This is such a surreal moment — with the pandemic, anarchic unrest, presidential elections via Zoom and the economic earthquake shattering so many lives.
Taken together, it’s difficult to imagine all of us bouncing back to normal by the end of the next six to nine months, especially economically.
Our prediction: Forget the “V” recovery in Florida. This economic recovery in Florida is going to be like recovering from a direct hit from a hurricane. Years. Especially in Florida’s tourism industry — perhaps the most important leg of the state’s three-legged economic stool.
Take this sobering pronouncement from the July forecast of the Florida Office of Economic and Demographic Research:
“The economy does not recover to the levels expected in December 2019 even at the end of the 10-year forecast horizon, reflecting the permanent economic damage inflicted by the virus. Across the various elements of the 10-year forecast, some measures of the Florida economy take two fiscal years to recover their pre-[pandemic] peaks and normal growth patterns, while some never reach them at all.”
We all know that if we are to recover, we need tourism. And the surest way for that to happen would be a miracle: a quick end to the pandemic and Florida regarded, once again, as a safe place to travel.
But there are other reasons not to expect Florida’s economy to get back to “normal” growth rates for two years. It’s Washington.
As a result of our national lawmakers’ urge to do something, to be heroes, they have been prescribing the same medicine that made the recovery from the 2008-09 recession as weak as it was: printing and borrowing more money and handing it out like Halloween candy.
It hearkens to those ever wise words of the late Milton Friedman: “You know how money is. There’s a tendency for it to grow. … And as always when there is more money, prices go up. … Inflation is when the supply of money is growing more rapidly than the quantity of goods and services produced.”
And that’s what is happening. Washington politicians are printing massive amounts of federal relief money and handing it out in an economy that has shrunk. We have an economic pie that is smaller than a year ago and where there is less demand.
“Inflation is just like alcoholism,” Friedman said in a speech in 1976. “In both cases, when you start drinking or when you start printing too much money, the good effects come first. The bad effects come later.
“When it comes to the cure, it’s the other way around. When you stop drinking, or when you stop printing money, the bad effects come first, and the good effects only come later.”
To an extent, we saw this in action last week at the Sarasota County Commission — the early effects of printing too much money. The county’s five commissioners and a half-dozen county administration staffers spent more than five hours discussing how they are going to hand out $18.9 million in grants to Sarasota County residents, businesses and government agencies to help offset the damages wrought from the COVID-19 economic shutdowns.
The commissioners and administrators, mind you, are just doing their jobs — trying to spread Neosporin on Sarasota residents’ economic wounds, to help them get over the hurt of the past six months.
Altogether, Sarasota County is slated to receive $75 million as its allocation of federal coronavirus relief funding that is being distributed to Florida’s 67 counties. Florida altogether is to receive $8.33 billion. Nationally, Congress has sent $139 billion to all 50 states — money to be allocated on the basis of population to 3,143 U.S. counties.
Arbiters of rationing
Now imagine 3,143 county commissions each spending hours upon hours determining who will receive this money and how much they’ll receive, as well as creating new government operations staffed with people to oversee and coordinate the distribution of this cash.
It’s a new, gargantuan role for local governments. All of these county commissioners have now found themselves in the position of arbiters of rationing. And as we all know, any time government is placed in that position, there are always market distortions, waste, and winners and losers.
Just listening to the county administration leaders discuss the steps they have taken so far to create an organized methodology and system to figure out how to hand out this money, you can see the task is daunting.
Now multiply that by 3,143 U.S. counties.
For instance, the Economic Development Corp. of Sarasota County surveyed 700 businesses and 292 nonprofit organizations, conducted weekly small business roundtable meetings, conducted seven governmental needs-assessment surveys, held meetings with the Human Services Advisory Council, and contacted 24 other counties in Florida and around the country to learn how they are disbursing their coronavirus relief funds and the lessons learned in the process.
