Odd Lots - Marco Rubio On The Effort To Save Jobs And Get People Working Again

Episode Date: April 15, 2020

At the end of March, Congress passed the CARES Act in an attempt to mitigate some of the massive economic devastation being caused by the coronavirus crisis. A key piece of the legislation includes grants for small businesses that keep employees on their payroll during the emergency. On this episode, we speak with Florida Senator Marco Rubio about the program, what's working, what isn't, and what it will take to move the economy back towards full employment. See omnystudio.com/listener for privacy information.

Hello and welcome to another episode of the Oddlots podcast. I'm Joe Wisenthall. And I'm Tracy Alawy. So Tracy, obviously we've been covering this nonstop story of the virus and the crisis from various economic and market angles for the last several weeks now. But today we're going to do something a little bit different than some of our recent episode. What are we doing? Today we're actually going to be talking to someone who's involved in. formulating the policy response, how the U.S. anyway, is addressing the economic crisis that's coinciding with the public health crisis. Right. So it sounds like this is our chance to sort of put a lot

of the theory that we've been discussing into actual practice. And it's one thing to talk about what governments should do. And of course, we do quite a lot of that on the podcast already. but it's quite another thing to talk about what governments are actually doing or how they should put those ideas into action. Yeah, that's exactly right. Like there is this general idea out there that we know is like, okay, there needs to be a fiscal response to this crisis, which we've seen to quite a large degree in some countries. People sort of overwhelmingly agree that it can't just be monetary. there's this idea, I would say, of sort of freezing or winterizing the real economy so that people can

continue to make their payments, make payroll, things like that while their bills are coming due so that they could simultaneously pay their bills, but not work. Right. And of course, with all of those ideas, there are sort of all these different tradeoffs that policymakers have to start considering. And a big one that comes up to, time and time again is the idea of moral hazard. You know, are you going to end up rewarding people for bad behavior? How do you calibrate one program so that it doesn't interfere with another program? How do you incentivize people to take up the programs that you actually want them to take up?

And of course, all of this is happening under immense time pressure during the time of coronavirus when everyone is quite stressed and worried about a lot of things. things. Right. There are so many aspects of this current economic crisis that are extraordinary. The time pressure is one. The scale of the layoffs that we've seen, at least in the U.S., have been so far off the charts that past periods don't even register as a blip, if you were to say, look at initial claims. And because this isn't just a normal recession, because it's a complete shutdown, so many, whether it's households or businesses, are essentially in the position where one day they were doing fine and then the next day they were on the brink of crisis and layoff. Right. Exactly. So the scale is different. The speed is different. Possibly, you could say,

that our political situation is a little bit different in the U.S. at the moment. So who are we talking to about all of this? Well, I think what you said about the politics is exactly right because one of the is that we saw during the rush to pass legislation at the end of March, was sort of at least temporarily a high degree of political unanimity and politicians on sort of both sides of the aisle agreeing that whatever people think about government spending, deficits, moral hazard, paying people who are unemployed and so on, they all put their views on that aside, at least temporarily, and we'll see how long that lasts. So today, on the policy, We are going to be talking to a very active policymaker in this space. He's Florida Senator Marco Rubio. He's

been championing in particular the small business loans, aspects of the deal that attempt to keep people on their payrolls during this crisis. Senator Rubio, thank you very much for joining us at this extraordinary time. In your view, let's just sort of set the stage right now. Do you have a sense for how well the payroll protection part of the CARES Act is working. And do you have visibility into how much money has been dispersed? Are you able to see that data? Billions of dollars have been dispersed. We won't, I think one of the fundamental misunderstandings is people think that the money being dispersed is coming out of the treasury. The money, the treasury that we allocated that we appropriated in the bill is the guarantees. The cash that's actually dispersed is from the banks.

So it's the bank's cash, and then this money is there on the federal side to guarantee the loans, and that's why they're making them. So unless banks are announcing it publicly or updating it regularly, you know, in a public forum, we're not going to have a total real-time insight into what's been dispersed. Suffice it to say, like JP Morgan this morning, had already dispersed $9 billion. We know that they have to disperse it within 10 days of approval. So you're going to see a big bump in those disbursements here coming up as we're getting on the 10-day mark of the first approvals. In some cases, we're at it and for some people. And so anyway, it's moving along. My sense of it is I think we have to have some perspective here.

