The Downside of Universal Rent and Mortgage Payment Deferrals

While I cannot claim to be a trained economist, my initial thoughts on how universally deferring rent and mortgage payments would impact the economy during the COVID-19 crisis are multifaceted. On one hand, it would likely increase disposable income for both homeowners and renters, potentially stimulating short-term economic growth similar to a one-time tax disbursement during the Bush administration.

Initial Insights

However, there are several caveats to this view. First, during Bush’s era, the disbursements did not have the desired effect because the majority of Americans chose to save the money. The fear of economic and national security concerns led to a reduction in consumption and an increase in savings. These fears are even more heightened today due to the ongoing pandemic.

Health Risks and Labor Force Dynamics

Secondly, while many people are currently working out of necessity, the health risks associated with this work are significant. An increased disposable income might cause more individuals to “afford” not to work and stay home for caretaker obligations and health reasons, potentially reducing the labor force. This could lead to a decrease in overall productivity and economic output.

Short-term Benefits and Long-term Harms

The short-term benefits of deferring payments would include eliminating evictions and mortgage defaults, thereby reducing homelessness, intense distress, and emotional turmoil for those struggling to make payments. However, the long-term consequences would be severe. The accumulated debt would still be due, and when payments come due, there will be a tsunami of mass evictions and mortgage defaults. Public services would be overwhelmed, and we would see a spike in homelessness, similar to the spike in unemployment claims when the economy was closed.

Political and Social Implications

Additionally, there would be massive political backlash for government intrusion, denying landlords and banks their money. This further division in the already contentious political landscape would make it even harder to address the underlying issues facing the economy and society.

Conclusion: A Balanced Approach

After approving trillions of dollars in aid, I believe the government should cover these costs now. This is the only way to prevent the long-term deferred damage and stimulate consumer demand directly, while ensuring the cash continues to flow to banks and landlords to prevent the cancellation of increased consumer demand by reduced income to these institutions.

Ultimately, a balanced approach is necessary to navigate the challenges presented by the current pandemic while prioritizing both short-term relief and long-term sustainability.