We have learned from past experience that public policy proceeds through two phases during major crises: first, as one influential economist has said, “whatever it takes”; then, “Oh my God, what have we done!”
The Canada Emergency Response Benefit represents the best of whatever-it-takes policy. The speed, the depth, and the sheer uncertainty of the duration and aftermath of the COVID19 crisis called for maximum flexibility in the making of public policy, and full discretion for leaders to respond quickly. This is equally the “In it altogether” phase. It motivates significant, widely available, and easy to get income support intended to avert a liquidity crisis and ensure the survival of many asset-poor households.
The CERB is a generous payment, minimally targeted, with an on-off eligibility rule that would normally create a significant work disincentive, a program totally appropriate for times when the standard rules of economic policy are flipped upside down. The work disincentives of this program are a feature, not a bug. For many there is no work to be had, while for others work should be avoided to maximize the physical distancing necessary to reduce the reproduction rate of the virus, and flatten the curve. Survival, not stimulus, is the watchword for policy.
But re-opening the economy in stages, according to risks of re-infection and flare-ups, makes clear that we are in-it-together only until we are not. And yet uncertainty continues to prevail: will the recovery be V, U, W, or L-shaped? At what point do temporary layoffs morph into permanent layoffs that lengthen spells of unemployment, and further depress consumer confidence?
In the “OMG, what have we done” phase, giving maximum flexibility and discretion to government may even add to uncertainty.
This is the time to lean toward rules-based policy tied to desirable outcomes. Policy that shifts from discretion becomes more important as it will allow the economy to flexibly move forward.
In this sense, the next-step design for CERB should take lessons from the use of outcome-based rules in managing the staged re-opening of businesses according to health risks. All provincial governments have laid out clear roadmaps for staged opening, and the wisest have not set a timeline.
So, in a similar way, the generosity of each monthly CERB payment should be tied to the monthly change in provincial employment rates, while still leaving considerable benefits for workers to accept or reject work in a way that does not fall off a cliff if in fact more work is accepted.
This calls for harmonizing CERB with, say, the prevailing rules governing the working-while-on-claim provisions of the Employment Insurance program, letting workers keep 50 cents of benefits for every extra dollar earned. It also calls for letting any paid hours of work be qualifying for future EI claims.
And just as the timeline for opening the economy has been left open-ended and tied to health outcomes, so too should the overall duration of the program be left open-ended. But its generosity would fall or rise each month in lock-step with the changes in provincial employment rates. In some provinces the next-step CERB will last longer than in others. But in all cases, benefits would continue to be funded by the federal government even if it is felt differently across the country.
We all hope, of course, to enter the third phase of major crises, “thank goodness its over”, and smart rules-based policy will help in making that happen sooner than later.
Economics for public policy 