Let's do the timeline, okay? 17 days ago on March 27th, the president signs the CARES Act, which creates a $350 billion brand-new program that basically half the businesses in America are eligible for. Seven days later, they begin taking applications. And 11 days, 10 to 11 days after that, they're dispersing billions of dollars to cover the paychecks of millions of American workers. All of that in the span of 17 days. I know of no other program with this reach that has moved that quickly. And I think it's a combination of things.

It's the fact that we're relying on the private sector through banks to distribute it and a lot of hard work. And, yeah, there were some issues in the early part of it because anytime you start something this big and new, you're going to have some issues. But I don't think you can sit back. I mean, it's dispersed funds faster than the IRS did to taxpayers. It's dispersed funds faster than the direct payments to entire industries. So, you know, I think it's a program that's getting better every single day. It will never be without issues because nothing that you do, especially in a crisis emergency situation, is going to be perfect. But it's going to be very good then it's going to continue to improve. Just on the subject of scale, even though the Treasury

isn't actually dispersing this money, it is, as you say, just guaranteeing the loans, the program is nevertheless capped at $350 billion, and it's also capped at length at I think it's eight weeks. Would you expect that cap to get lifted at some point? Well, the eight-week issue is from the time you get the disbursement, you're supposed to spend it on payroll. And the rationale for that is the purpose of this program was to keep employees attached to their employers. We had companies coming to us saying, we don't want to let go of our workers, even if the government's forced us to close, we value our workers, and we want to continue to pay them the way other companies are, even if they're not working full-time, and in some cases not even coming in at all. We don't want to lose

them. We feel bad for them. And I think that's especially true in small business. And so we said, well, we're going to provide a vehicle for that to happen so people don't have to go into the unemployment system. But in order to do that, you have to sort of define what the time period is, so you're not sitting on this for two years and, in fact, not hiring people back. In terms of the amount, the amount, the amount that the Treasury and the government has to guarantee loans is reached, the banks will stop issuing these loans. They're not going to issue loans unless the guarantee is there. That's why it's important to replenish these funds. So, look, I can't tell you a specificity, a specific day. But if you look at it, we're starting the day of over $240 billion of commitments

already. So it's hard to imagine finishing the week without being very, very close to that number, given now the fact that you've got PayPal is now in, you know, a bunch of other FinCins are in and keep adding community banks. So I think the pace and the scope of this is going to pick up pretty quick. So just to talk politics for one second, there seems to be a wide consensus that it's worth topping up the program. Democrats want to pair this with more money for city, states, hospitals, maybe more on the UI side. Do you see a path forward if the program is going to soon run dry, whether it's this week or next, to replenish it and come to some sort of agreement with the Democrats again, kind of with the same level of unanimity that we saw.

the first time, the first go-round. Yeah, except I don't know why the two have to be paired. I think the issue of paycheck protection, we know it, so that's very simple. That just is a program that's now up and running. We have a pretty good sense of how to outlay it and it just needs additional funds so we don't have to stop with the guarantees. Every single member of the Senate, Republican, Democrat, and Independent has hospitals and has cities who are not receiving direct monies from the original CARES Act, and we want to help them too. The problem is you've got to design a formula for distributing the funds. You know, what is the formula that's going to be used to determine how much a city with 30,000 people gets versus a city with 200,000 people? And that's

going to take some time to devise a formula that works. I'll give you as an example. You know, we passed this CARES Act and it had money being distributed, but because of the unique structure of its finances, Jackson Memorial Hospital in Miami, Florida, the second largest hospital in the country, the second largest public hospital in the country, was being badly hurt by the formula that that they came up with at HHS. It was fixed, but that's just an example of why when you distribute that amount of money, you have to have a formula in place that everybody signs on. That's more complicated than saying, let's just put more money into a program that's up and running, and we know how it's distributed. So that's the issue with that one. It's not that anyone's against

