The Wall Street Journal - 16.03.2020

(Ben Green) #1

THE WALL STREET JOURNAL. Monday, March 16, 2020 |A


f you’ve seen one financial cri-
sis, you’ve seen one financial
The policy pronouncements
and tools used in 2008 by Fed-
eral Reserve Chairman Ben Bernanke
and his crisis-fighters weren’t de-
signed to address the current threat.
Yet Chairman Jerome Powell fired a
2008-style barrage Sunday evening.
Cutting interest rates to near
zero, purchasing hundreds of billions
of long-term Treasury bonds and
agency securities, making commit-
ments to hold rates down for a long
time—the monetary arsenal of
2008-09—will likely be of only mod-
est help this time around. The old
weapons must be paired with new
ones fit for the 2020 pandemic.
The novel coronavirus has been
moving faster than the world’s eco-
nomic policy makers, threatening to
shut down the global economy as it
approaches. Yet the Fed possesses
powerful untapped authority, and
with the help of Congress and the ad-
ministration there is much it can do
to improve economic prospects.
U.S. public-health officials ac-
knowledge that the window to con-
tain the virus has passed. They have
pivoted to a policy of mitigation, try-
ing to buy time so that the health-

Let the Fed Administer an Antiviral Shot

care system can manage the influx of
cases. Economic policy makers must
make an equally forceful pivot to
save the economy from a deep and
painful recession.
In consultation with the Treasury
secretary and congressional leaders,
the Fed should immediately invoke
its emergency powers under Section
13(3) of the Federal Reserve Act and
establish a new credit facility to en-
sure that sound businesses and
households have ready access to cash
to get through the crisis.
A new Government-Backed Credit
Facility, or GBCF, would require ev-
eryone to have skin in the game: all
parts of the government, all institu-
tions in the banking system, and a
broad cross-section of small busi-
nesses, large corporations and
The Fed board of governors would
authorize the program and ensure its
accord with Walter Bagehot’s dictum:
lend freely to solvent firms and indi-
viduals on good collateral at interest
rates higher than are customary.
Thousands of regulated banks
would be on the front lines. They
would underwrite loans based on the
quality and value of collateral and
the expected cash flows of borrow-
ers, evaluating applicants based on
their credentials as of Jan. 1, before
the pandemic. Borrowers would need

to demonstrate that they are unable
to obtain credit elsewhere but are
solvent, consistent with the require-
ments of the Federal Reserve Act.
The 12 geographically dispersed
banks in the Federal Reserve system
would judge whether the loans un-
derwritten in their region pass mus-
ter. The New York Fed would evalu-
ate each package of loans, and price
them at spreads modestly higher
than would be customary in normal

Loans would be for a term of up to
90 days, subject to renewal as long
as the virus is affecting the economy.
The GBCF would have a maximum
life of 18 months. If the virus dissi-
pates quickly, the Fed’s program
would be wound down quickly as
The president could authorize the
Treasury secretary to use funds
from the Exchange Stabilization
Fund to kick-start the program by
providing assurance to the Fed that

there is sufficient collateral to sup-
port it. Crucially, Congress would
also authorize a fiscal backstop to
offset any loan losses incurred by
the Fed or the banks themselves.
These actions would maintain an ap-
propriate line between monetary
and fiscal policy.
The establishment of the GBCF is
the right response to this crisis. The
economy was fundamentally strong
and prospects were promising before
the onset of the pandemic. U.S. house-
holds’ earnings were growing at the
highest rate in decades, and the
household savings rate was high. Busi-
ness profit levels remained strong, and
the banking system was sound.
Owing to the virus, many U.S.
households and businesses are ex-
pected to face a liquidity crisis. It
must be managed quickly and effec-
tively so it doesn’t turn into a sol-
vency crisis. More traditional
Keynesian fiscal stimulus to spur im-
mediate consumer spending is at
odds with the public-health mea-
sures adopted by the president to
slow economic activity for a time.
In 2008, I recall sitting along the
wall of the Roosevelt Room at the
White House. Mr. Bernanke and
Treasury Secretary Henry Paulson
sat at the main table across from
President George W. Bush. They were
seeking the president’s support for a

