No one has a certain template for how to limit the harm — least of all ourselves. It is both urgent and possible to define the predicament correctly, however. The United States is not confronted with a financial crisis and a follow-on crisis of demand, as in 2008 or 1929. Rather, previously robust consumption and production are being deliberately halted to save lives. Thus,traditional tools of monetary and fiscal stimulus, such as zero interest rates and direct cash aid to households, are unlikely to prove decisive. You can’t shop, or invest in new construction, while on lockdown.
The vital need of everyone in the economy, from the corner drugstore to the local transit authority to the mightiest multinational, is liquidity: credit to meet payroll and other key obligations so as to remain solvent until the end of what we all must hope is a finite crisis.
Senate Majority Leader Mitch McConnell’s (R-Ky.) $1 trillion initial proposal seems realistically sized but poorly conceived. Where cash relief must be reserved for the poorest and those newly jobless, his package would deliver less of it to the bottom of the income scale than to the middle. Where the private sector as a whole needs quick and, above all, flexible access to credit, the proposal would assign $150 billion on a sectoral basis, to airlines, hotels and others admittedly hard-hit. Potentially complex rules would apply to $300 billion set aside for qualifying small businesses.
Far better to use the Federal Reserve’s power to act as a lender of last resort, not only to the financial sector, as in past crises — and as it is already doing now — but to business generally, using the existing commercial banking system as intermediary. Congress’s part would be to provide a large pool of capital to support such loans, which, as former Fed official Kevin Warsh and others have suggested, would charge interest and require collateral to protect taxpayers against inevitable losses.
This would both permit and incentivize companies and lenders to shape cash relief in the economically most sustainable manner. It would be self-limiting in duration; presumably the need for emergency credit would dissipate as the emergency does. Like the successful Troubled Asset Relief Program in the Great Recession, this aid, too, would be paid back.
Yes, very general conditions — limits to executive pay, for example — should be attached to whatever private sector relief goes out. This is not, however, the time to cry “bailout” or impose accountability for alleged past irresponsibility such as stock buybacks. The big picture, right now, is that U.S. companies, small and large, have behaved responsibly — giving up revenue and profits for the sake of public health. Helping them get through this crisis will help everyone get through it.