it. We got, you know, everyone wants to know how it's, how it's going to be designed and how we're going to determine how much cities get. Is it per capita? Is it, those population size alone may not account for some of the costs they have, you know? In our intro, Joe and I were talking a little bit about the difficulty of calibrating public policy, especially under this kind of time pressure and also balancing it with a lot of the other initiatives that the government is currently unrolling. So I was wondering when it comes to the PPP, how do you balance that with the expanded unemployment benefits? Because, of course, there's a discussion now that some workers might be better off taking unemployment rather than being kept on the payroll. and these are all decisions and discussions that small businesses are having to have at the moment. Right. Well, and I think the answer to that question is that since you can't have both,

you can't both be on the payroll of your employer through the PPP and also on unemployment, whatever you're spending on one side, you're saving on the other. So what, but it's, as you said, it's very difficult right now to predict exactly what people are going to do because there's no such thing that as business. There's every business, makes a different decision. There's not one set across the board of how everyone's going to decide. So we have seen. I mean, look, there are going to be cases of people that decide I'm not going to go back to work because in my state I'm actually making more on unemployment than I would by working. Obviously, there's an impediment to that, and that is that many states have had their systems crash.

So I know people have been waiting for three weeks to get into the Florida system because the phones are being answered, you know, the website was overwhelmed, et cetera. Some people are going to say, you know, I'd rather just have my job back because I know I'm going to get paid and it's going to be there when this all ends. The unemployment benefit goes away in four months. Some people and some businesses are going to decide, well, now is the perfect time to lay people off. We have an issue emerging with the hotels and restaurants, particularly the hotels. A lot of them came to us and asked for special language. Many of them are franchises of big companies, but they're not owned by the companies.

So we created special language for them to be included in the small business protection program. And now some of them are saying, well, we want you to change. change the law, we don't want to use the money for payroll, we want to use it to pay franchise fees and things of that nature. And that's like, well, that's why it's called the Paycheck Protection Act. The reason why we carved you in is because you told us you wanted to keep your workers on payroll, even if you had no people staying. We're not going to do that. So, you know, there's a lot of that kind of stuff going on. And I'm not saying they're not going through tough times, but our program is the wrong one for them to come to for the assistance they're seeking.

If it's about keeping people on the payroll, we're for it. So the bottom line is, in an emergency unprecedented situation, you're going to have a lot of unanticipated things come up. And what we have to do is err on the side of action. The worst thing that could happen is we don't do anything. Real quickly, while we're in this situation now, and there's this widespread view that it's nobody's fault, that we want to keep businesses and payrolls alive to get through this health crisis,

why not apply some of the principles of payroll protection to some of the larger companies? companies more direct cash grants to larger corporations that are currently getting help maybe through the Fed programs and so forth to either through suasion or force have them keep more people on the payroll. Well, I think if this is a model that we can make works, some people would argue that. And in fact, I remember nearing the end of our deliberations in the Senate, one of the all Senator lunches in the Republican conference, we had a number of people stand up and say,

hey, why aren't we doing that for everybody? But of course, I'm the chairman of the Small Business Committee, and we took, so we didn't have that in our mandate. We actually took on additional things like the not-for-profit sector and independent contractors and 1099 employees that qualify under this as well for the first time. But I agree. I mean, I think there's a model there that could be followed, obviously a lot more money,

because when you're talking now about entities that employ thousands of people, You're not talking about $10 billion loans for payroll over eight weeks. You're talking about multi, multi-billion dollar loans. But I think it's a concept that could theoretically work in those settings as well. I think that the notion in that front was just trying to, most of those companies were just asking for access to some credit vehicle that they could use to ride through the short term of what they were facing. But I agree. I mean, I think it's a model that could be applied to different businesses and different sizes. Have you had any discussions with anyone else in government about expectations?

expanding it, are people asking you how it's going with the small business PPP? Yeah. So, you know, it's interesting because it's the one that's gotten the most attention early on. And, you know, when we started this process, I would say, you know, the first day that came out with the regs was out Friday. We had a list of like 30 things that we were hearing from bankers and lenders all across the country. And that list has basically been narrowed down to minute little details. In essence, it was a lot of work that went into sort of getting these questions answered. I think Treasury today released its third set of guidance. that dealt with some additional questions that were lingering.