set of extraordinary policy moves to
help the U.S. economy survive the fi-
nancial crisis. Mr. Bush listened in-
tently, and before granting his ap-
proval, he said something that
caused me to take particular note. In
paraphrase: “When this is over, you
guys better think hard how this all
happened and why we were all so un-
prepared. No one sitting in these
chairs again should find themselves
with so few options.”
Policy makers should have used
the long period after the financial
crisis to give more consideration to
the eternally salient question: What
could possibly go wrong? But now is
no time for navel gazing, or cutting
and pasting the response from the
last crisis. Policy makers should
move with dispatch and confidence
to a new paradigm to respond to a
different kind of economic shock.
At a time of government dysfunc-
tion and division, pettiness and par-
tisanship, the Fed would be wise to
lead the effort, consistent with its
mission as lender of last resort, with
support and backstop funding from
the administration and Congress.

Mr. Warsh, a former member of
the Federal Reserve Board, is a dis-
tinguished visiting fellow in econom-
ics at Stanford University’s Hoover

By Kevin Warsh

An emergency lending
program would keep a
liquidity crisis from turning
into a solvency crisis.


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Executive Chairman, News Corp
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Editor in Chief

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Don’t Credit the Minimum Wage for Growing Paychecks


here’s a great irony in the cur-
rent battle over labor policy.
Demands are rising for a $
minimum wage nationwide at ex-
actly the moment when businesses
have returned to granting the most
robust raises in many years, with no
government mandate necessary. Ac-
cording to the Bureau of Labor Sta-
tistics Usual Weekly Earnings sur-
vey, most workers’ wages rose a bit
more than 10% from December 2016
through December 2019, and those
in the bottom 10% got a raise of
Supporters of the higher federal
minimum claim that state and local
minimum-wage increases are the
main cause of recent wage growth.
“Minimum wages probably are the
difference that are kicking up wage

growth at the bottom to higher lev-
els than other groups in America,”
policy economist Ernie Tedeschi
told NPR in January. Yet the data re-
fute the idea that forced raises at
the low end have done more to
boost wages than the trends in the
For starters, relatively few people
earn the minimum wage. According
to the Census Bureau’s Current Pop-
ulation Survey, only 119,000 workers
on average had their pay raised di-
rectly by each of the 51 state and lo-
cal minimum-wage hikes between
2016 and 2019. That’s because even
those in the 10th income decile—
people who earn less than 90% of
their peers—made $467 a week in
December 2019. That’s $11.52 an
hour, far higher than the federal
minimum of $7.25 as well as most
state and local minimum wages.

All told, the recent minimum-
wage hikes directly increased total
wages by $4.2 billion over a three-
year period, including for workers
whose wages fell somewhere be-
tween the old and new minimums.
But the increase in wages for pro-
duction and nonsupervisory workers
(those likely to be paid hourly) over
that period was $325 billion. So
minimum-wage hikes directly ac-
counted for only 1.3% of the total in-
crease in the earnings of hourly
workers over that period.
The effect was more concentrated
at the bottom. The minimum-wage
increases amounted to an $8 in-
crease in weekly pay for the bottom
10% of earners. But the same work-
ers’ overall weekly earnings rose by
$63 during that period, meaning
minimum-wage hikes were responsi-
ble for only 13% of their pay gains.

The hikes accounted for a mere 5%
of the pay gains for the bottom
quarter of workers and only 2% of
the gains for the bottom half.

