands of people, maybe tens
of thousands, to leave the city fast to beat his
potential order. Mr. Cuomo understands what
the mayor does not: In the midst of a public
health crisis, where the key is getting citizens
to adjust their behavior, a political leader has
a responsibility to keep people calm instead
of needlessly frightening them.The Governor overrules
the mayor’s needlessshelter-at-home panic.
REVIEW & OUTLOOK
OPINION