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Congress did a good job with the $2.2 trillion coronavirus relief package that President Trump signed on Friday. As I wrote early last week, this piece of legislation needed to be more than an economic rescue; it would also need to help foster compliance with those measures and reduce the spread of the virus itself by making it financially feasible and psychologically tolerable for Americans to comply with stay-home orders. The way the package came together, I am optimistic it will succeed.
While the bill has many provisions, it uses two main tools to promote financial normalcy in this very abnormal period. One is greatly expanded unemployment insurance benefits for people who are thrown out of work due to the crisis — expanded in the sense of being more generous and also easier to qualify for. The other tool is loans and grants to businesses, with the grants tied to a requirement to keep workers on the payroll. These tools won’t make everyone whole for all the financial damage wrought by this plague, but they will go a long way toward making the response to the plague financially bearable for most American households.
“I am incredibly impressed by how quickly it was done, how large it is, and how comprehensive it is,” said Jason Furman, a professor at the Harvard Kennedy School and the former chairman of President Obama’s Council of Economic Advisors.
I have been baffled by complaints from the left that this bill reflects small-think. The interventions here are really large. The unemployment insurance expansion makes payments larger by $600 per week for four months, which means in most states, jobless workers will be made whole up to the equivalent of $50,000 or more of annualized salary. The bill also makes unemployment benefits much more widely available, including to self-employed people and to people who weren’t laid off but were compelled to quit their jobs due to the crisis. It provides one-time payments of $1,200 to most American adults, even if they are keeping their jobs or weren’t working to begin with, plus $500 for their children. It provides hundreds of billions of dollars in financing to help the Federal Reserve expand its lending activities that aim to keep large companies liquid and able to preserve their operations. It authorizes more hundreds of billions of dollars of loans to smaller businesses that can be forgiven if those businesses keep employees on the payroll. It has a special grant provision to help airlines keep their staff employed even as operations are largely shut down. And it provides extensive aid to hospitals and to state and local governments to cover costs associated with the epidemic.
What all these provisions have in common is that they help people and enterprises keep their finances as close as possible to business-as-usual, even while much of the economy is shut down. In some cases, as with the lending provisions, that is achieved by promoting liquidity: ensuring that businesses that will be profitable again once this is all over have the cash they need to pay the bills today. In other cases, the intervention is more generous than that, handing out cash instead of lending it, and thus having the government bear financial losses that otherwise would have fallen on a private party. The government is effectively acting as an insurer, bailing out individuals and small businesses (and the airlines) for losses they would have otherwise borne directly. This is never a pleasant thing to have to do, but unlike with the financial crisis of 2008, there is not a moral-hazard problem: The pandemic did not happen because of reckless airline actions, and bailing the airlines out doesn’t increase the odds of a future pandemic.
I see people saying they would rather have the government pay workers’ salaries, instead of letting businesses lay workers off to collect more generous government benefits. But in a crisis like this, it is important to focus on what can be done fastest. We entered this crisis with an already existing system for sending checks to recently unemployed workers that can be scaled up. We don’t have an existing system for the government to pay the salaries of employees of private firms. Rolling it out would essentially entail relying on those firms to lend money to the government — asking them to pay salaries now to employees who may not be working, on the promise of reimbursement from the government later — at a time when those businesses are already under financial strain, in many cases with their doors closed. I am skeptical that such a system could be stood up quickly enough to forestall layoffs. That said, the package does contain a version of this approach: hundreds of billions of dollars for loans to small businesses that can be forgiven if those firms keep employees on the payroll. We will see how that program works in practice and how long it takes to roll out at scale.
“I think it’s the right idea, but I also think with zero planning for it, it’s going to be really hard to execute and there are going to be problems,” said Tony Fratto, a partner at the public-affairs consulting firm Hamilton Place Strategies who served as a spokesman on economic policy in the George W. Bush administration. The fact that we are unsure what will work and when it will work is a good reason to have come at this from both sides, with aid to employers to retain employees and aid to employees who are not retained.
Republican concerns about the bill’s unemployment insurance provisions have similarly been insufficiently cognizant of the need to prioritize getting money out in a fast and orderly manner over perfectly fine-tuning who gets what amount of money. Adding a flat $600 per week on top of existing benefits is very simple and won’t require a lot of reprogramming of computer systems or collection of new data, which is important so that state unemployment offices, already slammed with drastically more claimants than they usually need to process, can issue checks reliably and promptly. It will also, as Republicans note, lead to some workers getting unemployment checks that exceed their wages during employment. Ordinarily, it would be reasonable to worry about whether that would encourage people not to work, and given more lead time, the federal government could work with states to provide an enhanced benefit that closely tracks a worker’s prior wages without exceeding them. We didn’t have that time. If the unemployment benefits need to be extended, we could move to a more complex benefit formula at that time.
I don’t expect this to be the last major package of coronavirus legislation, and when Congress reconvenes in late April I hope they will start on another package to address problems they didn’t get to in this bill. New York governor Andrew Cuomo has been particularly vocal about the insufficiency of provisions to help state and local governments in this bill and the previous two: While this new law provides large amounts of aid to help states cover coronavirus-related expenses, and large amounts of aid to help airports and transit agencies that are losing fee and fare and tax revenue, it does not address what is sure to be a sharp drop in tax revenue to state and local governments themselves. In the case of New York, he expects a $10 to $15 billion hit to revenue projections for the fiscal year that will start on April 1.
He’s right that New York and other states will need help with that gap — states more or less have to balance their budgets, and it would be perverse if the coronavirus crisis leads to mass teacher layoffs in the fall — but next month, the scope of the economic damage will be clearer and Congress will be better able to start figuring out how much money it needs to appropriate. Unlike New York, most states have a fiscal year that starts July 1, and other governors will likely be approaching Cuomo’s level of alarm about this issue in the spring. President Trump acknowledged at one of his briefings this week that additional aid to states is likely to be needed. I think some people have over-learned a lesson from the fight over 2009 stimulus legislation and assume there won’t be more bites at the apple; in this case, divided control of government is your friend, because incumbents in both parties have reason to fear what will happen if they don’t do enough to support the economy, and aid to states is the biggest missing piece of that support right now.
In addition to that foreseeable need for state and local governments, there will be other unforeseen financial and economic needs that will arise as we continue to grind through this crisis. They should go in the next package. Cleaning up the coronavirus mess is going to be a long journey; this was a good step, but it’s far from the last one.