And in that process, I will tell you that every day, the first day that this came out, I had 12 senators calling me the second day we had eight. So people are watching and they're now, what's happening now is people are hearing from businesses that are actually having funds dispersed. But I can tell you that during the process of this conversation, there was talk about even among our work group,

our bipartisan work group, who else could we include? And it really just came down as a function of dollars. You know, when they originally told us we had 300 billion, and then increase it to 350. But if they wanted us to take on some of the other sectors that some people were talking about, it would need a lot more than 350. It would probably take up most of the bills.

So there's been some talk about it, but really the focus over the last week has been about improving the program and the questions that were holding back lenders, and luckily we've been able to do most of that. And then one of the things I focused on a lot is some of the underserved communities, really small micro-businesses, minority communities that may not have strong banking, relationships and therefore having access problems. And that's why I've been harping all week on the need to bring in non-bank lenders, which is in the bill, right? This is not something we came up with

now. The bill specifically talks about fintechs and non-bank lenders being on-ramped into the system. And that's beginning to happen. We're approximately 4,400 individual lenders now are participating from credit unions to small banks. And as they're ramping up and coming on the system, it creates more access points. And I'm really excited about pay and the fintech because PayPal told me the first loan they made was $5,000. So that gives you an idea of that small, small, small micro-business impact this could have. And I think as that ramps up, I think those access issues are going to be improved. That's really what we've been focusing on here over the last few days.

Senator, before you have to go, we have a few more minutes. Let's talk about the sort of post-crisis period. Hopefully the health crisis ends quickly and businesses of various. sorts can reopen. And everyone wants that, but I also think that, you know, sort of realistically, we know not all businesses are going to reopen. Most economists expect unemployment to remain somewhat elevated for quite some time. What do you see as either in a round four or round five of what the government can be doing to get us? We were at what a lot of people thought was full employment, 3.5% unemployment, the best levels in decades. What could the government do

to get us is back to that as fast as possible? Well, I think it really begins by people in positions of influence and leadership being brutally honest. And that is, we are not going to go back immediately the way things were March 1st. I think when you start to see here, whenever that is, different jurisdictions and states begin to modify the restrictions they've put in place, it isn't going to be zero to 60. It's going to be, you know, we're going to reopen parks and we're going to allow kids to go to school for two hours.

But you're still going to have a lot of the same regulations. in place for a while. And that includes how close you can stand in line to people, how many people can gather in a place. That's just a fact that people need to absorb that. We're not going to go back to just March 1st right away. The second point I would make is I would try to divide this up into three buckets. The first is, we don't know yet how bad the damage is. This reminds me of a hurricane. You're sitting at home, and the hurricane is howling outside, and it sounds really bad, and you know it's really bad, and you see some trees falling and branches breaking, but you have no idea how widespread the damages until it's over and you come outside and you start to do a damage assessment.

We won't know the full economic damage and some of it's going to have a tail to it. It's going to linger for some period of time. So before we can even talk about exactly how to solve it, we have to know the full extent of it. I think related to that is not just how to recover, but some strategic decisions we're going to have to make about the structure of our economy. And in particular, I am a huge supporter of capitalism 100%, because capitalism always reaches the most efficient outcome. But every now and then the most efficient outcome is not in our national interest. And we have faced that here with critical shortages of certain things. We don't have a critical shortage, for example, in our food supply. We may have some disruptions eventually, but not

shortages, because we can domestically feed ourselves, but we can't make PPE, you know, personal protection equipment. We struggle to make ventilators. We had to repurpose industries for that. Some of the basic active ingredients in our leading pharmaceuticals come from abroad. I think And not to mention, if you want to get into other realms, things like rarest minerals and telecommunication. And so the question becomes, when is something so critical to our national security or our national well-being, that we have to have a domestic capacity to do it, even if it, from a pure market perspective, it's not the most efficient place to do it. And that leads us to industrial policy, which is something we've talked about for a couple years.