From all that, Sarasota County administration created five categories of designated recipients (see box).
Consider the Economic Recovery category. After all of its surveys and meetings, the EDC is recommending the county give $20,000 to any business in the county with fewer than 100 full-time employees, so long as the business can produce financial evidence that the pandemic harmed the business. There are other criteria, but essentially that’s it: Prove you’re a legitimate Sarasota County-based business and that the pandemic hurt your business.
All totaled, the EDC is requesting $40 million of the county’s $75 million be distributed in $20,000 grants to 2,000 Sarasota County businesses. That money, according to the county’s criteria, could be used for rent or mortgage payments, noncounty utilities, payroll, restart costs, reopening marketing costs or reopening inventory. To obtain the cash, businesses would apply, and county-paid processors would evaluate each application to make sure it met qualifying criteria.
One of the worries of the county is whether 2,000 businesses will apply.
Now imagine that $40 million cycling through 2,000 of Sarasota County’s 16,000 businesses. Surely, that money will help and do some good. What business owner wouldn’t want $20,000, no matter the size of the company?
But actually, that $8.33 billion and $75 million injected into Florida and Sarasota, respectively, is likely to do little to reignite the economy.
For one, whatever money the government has, it takes from taxpayers. And when it distributes, say, $20,000 to aggrieved businesses, all it is really doing is taking away some of Peter’s wealth to pay Pauline. In the case of the coronavirus relief bill, Congress has just saddled future generations with trillions of new debt.
Remember the Obama stimulus money? It was a dud.
“The empirical evidence overwhelmingly supports the view that a large amount of government debt hurts economic growth, and in many cases the impact gets more pronounced as debt increases,” economist Veronique de Rugy at George Mason University wrote July 28.
Economic pie has shrunk
What’s more, although that $20,000 is helpful no matter what, it does little to solve this fundamental problem: As a result of the economic shutdowns and quarantines, Florida’s economy has shrunk. The size of the economic pie has shrunk. Demand has contracted. Even if small business owners takes in $20,000, that money won’t increase consumer demand and sales for their goods or services.
If a restaurant is operating at a loss because of a lack of consumer demand or regulations restricting capacity, that $20,000 won’t solve the bigger issue of not enough customers to cover the restaurant’s monthly expenses. It cannot operate that way for long. Consumer demand needs to be restarted.
And that is the crux of Florida’s economic recovery: how to boost demand.
To its credit, Florida TaxWatch last week released 29 smart, practical recommendations for the state and Legislature to enact immediately to provide financial and regulatory relief to businesses and property owners. They are a start.
TaxWatch, for instance, is recommending a long-standing wish of Florida businesses: to eliminate the sales tax on commercial rents. That would immediately free up cash for businesses, increase the value of commercial properties and make Florida more attractive for all those businesses that want to flee the Northeast.
Or, really go bold: Back in April, supply-side economist Arthur Laffer told us Florida could spur consumer demand if it lowered the state’s 6% sales tax — while simultaneously it eliminated many of the state’s sales-tax exemptions.
Lawmakers would loathe lowering the sales tax rate when forecasts are projecting the state’s sales tax collections — Florida’s primary source of revenue — will decline $4 billion, or 8%, over the next two fiscal years.
That lost revenue means the Legislature, local governments and school boards are heading into another period of having to make cuts — just as they did during the 2008-09 recession.
The reality is there are few government policy options to kick-start consumer demand in Florida.
It comes down to this: That $75 million and $8.33 billion being disbursed in Sarasota County and statewide, respectively, will do some good, but that money won’t change the drawn-out pace of Florida’s economic recovery. The recovery will speed up only when Florida consistently shows the pandemic is under control and that the state is safe to visit once again.
Government won’t solve that problem with more devastating shutdowns. But personal responsibility and behavior can. That’s the message DeSantis should deliver every day: The more Floridians do what they can to control COVID-19, the faster Florida’s economy and jobs will come back.