Twelve years later, the world faces the prospect of another panic, one I hope is still avoidable. The immediate cause is a novel virus, not financial markets or the economy, which remain strong. But fear is again the enemy. And lessons we learned in 2008 can be a useful guide to action. Four of these lessons are particularly important.
First, transparency is essential. Leaders should urge calm, but there must be a healthy balance between conveying calm and being frank about troubling facts. Maintaining this balance is even harder when the facts and our understanding of them are constantly changing. The public and financial markets are seeking unattainable certainty, which adds to fear and volatility. So, ultimately, actions are more important than words.
This leads to my second point: In a crisis, leaders can never gather all the facts before they need to act. If they wait too long, they’ll find themselves looking at the accident in the rearview mirror. Sooner or later, they will need to make difficult decisions with imperfect information. So, when the facts evolve, leaders must be prepared to say “we made a mistake” and change course. Crises demand nimbleness and flexibility.
Third, the economic impact of this crisis and the hardships on the American people will be greater than necessary unless Democrats and Republicans, and Congress and the executive branch, come together quickly to take actions that are politically difficult but necessary.
In 2008, investors lost confidence in all forms of credit and retreated to the safest, most liquid assets, such as Treasury bills — with dire consequences for workers, homeowners and savers. The only way to arrest the panic was with overwhelming fiscal force, made possible by bipartisan cooperation. Despite sharp political differences between a Republican president and Democrats who controlled both houses of Congress, the parties came together to give the executive branch expansive but necessary authorities and funding.
Today, as coronavirus spreads, fear is as big an enemy as the virus itself. The job of mitigating the impact on Americans’ health, containing the fear and staving off a panic falls on political leaders at all levels of government, as well as those who lead and manage our health-care system. Here, the challenges are far greater than in 2008 because our leaders must balance their responsibility to protect the health of citizens with their obligation to manage the economic impacts on those same citizens. As this plays out, the decisions to cancel sporting events, close schools, and shutter stores, restaurants and factories will have significant health and economic consequences for all of us.
The full magnitude, scope and length of that impact will be largely determined by the success of our response to the virus — which is unknowable. But what is knowable is that unlike 2008, our financial institutions are well capitalized and prepared to withstand a financial shock.
I very much welcome the Federal Reserve’s half -percentage -point interest rate cut last week . However, although the Fed has a role to play in easing credit conditions, ensuring market liquidity and promoting confidence, the most important policy actions will be fiscal.
The first fiscal actions should be to ensure that hospitals and medical professionals across the country have all necessary resources. Congress has already taken steps in that direction. Beyond that, there are many possibilities, but it should be easier to initially win bipartisan support for targeted relief to the most vulnerable Americans. I am pleased that the Trump administration has begun to work with Congress to do just that. This could build bipartisan momentum for further actions, just as President George W. Bush’s refundable tax credit for American families did in early 2008. But this crisis will hit different industries and parts of our population differently. Industries such as travel, hospitality, manufacturing, as well as others, may require some form of targeted economic stimulus.
So the fourth lesson from 2008 is that, notwithstanding tensions between the parties and between the branches, it may be necessary to give the administration broad authority and flexibility to act, within the parameters and oversight structure set by the legislature. Congress can’t design and implement every stimulus program or turn on a dime to give new authorities to the executive when facts on the ground change.
To be sure, we are more polarized today than in 2008, and unlike in 2008, the incumbent president is on the ballot. But we have the world’s most technologically sophisticated health-care system. We have the world’s strongest financial institutions, and a financial system that is much more resilient today than it was then. Our economy is broader, stronger and more diverse than any other. As in 2008, this should be a wake-up call for our political system. Ultimately, some things must transcend partisanship. Coronavirus demands that of our leaders today.