The problem is that we have three centers of power — Democrats in Congress, Republicans in Congress and White House officials — and each may have different ideas about exactly what we should do to head off economic disaster.
I spoke to a number of economists and federal policy experts, who told me there are some extremely good and extremely bad ideas on the table. The choices we make among them will determine whether this is an economic challenge that is difficult but manageable, or whether we fall off a cliff.
As the federal government tries to simultaneously address the coronavirus and mitigate the economic damage it’s touching off, there are three distinct but related sets of actions we can take.
The first is spending aimed directly at stopping the spread of the virus: buying masks, producing a vaccine, paying for testing and so on. Everyone, Republicans and Democrats, agrees that’s necessary.
The second set of actions is focused on the people most directly affected by the economic fallout. Some of that can be done by extending existing programs such as unemployment insurance and food stamps and paying for sick leave, but it can also include simply giving people money.
President Trump has suggested a cut in the payroll tax, but many economists dismiss the idea.
“I can think of nothing worse,” Claudia Sahm, director of macroeconomic policy at the Washington Center for Equitable Growth, told me.
The problem is that, while it costs a huge amount, much of it goes to people who don’t need it, and for the people who do, it’s too slow and too small. She suggests dropping all federal withholding (including income taxes) down to zero, capped at $500 a month, and is also open to simply sending every family a check.
That would have the benefit of reaching people who have been laid off, or gig workers whose work has dried up. As Jacob Leibenluft of the Center for American Progress told me, this isn’t just an economic measure, it’s also a public health measure.
Giving money to people directly enables them to make economic choices that limit the spread of the virus. If you’re an Uber driver worried about making ends meet, an infusion of cash can make it possible to stay at home for a week or two instead of going out and getting infected.
All the experts I spoke to stressed the importance of moving quickly.
“The response should be fast and aggressive,” says Chye-Ching Huang, senior director of economic policy at the Center on Budget and Policy Priorities. “There’s a high downside risk to doing too little, too late."
Moving quickly is needed to address the immediate suffering that comes from a downturn, but also because “you don’t necessarily get back the productive capacity” we could lose in a deep recession, Huang added.
So while the president might be shouting that the Federal Reserve should lower interest rates, they’re already so low that bringing them down further won’t do all that much, and it would be of limited benefit in the short run.
“Just send the money out,” says Sahm. “You have to use pipes that exist. You can’t create structures that aren’t there.”
One measure that many mentioned was increasing the federal share of Medicaid dollars. State budgets will be stressed as people suffering from the virus strain the medical system, and because almost every state has a requirement to balance their budgets, that could mean they’d have to cut spending and lay off workers at the worst possible moment.
“We need to be putting hundreds of billions of dollars into states to have a public health response and help states shore up their safety nets,” Sahm says.
The third set of actions we can take once the first two are addressed would be focused on the medium- to long-term, meaning stimulus that isn’t directly related to the impact of coronavirus but that gives the economy the strength to bounce back. As Leibenluft points out, we already had an underinvestment problem before, in infrastructure, education and clean energy.
Trump might be open to spending on those things, but he’ll get pushback from Republicans. For example, the conservative Heritage Foundation argues that any measures the government takes should be focused solely on the direct effects of the epidemic itself, not on boosting the economy broadly.
So the threat we face right now is that we won’t spend enough money, and we’ll spend it in ways that aren’t effective. “We are repeating the mistake of 2008,” Sahm says, in large part because the policymakers are talking about spending too little. “To fight a recession, you have to throw a lot of money at it.”
If that’s going to happen, it will be because Trump realizes it’s in his interests — and can wrap his head around the fact that Democrats are the ones who actually want to help him do it.