“Due to the coronavirus, a significant economic downturn in the U.S. is inevitable. The challenge is to get through the next few months.”
What Would a Proper Coronavirus Stimulus Plan Look Like? John Cassidy at the New Yorker has a plan. Here are excerpts.
A significant downturn to the economy is inevitable—and, in some ways, desirable. If lower spending reflects the fact that the government, at the federal and state levels, is finally taking serious measures to slow the spread of the virus, that is a positive development for the economy over the medium and long term. The challenge is to get the country through the short-term hit—the next few months—without a wholesale economic and financial crisis. In this spirit, here is a three-part stimulus proposal, which is largely based on ideas that various economists, public-health experts, and foreign countries have already put forward.
Cut the checks now to help Americans “withstand current difficulties”
At the beginnings of April, May, and June, the U.S. Treasury should mail checks, or issue electronic transfers, of a thousand dollars to everybody in the country. This might sound like a crazy idea, but it isn’t. Harvard’s Jason Furman, who was a chair of the Council of Economic Advisers during the Obama Administration, has proposed making a one-time payment of a thousand dollars to every taxpaying U.S. resident and five hundred dollars to each child. Last month, the government of Hong Kong, which was dealing with a sharp rise in the number of covid–19 cases, announced that it would issue ten-thousand Hong Kong dollars, which is about thirteen hundred U.S. dollars, to all of its permanent residents aged eighteen and older. Pointing to “unprecedented times,” Carrie Lam, the city’s chief executive, said that the payments “will provide effective and targeted support to help the Hong Kong community withstand the current difficulties and gear up for a brighter tomorrow.”
The same thing should be done in the United States on an even bigger scale. The size of the payments, and their staggered nature, would reflect the fact that the U.S.’s coronavirus crisis seems likely to extend for longer than it did in some Asian countries, which took early and Draconian actions in order to tackle it. Obviously, this proposal would be expensive, but not as expensive as Trump’s idea to suspend the payroll tax for the rest of the year, which would cost, according to the nonpartisan Tax Foundation, about nine hundred and fifty billion dollars. Giving three thousand dollars to two hundred and ten million adult Americans would cost six hundred and thirty billion dollars. If people under eighteen were included, which perhaps they should be, to reflect the higher outgoings of families with children, the cost would be about nine hundred and ninety billion dollars.
Invest in expanding medical programs
A second essential element of a proper stimulus is large-scale federal aid for states and municipalities that are dealing with the impact of the virus. There will probably be some of this in the initial spending bill, but far more needs to be done to insure that all Americans can access proper medical treatment if they need it. The quickest and most effective option is to use Medicaid, which already provides health-care coverage to about seventy-one million low-income adults and children, to cover more people.
Unfortunately, fourteen states, including two huge ones—Florida and Texas—have refused to expand Medicaid, despite the financial incentives contained in the A.C.A. The expert working group suggests further incentivizing these states to do so now. It also provides a list of other useful ideas, including immediately ordering an increase in the production of “personal protective equipment (e.g. masks), ventilator equipment, IV saline, and other medically critical supplies”; making sure that Medicaid covers all of the costs of testing and treatment related to covid–19; and setting up a 9/11-style fund for health-care workers who suffer medical and financial harm as a result of being exposed to the virus. “What we are facing is a once-in-a-century public health challenge, and the response from our government absolutely has to reflect that,” Howard Forman, a professor of public health at Yale, who coördinated the working group’s effort, said in a statement.
Support businesses and financial institutions
A third economic essential is to prevent a domino-style collapse of the banking system, as businesses and individuals default on their loans wholesale. During the early nineteen-thirties, it was this sort of financial cataclysm that brought on the Great Depression. Preventing anything like this from happening again is primarily the job of the Federal Reserve, which has already taken some significant steps to stabilize the Treasury-bond market and the market for short-term interbank loans. But there will almost certainly need to be a fiscal component as well.
In part, this may involve providing government guarantees for loans that airlines and other stricken businesses have already taken out, or else issuing them new ones. Many smaller firms may need help, too. Senator Elizabeth Warren has called for low- or no-interest loans to be provided for “companies of all sizes that have been negatively affected by coronavirus-related supply chain disruptions, and that will use the money to avoid layoffs and hours reductions.” That sounds sensible, and other options could also be considered. On Thursday, the Australian government said that it would give small- and medium-sized enterprises up to twenty-five thousand Australian dollars, which is about fifteen thousand U.S. dollars, to help them cover their payrolls.
How do we pay for all of that?
How can the U.S. government pay for all of this? The obvious answer is to take advantage of record-low interest rates and issue Treasury bonds. Many governments borrow more during wartime, and the current moment is emerging as a challenge of that scale. Alternatively, the Fed could finance the emergency stimulus, either by purchasing the new Treasury bonds or creating fiat money and transferring it into people’s bank accounts. (The latter option would be a “helicopter drop” of the sort that Milton Friedman wrote about decades ago, which I discussed in an article for The New Yorker in 2015.) The larger point is that major actions need to be taken now, and there is no reason they can’t be taken. It will just take some political will and some political leadership, which so far has been sadly lacking.
What Trump proposed, it seems to me, to bear little resemblance to what Cassidy proposes. But then little of what Trump says and does squares with reality.