What’s Good, Bad, and Mediocre in the Coronavirus Stimulus Bill

“From each according to his ability to each according to his investments in lobbying.” Photo: Al Drago/Bloomberg via Getty Images

To combat the coronavirus and its economic side effects, Congress has assembled an economic rescue package about five times the size of Barack Obama’s 2009 stimulus. The legislation is vast, complex, littered with inscrutably worded giveaways to obscure constituencies, and, as of this writing, not 100 percent finished.

That said, the broad strokes of the bill’s most consequential provisions are now sufficiently visible to appraise. Here is a (not remotely comprehensive) rundown of what’s good, bad, and mediocre about the largest bailout in American history.

The good:

Aid to the unemployed that will replace 100 percent (or more) of lost wages for low-income workers — including freelancers.

This is the bill’s crown jewel. The provision will:

• Increase standard weekly unemployment benefits by $600 for the next four months.

• Establish a new Pandemic Unemployment Assistance program that will provide workers who do not ordinarily qualify for unemployment insurance — such as freelancers, furloughed workers, and independent contractors — with a weekly payment equal to one-half of the state average unemployment benefit plus $600.

• Extend the duration of unemployment benefits by 13 weeks.

As Slate’s Jordan Weissmann notes, $600 a week is what a worker with a $15-an-hour wage would reap from 40 hours of labor. Add that to existing unemployment benefits and a large percentage of retail and restaurant workers will earn more during their first four months of unemployment than they did while on the job.

This will make America’s wage replacement policy more generous for low- and middle-income workers than analogous programs recently adopted in European social democracies. Which is as it should be, given that U.S. workers lack access to the myriad social insurance programs that reduce European laborers’ costs of living.

The mediocre:

One-time cash payments to all non-rich households.

Individuals who earn less than $75,000 a year will receive $1,200 in cash, while couples who earn under $150,000 will receive $2,400, plus $500 for every child in their care. Americans who earn a bit more than those totals will still get checks, but the value gradually declines as the recipient’s reported income rises until it finally hits zero for individuals who earn $99,000 or couples who take home $198,000.

Compared to nothing — or the GOP’s initial plan to give less money to poor Americans than to middle-class ones — this provision is good. It will single-handedly increase the annual income of the poorest fifth of Americans by 16.33 percent, according to the Tax Foundation. Compared to what House progressives had been pushing, however, it is lackluster. For example, the House Financial Services Committee’s chairwoman, Maxine Waters, had proposed providing all Americans with monthly $2,000 checks for the duration of the pandemic.

Another shortcoming of the bill’s cash assistance measure (or, perhaps more accurately, of America’s state capacity) is that aid won’t actually reach those who need it most until long after the bill is signed into law. Eligible Americans who have signed up to receive their tax refunds via direct deposit will receive their payments within a few weeks, according to the New York Times. Those who have not already submitted their banking information to the IRS, or who are entirely unbanked — a population that is disproportionately low-income — may not see cash relief until four months after the bill clears Donald Trump’s desk.

Small businesses will get loans that are forgivable, so long as they don’t fire workers.

Businesses with fewer than 500 employees will be eligible for loans to help cover the cost of payroll, benefits, utilities, rent, mortgage payments, or other debts. If businesses maintain staff, then every dollar of credit they spend on those aforementioned expenses will be forgiven by the government.

A measure along these lines was vitally necessary to keep much of the U.S. service sector on life support — and thus leave it in a position to rapidly recover once social-distancing protocols can be safely relaxed. If restaurants (to take one example) are allowed to fail en masse, many will never return, while resilient restaurateurs will still need to assemble and train new staffs (if not find new locations), thereby weakening and slowing the service sector’s recovery.

Compared to nothing, then, the small-business aid is good. But the $367 billion that Congress has allocated to the program is almost certainly insufficient to keep every eligible small business alive for the duration of the crisis, or so many conservative economists have argued. Meanwhile, it is unclear how quickly the Small Business Administration will be able to get these loans to the myriad enterprises that are currently on the brink of insolvency.

States will get desperately needed (but woefully inadequate) federal funding.

The coronavirus has afflicted state governments with a wide range of miserable symptoms. Their spending on Medicaid, hospitals, and pandemic response measures is climbing, while their revenues are collapsing and the interest rates of their debt inch upward.

The Senate bill will reportedly provide states with $150 billion in funding for defraying the cost of Covid-related expenses. Which is better than nothing. But the sum total is too low, and the restriction on the use of the funds is small-minded. The true cost of fighting Covid-19 can’t be measured exclusively in state spending on health care and public health. Enforcing lockdowns and social distancing requires states to forfeit massive amounts of expected revenue. Ohio Governor Mike DeWine earned accolades for taking early, proactive measures to contain the spread of the coronavirus in his state. But one consequence of those acts of responsible governance is that the Buckeye State’s Treasury is getting depleted fast. As a result, DeWine is now calling for 20 percent across-the-board cuts to Ohio’s budget.

Unless Congress sends more relief to the states, federal stimulus will be undermined by state-level austerity as teachers and other public workers lose their jobs or suffer steep pay cuts that depress consumer demand in local economies, undermining basic government services.

The bad:

The bill (arguably) approves $4.54 trillion for a plutocracy-stabilization fund. 

The legislation doubtlessly features a wide array of unseemly provisions. Given the dire necessity of getting immediate aid to individuals and small businesses, however, one might forgive a bit of small-bore tribute to the gods of K Street.

But $4.54 trillion is a little much.

No, the legislation does not directly award large corporations (and their well-heeled shareholders) exponentially more aid than it affords ordinary workers or small businesses. But in practice, there’s reason to think that it will.

