Congress is (finally) back, and negotiating the particulars of a new stimulus bill to stave off more economic devastation. I spoke with Intelligencer business columnist Josh Barro about whether the approach lawmakers are taking makes sense.
Ben: As you wrote today, the U.S.’s utter failure to control the coronavirus has worsened the country’s economic outlook, which was looking quite a bit rosier just a few weeks ago. We’re at the beginning of negotiations over the first massive stimulus bill in months; Republicans have said $1 trillion is a starting-point amount, and Democrats will fight for more. On the table are massively important decisions — whether to extend unemployment insurance that runs out for tens of millions in a few days, whether to send every American another round of checks, how much to give struggling states and cities, and so much else. Based on what you know, is Congress approaching this in a way that matches the graveness of the crisis?
Josh: I think it’s important to remember that the economic response to the coronavirus isn’t just about fiscal support to make people whole as economic activity falls. The public-health response is itself an economic policy — in fact, suppressing the outbreak makes it possible for the economy to return, and so the public-health response is the most important element of coronavirus-related economic policy. That has been dismal — mostly not for reasons related to Congress — which we’ll get to in a moment. What Congress will take up this week relates mostly to fiscal support. To date, fiscal support has been adequate, despite some operational hiccups getting the money out. And I think we will ultimately get another round of support that is adequate for the next few months, though I wish Congress and the president had acted earlier so they could design the package with more care, and get its terms out in advance to the states that will actually have to implement most of it.
As it stands, we’ll likely get an extension of enhanced unemployment benefits, but claimants are likely to face a gap in the payment of their enhanced benefits, because the current benefits will run out at the end of the month and states likely won’t be ready to disburse the new funds until at least mid-August. As I wrote about, American households have improved their savings over the last few months, so most unemployed people are in a better position to handle that sort of gap in benefits than they would usually be. But it’s still not great that this is being done in such a last-minute manner.
Ben: There are significant public-health measures wrapped into this, too, like new funding for testing, which right now is grindingly slow. (The White House, with its customary political brilliance, is actively fighting against new funding.) President Trump has largely abdicated federal leadership on the virus, isn’t it up to Congress to step in at least from the funding side of things?
Josh: Yes, and there was funding for such things in some of the previous bills. The problem is Congress can’t implement policies on things like testing and contact tracing. It can put up money for them, but it’s up to the executive branch and the states to execute the policies. It’s not like the tax-rebate checks, which are simple enough that Congress can simply write the law and tell the executive branch what it has to do. (And even there, there were implementation questions, such as whether the Treasury Department was legally obligated to send rebate checks to people who had recently died.) Ultimately the key issue with testing, tracing, and other epidemic mitigation measures hasn’t been that there wasn’t enough money but that the administration did not have a strategy even when it had the money. I think Congress would have given Trump whatever money he asked for, if he had shown an interest in doing things in this area. But the administration’s posture has been that this isn’t that big a deal and fixing it is the states’ problem, and members of Congress in either party can’t force the president and his team to focus on this problem or be competent.
Ben: Seemingly every day, there are stories about entire sectors of the economy — and really American society — that are struggling to stay afloat, even with the federal aid that has been distributed so far. Bars and restaurants are struggling mightily; many malls are facing a death knell; public transit could be crippled for decades; and so on. Many people in, say, the restaurant industry would like an industry-specific bailout. Does it make sense to craft policy that way — to specifically target moribund areas of the economy — or does Congress’s more scattershot (but as you said, effective for many) approach so far make more sense?
Josh: I’m not really sure. The airline bailout in the CARES Act was successful at keeping the airlines out of bankruptcy and stopping airline layoffs and furloughs through September 30. It was also really expensive — the government gave billions of dollars in cash to the airlines, a move urged not just by their management but also by their employee unions, who would have faced revocation of their contracts in bankruptcy. I’m not sure that would be a cost-efficient way to provide rescues across other sectors, especially because the high level of consolidation in the airline industry made it a lot easier to administer that sort of program than it would be for, say, restaurants. The PPP was designed to help restaurants, and it did to a significant degree, but the terms of the program didn’t work for everyone, and the large number of firms in the industry made it impossible to customize the law in advance like it was for the airlines. In general, I think Congress is best positioned to do big, broad-based things like increasing unemployment benefits and sending rebate checks. The Federal Reserve also helps here by taking actions to stabilize credit markets, which helps make sure businesses can continue to borrow.
I think the most important thing Congress can do right now to help those businesses is provide enough money to state and local governments so that they can afford to take the steps they need to mitigate virus outbreaks and create an environment where economic activity is possible. I think a lot of states and localities have been operating out of panic over their finances — for example, you reopen bars and restaurants, so that you get people back to work earning taxable income, and you get customers back in paying sales taxes. The problem is, the bars fuel outbreaks, and then you have to close things again, and people are afraid to go out, and you actually make your fiscal situation worse (not to mention cause people to get sick and die). We want states to have the fiscal breathing room to make farsighted decisions, and we want them to have the money they need for added COVID-related expenses, like contact tracing or testing.
Ben: Is there a perverse silver lining here, in that cities and states are more likely to get the money they really need than they were a few weeks ago? Mitch McConnell had seemed resistant to the idea of giving them too much, back when the economic recovery looked more optimistic.
Josh: I don’t really think so. There was less political urgency around the state and local aid a few weeks ago because the economic prognosis looked better a few weeks ago, which was because fewer people were getting sick. I think I’d rather have the improvement in epidemic and economic conditions we thought we were looking at than have more of a political consensus around state and local aid. I’m also not sure how much more aid the new environment gets us at the margin. There was always likely to be some, and I’m not sure there will be enough now.
Ben: When we last chatted about a month ago, you predicted that the coronavirus downturn was not likely to be as devastating as the 2008 recession. Now we have a worsening picture, though also some positive news on the vaccine front. If we do get a workable vaccine in, say, six months (I’m being optimistic here), do you still believe the fallout from everything that’s happened will look fundamentally different from the last big downturn?
Josh: Yes. I still think we are better positioned to grow strongly out of this public-health crisis once it is under control than we were in the aftermath of 2008, because banks are better capitalized and much less likely to face extensive failures, and households are better capitalized and less likely to need to sharply reduce consumption or to end up in foreclosure. Essentially, what was possible before will become possible again, and much of the economy will be financially positioned to go back to normal. This will especially be the case if the next fiscal package is pretty large. But I think we are in for a rough economic time until widespread distribution of a vaccine — which I am hopeful will come pretty soon, but the timing is uncertain — and there will be some significant lasting damage from business failures that occur between now and then. It’s bad. I still don’t think it’s as bad as 2008.