I'm not saying that applies to every industry. But there are some. We're going to have to define what they are, and we're going to have policies around that. Well, just on that point, I mean, you yourself put out a paper about how you see the economy last year. Do you think there's a broader rethink in the GOP about economics and how it should work, maybe moving away from free markets towards a system where there is a greater role for the government? And secondly, if that's the case, how do you get Republican voters to actually vote for a government role or government policy that could be in their interests? Well, I would argue to you that we already have government policy that makes those sorts of decisions.

No, I'm not talking about government owning the means of production or even directing the means of production. I'm talking about government having policies that incentivize certain capacities domestically that wouldn't otherwise exist. But we do that now. We do that now through our tax code. Our tax code has an immediate tax benefit to, for example, returning value to your investors through share buyback. So we incentivize that. There's nothing inherently evil about it, but we incentivize it. And maybe we should be incentivizing investment instead.

And then there are some industries, for example, that it will never be cost effective to mine for rare earth minerals in the U.S. Because the Chinese are subsidizing their industry and are going to undercut our price point. But we don't want to be dependent on them. And so we're going to have to come up with some government policies to even the playing field. You see that somewhat in telecommunications in this whole 5G issue with Huawei, where there are no non-Chinese companies. that are able to offer the product of always offering because they're able to do it at a lower cost because they're subsidized and protected domestically as well in their market by the Chinese government. So that is not, we're not talking about socialism, we're not talking about communism. We're not talking about government ownership of the telecommunications industry.

But we are saying to the extent you're going to have incentives for certain outcomes in your economy, should they not be incentives towards outcomes that serve the national interest, which include national security. but I would argue also include the creation of dignified work that's widely available so that you can have strong communities and strong families. But just real quickly, and then we'll wrap up. I mean, Tracy mentioned this report you put out a year ago, and I was pretty astonished at the time. This called American Investment in the 21st century. Fascinating paper. It cited a number of like random obscure left-wing economists that, like, I follow on Twitter. I couldn't even really believe it was coming from a senator, let alone a Republican senator.

In your caucus, do you sense some sort of shift or some sort of increased skepticism or rethinking about some of the laissez-faire views? It did not seem like the sort of the Heritage Institute views that I was sort of used to seeing from Republicans for many years. And I'm curious if you think there is some general shift in sort of this philosophy. You know, it's a work in progress. I would argue to you that most of us in Republican politics are a product of, you know, 20 or 25 years of sort of the, you know, the laissez-faire libertarian view of economics. And that's deeply embedded in a lot of the decisions and policies that Republicans have pursued.

And generally, they're right. I mean, low taxes, less spending, all these, this is the ideal outcome. And I don't argue against any of that. I'm not arguing that we should be a high tax environment or a high regulatory environment. But I am arguing that within that framework, there are certain exceptions. that are in our national interest. And I think the crisis has revealed some of them in terms of the inability to ramp up production of certain things without massive, you know, disrupt, asking Ford and general motors to make

ventilators and so forth. So I think there's a growing sense of it. I'm not sure it's still, I can tell you when we did the tax bill, that was a tremendous amount of pushback against the child tax credit. A lot of people viewed it as some sort of a welfare payment. And my argument was whether they're paying it in payroll tax or they're paying it in income tax, it's still a tax. It's money that's coming out of their paycheck. And our tax code should reflect what we say is one of our priorities, which is strong families.

I think that, ironically, that turned out to be the most popular part of the tax bill that we passed. And I wanted to actually do more in that regard than we ended up doing, we got it increased, but we wanted to do more. So I'd say this is still a work in progress, but there are certainly a growing number of things. people today in the Senate and in the House who share these views to some degree. Senator Rubio, I really appreciate you taking the time and thank you for coming on the podcast. Thanks for having me. Thanks so much. Well, Tracy, I really enjoyed sort of getting the chance to, I would say, you know, it's a cliche, but hear how the sausage is made just a little bit because, you know, on the one hand, the CARES Act, it was incredibly rapid from the onset of the downturn and

