

Some stores in malls are refusing to pay rent to the mall operators due to the financial slow-down. Commercial contracts frequently contain “force majeure,” “time of war” or “act of God” provisions that forgive payment in very unusual circumstances.

We can all understand why retailers would want to conserve cash in uncertain times, such as now, if they can legally do so.

I do not purport to offer advice as to whether those clauses legally entitle non-payment. As an economic matter, however, this temptation should be resisted. It amounts to hoarding cash, and that will only make the downturn worse for everyone. Instead of refusing to pay, reasonable accommodations stretching out payments and moderating penalties for late payment are both achievable and far healthier economically.

Economics is as much psychology as mathematics. What turns a serious shock into a major recession is how economic players react to it. Cash hoarding is a dangerous part of that reaction. In the Great Depression that commenced in 1929, a sectoral weakness caused by the Dust Bowl and an overly speculative stock market turned into a 12-year economic collapse because of cash hoarding by the federal monetary authority itself. In their seminal work on the monetary history of the United States, Milton Friedman and Anna Schwartz demonstrated that because of this, a longer and deeper economic collapse occurred than the fundamentals warranted.

Ben Bernanke, the Federal Reserve chief during the Great Recession of 2008, wrote his Ph.D. dissertation on business cycles, including the Great Depression of the 1930s. He applied those lessons well in 2008. Investment banks were tempted to hoard cash because their portfolios contained residential mortgages that had difficulty paying. After the collapse of Lehman Brothers, the Fed made available all the money other investment banks needed and could not get from their mortgagors. The Great Recession never turned into a second Great Depression because no cash hoarding occurred.

We have the prospect of another threat of cash hoarding in the current crisis. Today’s risk is coming from individuals, not commercial banks (as in 1929) or investment banks (as in 2008). Just as each of us is tempted to stock up on essentials such as paper towels, so retailers who have had no customers during the time of enforced social distancing are stocking up on cash by threatening not to pay rent. It is a natural psychological reaction, but it is never the right economic policy.

Hoarding essential goods gives us each a small increase in personal comfort. Hoarding cash today causes the contagion of financial uncertainty to spread. Facing no more rent income, owners of property have to lay off their employees and postpone expenditures for improvement of their property. The providers of those services are themselves laid off, and overall consumption is driven into a downward whirlpool.

No government action can directly address this: not the Fed printing money, not the Small Business Administration extending loans, not the United States Treasury postponing the due date of taxes. The answer, rather, is to encourage discussions leading to compromises between the two sides of every exchange in our economy: retail outlets with the owners of malls; wholesalers with manufacturers; apartment owners with their renters.

Unlike 1929 and 2008, there is no fundamental weakness in the U.S. economy. It will recover with great energy the moment social distancing ends. We should, of course, abide by expert medical advice on when that date should be. In the meantime, cash hoarding could close down much of our economy that does not need to close down.

Manufacturers, wholesalers, retailers, renters and landlords each have different tolerances for the current reduction in cash flow. Each has its own cash position. Accommodations are possible in almost every instance, and they are always preferable to a one-sided refusal to pay.

Cash hoarding is our greatest economic risk in the current crisis. It is no more necessary, and far more harmful, than hoarding paper towels.

Tom Campbell is a professor of economics and of law at Chapman University. He was finance director of California, a congressman serving on the Joint Economic Committee and a California state senator. He holds a Ph.D. in economics from the University of Chicago as well as a law degree from Harvard.

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