A takings model of the economic shutdown

Subtitle: Just compensation for staying at home, part two (by F. E. Guerra-Pujol; revised 3/26)

As I mentioned in a previous post, I would apply a “takings” model to the economic shutdown. In other words, any government order requiring non-essential workers to stay at home and non-essential businesses to close down is like a “taking”–a taking of one’s liberty. My argument therefore is that, in exchange for such a drastic restriction of our liberty, the government must provide just compensation to all such “non-essential” persons and firms, including lost wages and lost profits, as the case might be. But this approach to the coronavirus pandemic poses two new practical questions: logistics and how much? That is, how would such a massive payment scheme work in practice, and how much compensation would we actually be entitled to? With regard to the first question (logistics), I shall second an idea by Greg Mankiw (edited by me for clarity):

[The Department of Treasury would] send every [registered taxpayer] a check for X dollars every month [or every week] for the next N months [weeks]. In addition, [the Treasury Dept. would] levy a surtax in 2020 (due in April 2021) equal to N*X*(Y2020/Y2019), where Y2020 is a person’s earnings in 2020 and Y2019 is a person’s earnings in 2019. The surtax would be capped at N*X. Under this plan, a person whose earnings fall to zero this year keeps all of the social insurance payments and does not pay the surtax. A person whose earnings fall by half keeps half of the payments and returns half. A person whose earnings remain the same (or increase) returns everything: They will have just gotten a short-term loan.

Before proceeding, I want to take exception with Professor Mankiw’s “social insurance” terminology. Use of the term “social insurance” makes his proposal sound like just another costly and counterproductive social welfare program. Under my natural rights or “takings” framework, by contrast, these payments are owed to affected persons and firms as a matter of moral right. To repeat–from a moral or natural rights perspective–every worker who is ordered to stay at home, every business firm who is ordered to close its doors, is entitled as a matter of right to just compensation in exchange for the deprivation of their liberty.

Also, notice that my version of Mankiw’s idea would be limited only to registered taxpayers in order to make the system workable as well as fair at the lowest possible administrative cost (#RichardEpstein). After all, the IRS already has a complete database of the names and addresses of every taxpayer, and persons and proprietorships who don’t even bother to file their tax forms when times are good should not be rewarded for their shirking behavior. But in any case, how much compensation should be paid, i.e. what amount should “X” be in Mankiw’s model? I will address this second question in an upcoming blog post.

Image result for just compensation

About F. E. Guerra-Pujol

When I’m not blogging, I am a business law professor at the University of Central Florida.
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2 Responses to A takings model of the economic shutdown

  1. Pingback: How much? | prior probability

  2. Pingback: A friendly reply to Prof Somin | prior probability

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