late February, early March, it was just a few weeks by lightning, you know, that's lightning by Washington standards. On the other hand, there's so much damage. And even by early March, I remember we were talking, you know, we talked with Claudia Somm in early March. It's like, send the checks out now. And so it's kind of interesting hearing from his perspective, all the different calculations and the sort of different factors that have to go into a bill of this side. Yeah. It was also interesting to hear him talk about the role of banks. And he sounded pretty pleased with it. One of the criticisms of the program has been the idea that the money is running through banks, which actually have to make the loans, even though they're guaranteed

by the government. Could that function have been better fulfilled by something else, such as some sort of government body? So it's interesting to hear him talk about that, as well as the participation of the fintech firms. One other thing I was thinking during the discussion was just how important hierarchy and incentives are in government. So he mentioned, you know, that this had happened for small businesses, partly because he was head of the Small Business Committee. And so that was his job. He was tasked to help that particular component of the economy. And that's how this program came about. Yeah, absolutely. I also thought it was interesting that he did say that it could be a model. I mean, we haven't seen it yet, but it could be a model in the future for, okay, well,

if you're going to give companies small businesses grants to not do layoffs, why not do something similar for large companies? And the fact that it had been discussed within the center, within the Republican caucus, the fact that he was open to it, I thought it was pretty interesting. And just generally, it was, you know, he's been like on Twitter talking a lot about the rollout. So, I guess it was good to hear his view that things are getting better and getting smoother on the disbursement of funds standpoint. Absolutely. And then the other interesting thing was, of course, the broader discussion about how the Republican

party is thinking about economics at the moment. If you haven't read the policy paper, American investment in the 21st century, it's definitely worth reading, perhaps something you wouldn't necessarily expect to be coming from a Republican senator. But one thing that always interests me in this discussion is I feel like even if Republicans are moving towards a position where there is potentially a role for greater participation by the government, I always wonder if voters are going to be on board with that, especially since voters have been told, you know, for three decades now that the government should be as small as possible, that intervention, regulation, it's all bad for them. I always wonder if that public shift is possible or can happen as quickly as some people might want it to. I think it'll be really interesting. I mean, we're going to be in this country for sure dealing with the sort of economic and political fallout for this crisis.

Right. So maybe this is the moment when that shift happens. Well, yeah. I mean, A, we were just at, you know, 3.4 or 3.5% unemployment. The number of people who are either seeing their small businesses or businesses of any size go from, lose 90% of their revenue in a matter of days. The number of people who are experiencing job precarity or straight up job loss, people in all kinds of areas. I mean, think about it. If you were imagining if you were a dentist before, you never thought, okay, you didn't think teeth are recession-free. But suddenly, here you have an economic crisis in which no one is going out, no one is going to the dentist.

So the idea of sort of labor market precarity, economic precarity, is reaching a whole new realm of people in this crisis. So it does feel like, for better or worse, this could open up sort of new thinking and new ideas among people that it's like, oh, wow, I am really exposed to economic volatility in a way that I hadn't previously realized. And again, I think people should really read this paper, as you mentioned, because I wasn't kidding. It's like, you know, one of these points is like going after a shareholder primacy and how that's hurt the role of American businesses. It'll be interesting to see if these ideas and this

crisis allows some of these ideas to further take root within the party. This discussion always makes me think of relativism versus absolutism. So I always think of the Republican Party as sort of a relativist party in the sense that if a policy is enacted, people, Republicans tend to get upset. I'm basing a lot of this off my dad, by the way, but Republicans tend to get upset if it benefits someone else more than them. There's this sort of sense of unfairness, I guess, about it. But maybe this is the moment when that starts to change, and it shifts more towards a sort of absolute gains kind of regime. But yeah, let's see. We'll be talking about this for a long time. There'll be a lot to, uh,

A lot to chew over. Indeed. All right. Well, this has been another episode of the Odd Thoughts podcast. I'm Tracy Allaway. You can follow me on Twitter at Tracy Allaway. And I'm Joe Wisenthall. You can follow me on Twitter at the stalwart.

And you should follow our guest on Twitter, Florida Senator Marco Rubio. He's at Marco Rubio. And follow our producer on Twitter, Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg head of podcasts on Twitter. Francesca Levy at Francesca Today, and check out all of our podcasts under the handle at Podcasts. Thanks for listening.