To be sure, minimum-wage in-
creases can cause broader raises in-
directly by spurring employers to
fend off competition with even
larger increases. That’s the theory
advanced by Mr. Tedeschi and oth-
ers, who interpret the coincidence of
mandatory wage hikes and broader
raises as a sign of the stimulating

power of raising the wage floor. But
again, the share of workers who
earn anything close to that wage
floor is too small to assume that a
higher minimum could meaningfully
boost wages for the entire bottom
quarter. And the fact that unemploy-
ment plummeted in the same period
shows that the tightening of the la-
bor market was the more likely
The outsize gains at the bottom
of the income distribution have been
particularly pronounced among Afri-
can-Americans, whose weekly pay
rose 12% from 2016 to 2019, com-
pared with 9.8% for whites. This
trend appears to be accelerating.
The Federal Reserve Bank of At-
lanta’s Wage Growth Tracker found
wage growth for nonwhites exceed-
ing that for whites by 0.8% in the
past 12 months—the equivalent of
2.5% over a three-year period. Be-
fore the end of 2016 there was little
difference in terms of wage growth
between whites and nonwhites.
Other data tell a similarly en-
couraging story. Inequality dropped
under every census measure from
2017 to 2018, bucking a half-century
trend. There are signs that we’ll see
another drop from 2018 to 2019
when the data are published this
summer. This is a trend that should
be heralded by all Americans. It is
proof that the best way to create a
more equal distribution of income is
to have a robust economy and tight
labor market. Long-term economic
equality can be achieved not by
government decree but by sustain-
ing an economy in which the labor
market allows the laws of supply
and demand to strengthen workers’

Mr. Lindsey is chairman of

By Lawrence Lindsey

Even among low-income
workers, state and local
increases account for only a
small share of recent gains.

Bridget Johnson reporting for
Homeland Security Today, March 13:

ISIS included a full-page info-
graphic on coronavirus prevention
in the new issue of the terror
group’s official weekly al-Naba
ISIS highlights “the counsel to
put trust in God and seek refuge in
Him from illnesses” and “the obliga-
tion of taking up the causes of pro-
tection from illnesses and avoiding
them.” The terror group also added
that “the healthy should not enter
the land of the epidemic and the af-
flicted should not exit from it,”
though their claimed provinces and
active cells aren’t all operating in
virus-free lands: While West and
Central Africa remain mostly un-

touched, along with no reported
cases in Syria or Yemen (where on-
going war would make gauging the
extent of an outbreak difficult),
cases have been reported in Algeria,
Egypt, Iraq, Afghanistan, India, the
Philippines and Indonesia.
ISIS also reminds followers to
“cover the mouth when yawning
and sneezing” and cites a hadith
about germs and contamination:
“Cover the vessels and tie up the
waterskins, for there is one night in
the year when pestilence descends,
and it does not pass by any vessel
that is not covered or any waterskin
that is not tied up, but some of that
pestilence descends into it.”
People should also “wash the
hands before dipping them into ves-
sels,” ISIS concludes.

Notable & Quotable: ISIS

‘Social Distancing’ in the City That Never Sleeps

Brooklyn, N.Y.


hursday, March 12: President
Trump has announced star-
tling restrictions on travelers
from Europe in response to the Wu-
han coronavirus. This is social dis-
tancing on an international scale—
and my wife and I decide we have to
do the same in our own civic unit,
the household.
In our case, this amounts to tell-
ing our disgruntled 20-year-old
son—home from college and attend-
ing class online—that he can’t hang
out with scores of friends who’ve
returned to New York from all parts

of America (and abroad) after cam-
pus shutdowns. Our assertion of
control over his whereabouts will
last all of 24 hours, as he, a history
major, invokes the right to make his
own decisions. We are, at least, able
to extract a promise from him to
use hand sanitizer—while supplies
last—and to “exercise caution,” de-
fined by consensus in a heated fam-
ily conclave.
Our social distancing, as initially
conceived, is straightforward: No
going out unless strictly necessary,
and no incomers to the house unless
imperative. I text our Peruvian
cleaning lady in the Bronx that we