Officially, the bill devotes $500 billion to shoring up the corporate sector, with a fraction of those funds earmarked for airlines and firms critical to national defense (and/or the military-industrial complex) like Boeing and General Electric. But $454 billion of that total will go toward backstopping new Federal Reserve lending programs that principally benefit big business. To elucidate this point in plain English: It is normal for private banks to maintain a 10-to-1 ratio between the amount of money they’ve loaned out and the amount of capital they actually have on hand. The Fed has not yet specified the exact leverage ratio that it will apply to that $454 billion Congress appropriated, but some officials have indicated that 10-to-1 is about right. Which means that Congress’s appropriation is (potentially) sufficient to supply corporate America with more than $4 trillion in subsidized financing.

There remains ambiguity about exactly how this giant pot of money will be distributed. Officially, that $454 billion won’t support loans exclusively to large corporations but also to select, creditworthy small businesses, along with state and local governments. That said, the common understanding among legislators and reporters is that the bulk of this money will go toward supplying credit to big firms (which is why there are separate sections of the legislation devoted to supplying loans to municipalities and mom-and-pops).

Some may find the disparity between the scale of financing the bill provides to big business — and that of the relief it directs to everyone else — objectionable, in and of itself. But the most offensive aspect of the corporate-aid package is its dearth of conditions. Progressive Democrats had proposed requiring corporations that accept public financing to forswear layoffs for the duration of the crisis, adopt a $15 minimum wage for their employees, give workers representation on their boards, swear off stock buybacks, and give the public an equity stake in exchange for assuming the risk of investing in their enterprises.

None of these conditions seem to have made the final bill. According to leaked drafts of the legislation, bailed-out companies will be barred from laying off more than 10 percent of their workers for the next six months (better than nothing but not great). And entities personally owned by the Trump family will not be eligible for the Fed’s loans (though they will be eligible for other forms of corporate welfare). Meanwhile, Treasury Secretary Steve Mnuchin will have the power to forfeit any gains the public might earn on its investments and to give subsidized firms the freedom to transfer the public’s funds to their (overwhelmingly wealthy) shareholders in the form of dividends.

Some may question the government’s entitlement to dictate terms to companies that accept its relief. After all, this crisis is not analogous to 2008. Unlike the Wall Street banks that reaped bailouts 12 years ago, the firms seeking aid today bear no direct responsibility for the catastrophe that threatens their survival. The state itself is arguably more culpable. After all, it was the federal government’s belated response to the burgeoning pandemic that forced state governments to effectively outlaw most forms of economic activity. So why shouldn’t Uncle Sam compensate the enterprises his own negligence has imperiled, at least in the form of no-strings-attached financial support?

Some progressives have tried to answer this objection by suggesting that large corporations wouldn’t need any bailout if they hadn’t squandered their record-high profits on payouts to CEOs and shareholders. As the American Prospect’s David Dayen writes:

It’s not a bailout for the coronavirus. It’s a bailout for twelve years of corporate irresponsibility that made these companies so fragile that a few weeks of disruption would destroy them. The short-termism and lack of capital reserves funneled record profits into a bathtub of cash for investors. That’s who’s being made whole, financiers and the small slice of the public that owns more than a trivial amount of stocks.

But this seems misguided in two respects. First, it does not seem realistic to expect corporations to maintain capital reserves large enough to survive an economic shock as vast and unprecedented as that which the coronavirus has unleashed. And second, it would be undesirable for corporations to hoard cash at that scale, anyway. The problem isn’t that corporations haven’t been sitting on enough money to survive a pandemic but that they’ve been spending their savings on executive compensation and dividends instead of on wages and productive investment.

To put this point in more expansive terms: The reason why the government should force corporations to accept stringent pro-worker terms on any bailout funds is not that those firms brought financial calamity on themselves through profligacy. Rather, the government should demand such terms because they are good in their own right — and corporate America’s collective misfortune creates an opportunity to force such terms down their throats.

The United States has become a grotesquely unequal society in which the top 0.1 percent of the population has commandeered as much wealth as the bottom 90 percent combined. This vast inequity in asset ownership compounds itself on an annual basis as corporations toss off dividends to those rich enough to own their shares. And economic inequalities inevitably translate themselves into political ones. It takes time and money to influence electoral campaigns and legislative processes. Corporations can easily shoulder the expense of effective political engagement; their median employee cannot.

For these reasons, it is very difficult to rewrite the plutocrat-friendly rules of our market economy in ordinary times. The lobbying prowess of big business, combined with our legislative system’s myriad veto points, conspire to frustrate all attempts at structural change. But the pandemic has temporarily shifted the balance of power between our society’s public, semi-democratic governing institutions (a.k.a. Congress) and its private, authoritarian governing institutions (a.k.a. corporations). Who cares how or why corporate America just got knocked on its back? The point is to take this precious opportunity to kick the wealthy while they’re down, which is to say, exploit their temporary weakness to secure fairer terms for workers, consumers, and taxpayers in our economy’s social contract.

Instead, we’re going to assume the risk behind an avalanche of cheap credit that won’t just help America’s economic royalists get back on their feet but enable them to expand their power. If economic crises have historically provided rare opportunities for advancing egalitarian reform, they’ve also facilitated the consolidation of plutocracies. In the coming months, large, creditworthy firms will be in a position to buy up smaller, struggling enterprises — or else their assets — at a steep discount, setting themselves up for windfall profits and greater market share when good times return.

Whether congressional Democrats could have forced a Republican president and Senate majority to exploit corporate America’s vulnerability is a question that I don’t have time or space to analyze here. But the fact that the relief package appears more likely to fortify American plutocracy than to undermine it is the legislation’s greatest failing.

The Good, Bad, and Mediocre in the Coronavirus Stimulus Bill