Fiscal Policy

From PPP to MAFA

A shopper browses at a Ralphs grocery store in Pasadena, Calif., June 11, 2020. (Mario Anzuoni/Reuters)
The best paycheck protection program is growth.

As I write this article, Congress is debating changes to the Paycheck Protection Program (PPP) to keep American businesses and markets going during the pandemic crisis. This policy is an important one, but a long-run consideration of paychecks starts with economic growth. A successful economic-policy agenda starts there, too.

The nation needs a PPP growth agenda. Conservative first principles provide it: preparing for growth, propelling growth, and participating in growth.

Preparing. A thriving garden must be planted, watered, and tended. The real engine of economic growth lies in the sum of actions of millions of individual entrepreneurs, businesspeople, workers, and consumers, who generate output and productivity. But government has important roles to play beyond providing “rules of the game.” One key role is to nurture the infrastructure of growth — physical infrastructure, yes, but also technology and public health. Support for basic research will yield dividends in economic possibilities at home and in securing America’s global economic leadership. While the pandemic recession and economic and geopolitical tensions with China grab the headlines and our attention, America needs a “Sputnik moment” of preparation for tomorrow’s growth and opportunity.

Propelling. Continued growth requires sustained business investment and a policy environment that nurtures investment and productivity. The corporate-tax reform in the Tax Cut and Jobs Act of 2017 was a significant accomplishment in this regard and bore early fruit of greater investment. Unfortunately, heightened policy uncertainty, particularly around international trade and relations with China, reduced incentives to invest. Some recent individual regulatory reforms guided by economic analysis of costs and benefits have been an economic plus, but the current lack of an overarching “theory of the case” has made broader regulatory reform tougher. A growth agenda must explain propellants of growth, focus on their implementation, and defend their successes.

Participating. Mass flourishing, not just higher average GDP, was the goal of classical economists such as Adam Smith — and they were right to embrace it. A conservative growth agenda should embrace mass flourishing for its own sake, first and foremost, but also because our economic system is in part a social construct requiring mass support. While statist alternatives from the left seek to undermine that support, they offer no road to mass flourishing.

This critical pivot — and it is a pivot from conventional conservative reform measures — must rest on three pillars. The first is the idea that participation in the economy’s benefits requires a connection to work. Education is important, of course, but, so, too, is skill preparation for work. Elsewhere with my Aspen Economic Study Group colleagues, I have suggested a federal block grant for community colleges, with goals and outcome measures, to address this challenge. Its Morrill Act roots make it a strong opportunity-connection idea. Second, individual income advancement requires attachment to work. Work is important for earned success and dignity, and skill and earnings growth rely on work attachment. A participation agenda should strengthen work attachment for low-skilled workers through a more generous Earned Income Tax Credit or other wage subsidy, including for younger, childless workers. Such an approach offers a potent alternative to traditional welfare-state nostrums or the currently fashionable Universal Basic Income, neither of which produces the mass flourishing that classical economists rightly urged on. The third pillar is reconnection to work and the economy when one’s employment outlook is disrupted. Our current system of social insurance is not well-positioned for the economy we actually have. Newer ideas such as Personal Reemployment Accounts, which would provide income support and timing to re-prepare individuals for work when occupational needs change, are critical.

Three comments about this growth agenda are in order. First, it starts with and must be judged against a “first principle” of mass flourishing. Second, it will require investments of public funds — it is not and cannot be simply about small-government laissez-faire. Third, it needs articulation and careful implementation.

The “PPP” for growth is the best paycheck protection program the U.S. economy could have — indeed, there is no paycheck protection without it. Make America flourish again!

R. Glenn Hubbard is the Russell L. Carson Professor of Finance and Economics at Columbia Business School and professor of economics at Columbia University. He was chair of the Council of Economic Advisers under President George W. Bush.


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