won’t need her to come for at least
two weeks (“distanciamiento social,”
I say), but I’ll pay her anyway.
There can be no distancing with-
out sustenance, so I go shopping.
Our local Key Food throbs with peo-
ple, all navigating carts in the
crowded aisles like river traffic in
the Mekong. The spirit is humane
and uncompetitive—except for one
avaricious woman ahead of me at
the disinfectant shelves in Aisle 6.
She scoops what looked like a dozen
dispensers of wipes into her cart,
leaving two behind. I take both, but
not before asking her if she’s sure
she doesn’t want them.
We have a giant dinner—sirloin
steak, bottles of Côtes du Rhône, po-
tatoes, unpasteurized cheese, figs,
berries—and squabble fiercely. In
only a day cooped up together in-
doors, we’ve had enough of each
other. Distance from the outside has
meant too much proximity inside.
Such intimacy can be suffocating.
Not having gone to the gym hasn’t
Friday, March 13:So we go to the
gym, assuring ourselves that we
need to be fit to fight the virus. The
place is deliciously empty, and I
could have put a pillow down on my
treadmill and slept for hours. I don’t
see any older people, though the
place usually teems with impres-
sively mobile geriatrics. “The old
guys aren’t coming in so much,” the
man at the desk tells me. He seems
In the quiet of my dining room,
I contact friends and family—is-
lands in a growing archipelago of
distancing. A gregarious Upper
East Sider tells me she’s canceled a

long-planned dinner party, even
though guests had planned to fly in
from Aspen to attend. Her family is
decamping to Bridgehampton, in
the plusher part of Long Island,
along with the well-heeled hordes.
“How funny was it,” she writes,
“when Valerie Joseph”—a fancy
hair-salon franchise—“sent an
email that they’re opening up
Bridgehampton on Tuesday.” Usu-
ally they’re only open in the sum-
mer, and a haircut starts at $295.
We bond over the fatuousness of
the herd, a shared embrace, via
email, amid the distancing.
The virus has made people partic-
ularly aware of their relationships,
and a note from a dear pal from
whom I haven’t heard in ages glides
into my Facebook message box. An
English novelist, he’s in Morocco to

work on a movie based on one of his
books. “The Sahara is the ultimate
quarantine and social distance,” he
writes. “There is no one here. Ex-
cept, of course, Hollywood stars.” He
has been hanging out with Jessica
Chastain and Ralph Fiennes.
“She is luminously cute,” he
says, “and very nice.” And he? I in-
quire, as we message in real time.
“I asked him politely if he had the
coronavirus,” my writer friend says,
and Mr. Fiennes said he didn’t. “He
is a gentleman of his word, so I was
Saturday, March 14:“No social
distancing in Williamsburg,” says a
friend who is the only 50-something
man on his youthful street in the
Brooklyn neighborhood awash with
hipsters. “It’s positively pullulating
with people, mostly drunk.” My

stepdaughter in Washington, on the
other hand, reports quiet streets, al-
most empty. Normally a hazard on
the road, she avails of the condi-
tions to take a driving lesson from
her boyfriend, a former war corre-
spondent who spent years in Kabul.
Hunkering down, he tells me,
gives him “the comfortable feeling
of an old routine—a little bit of
muscle-memory kicking back in.” His
account of his stockpiled larder, plus
a full tank of gas and wads of cash,
leads me to think my stepdaughter
is in good hands. But I worry that he
hasn’t got enough red wine (or gar-
lic), going by the numbers he shares
with me.
As the hours pass, I learn that
some slackness must come into ev-
ery attempt at social distancing. On
my way back from the gym, I notice
that the nail salon near my house is
almost empty. I go in, drawn by an
urge to help local business as well
as to tame my toenails. Within five
minutes of my pedicure starting—it
is the Eucalyptus Special—the only
other customer departs.
“You are the king!” says the Ko-
rean manager, a grin on his face. It
is a forced grin, but a brave one.
“King, king!” chorus the six Chinese
manicurists on his staff. One of
them dances a little jig. The lady
chipping away at my feet giggles
through her face mask. There’s no
social distancing anymore. We’re a
stoical huddle of people, a little har-
ried but not unhappy, waiting for
the world to get right again.

Mr. Varadarajan is executive edi-
tor at Stanford University’s Hoover

By Tunku Varadarajan

My 20-year-old son has

his own ideas, the fit ‘old

guys’ aren’t at the gym,

and hoarding in Aisle 6.

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