Washington’s thinking about how to respond to the novel coronavirus seems to be mutating faster than the virus is. And that’s a good thing.
Just a few weeks after seeming to dismiss the virus as a minor threat, President Trump is now talking about pouring $1 trillion or more into the U.S. economy to help families and businesses cope with the strain caused by the disease — and in particular, by the closures and restrictions imposed by some states and cities to hold down infections. A centerpiece of the plan outlined Tuesday by Treasury Secretary Steven Mnuchin is sending checks of more than $1,000 to households across the country, showering the country with $250 billion in cash in a matter of weeks; a second round worth $500 billion would go out a month later if the situation hadn’t improved.
Such cash infusions typically aim to spark a burst of consumer spending at a time when it’s lagging and, with luck, generate more than $1 in economic activity for every $1 doled out. The feds have made it rain cash before in response to a downturn — in fact, President George W. Bush did it twice, in 2001 and 2008, and President Obama did it in 2009. But this time the layoffs, lost wages and other economic problems are not the gradually accumulating casualties of the business cycle or excessive risk-taking, but the sudden consequences of an external event.
“This is different from every recession in my lifetime, in your lifetime,” said Leonard E. Burman, a fellow at the Urban Institute think tank and co-founder of the Tax Policy Center. “There’s just a whole bunch of economic activity that has to end just because of the public health issue.”
Jay Shambaugh, an economist who directs The Hamilton Project at the Brookings Institute, said that some observers have likened the current situation to the economic disruption caused by the 9/11 terrorist attacks. But in those days, he noted, “People were saying, ‘The patriotic thing is to go out and live your life.’ Here, the patriotic thing is to stay at home. … (That’s) very unusual for the economy.”
That’s why the rationale for sending out checks now would be to guard against things getting significantly worse, rather than to jump-start the economy back to normalcy, at least for now. The drop we’re facing is that big and that sudden.
One of the drawbacks of tossing checks out right and left is that they’ll land on people who don’t need them as well as people who do. Those people may simply put the cash into the bank, rather than spending it in ways that could help struggling businesses stay afloat and endangered workers keep their jobs.
But the economists I interviewed said it’s much more important to get the aid out quickly than it is to target it precisely. Congress needs to worry about people being unable to pay their bills, falling behind on their rent or feeling the need to keep working when they really should be self-quarantined. If some people wind up putting the cash into savings, that could help the economy indirectly, by giving banks more money to lend, or down the road, when the crisis has passed and people can spend again on traveling, going to games or concerts, dining out and other activities deemed too risky today.
Besides, the government can always try to claw back some of the money after the crisis ends by making some percentage of it taxable for higher-income households, said Michael Strain, the director of economic policy studies at the American Enterprise Institute.
More pressing questions for lawmakers are whether the government can deliver the money right away to meet the pressing need and whether a one-time injection of money will be sufficient.
The answer to the first question is maybe. Mnuchin told lawmakers that the administration hoped to have the first round of checks in the mail by the end of next month — a six week delay. That would be brisk by the standards set in 2008 and 2009, when it took Washington months to get the checks out the door. The delays back then were caused in part by the decision not to send the same amount to every taxpayer, which made the checks more complicated to administer. A more straightforward approach could lead to quicker relief.
No one knows
As for whether one injection of cash will be sufficient, the answer is probably not, for at least two reasons.
Economists hope that just as the coronavirus caused the economy to decelerate sharply, the end of the crisis will allow for a speedy resumption of growth.
But no one knows how long the disruption will last, given that specialized treatments for COVID-19 may not hit the market for months and a vaccine for a year and a half or more. That’s why Mnuchin called for two rounds of checks, and why others — most notably Sens. Mitt Romney (R-Utah), Michael Bennet (D-Colo.), Sherrod Brown (D-Ohio) and Cory Booker (D-N.J.) — have proposed tying future rounds of aid to specific triggers, such as elevated unemployment.
But second, the cash individuals receive won’t help many of the small and midsized businesses that are struggling today because it won’t reach them. That’s why some type of aid is needed to help businesses endure the virus, possibly by extending them low-interest loans. Mnuchin’s plan also includes $300 billion worth of loans to small businesses and a delay in the April 15 due date for income tax payments.
So far, there’s been little grumbling from lawmakers about the enormous potential cost of these interventions. And that’s appropriate, considering the damage that would be done to workers, businesses and the economy as a whole if Congress sat on its hands.
“The time to worry about deficits is when the economy is roaring along,” Burman said. “It would have been great to have paid attention to this over the last 10 years, but we didn’t.” (In fact, the Trump administration has steered deliberately in the other direction, adding to the deficit by cutting taxes and abandoning efforts to rein in defense spending, which led Democrats in Congress to demand proportional increases for nondefense programs.)
“We have access to cheap money,” Burman said, referring to the exceptionally low interest rates on Treasury bills. “If we were not willing to borrow to address this crisis, it would compound the disaster.”
Jon Healey is the Los Angeles Times’ deputy editorial page editor.