The coronavirus pandemic is ravaging America. More than 80,000 people have died and thousands more are expected to follow. Tens of millions of people have lost their jobs and unemployment has been at its highest level since the Great Depression. The country has no plan.
And yet, two months later, Washington is negotiating like the craters of the economy.
Conservatives in Congress are concerned that they are too kind to the unemployed and demanding protection for companies who can be held liable for the nausea or killing of their workers. Millions of living people do not have stimulus control, but the IRS is trying to figure out how to get the checks back accidentally sent to the dead.
Some Republicans have suddenly rediscovered their deep passion for monitoring the deficit – you know, the one they gave up for that massive corporate tax cut in 2017. Oh, and by the way, those companies that got the windfall? They have one Bailout of $ 500 billion. How could they have expected to save pending a pandemic?
But the low-paid essential workers and those who are suddenly out of jobs? Well, that’s just a lesson to them about the importance of a rain day fund. The same goes for the states and cities that are currently in a plight, or the small businesses that do struggled to get loans and already start to worry about how they can be refunded.
The country is facing an unprecedented crisis and many legislators, policymakers and rulers are now reacting lukewarm. Congress has anticipated $ 2.9 trillion in tax aid, according to the Federal Reserve, and will need to do more to save the economy. But the White House has proposed a pause for further stimulus, and as the Democrats have put forward a new proposal for a major legislative package, key Republicans are reluctant to move on.
It’s not a time to test the waters, it’s a time to dive in. In a conversation in March, when the severity of the economic crisis hit, former Obama economist Betsey Stevenson issued a warning: “The risk of doing too little is far greater than the risk of doing too much.”
That now takes place in real time.
This is an extraordinary moment that requires extraordinary measures
Things are bad. Unprecedented and extremely bad. The US is at the forefront of the world number of confirmed coronavirus cases after you have been unable to control the virus. Tens of thousands of people have died and thousands of daily deaths are expected in the summer.
Meanwhile, the economy, interrupted by government officials to stop the spread of the disease, has plummeted. GDP contracted the fastest in the first quarter since the Great Recession, and forecasts indicate the worst is yet to come.
In April, the unemployment rate rose to 14.7 percent, but even the Bureau of Labor Statistics has acknowledged it is likely to be closer to 20 percent.
More than 36 million people have submitted new unemployment claims within two months and millions more are submitting every week. For comparison: during the last recession 8.7 million jobs in total lost over many months, and the highest week of losses was about 600,000.
“Our baseline scenario is that you don’t get normal for a while and we’ll see an unemployment peak of over 20 percent, and then if you start coming in at the end of 2021, you’ve dropped to about 9 percent,” Bob Michele, chief investment officer at JPMorgan, Bloomberg said in a recent radio interview. Unemployment peaked at 10 percent during the Great Recession and remembers how bad it was. “There is still much ahead of us,” he warned.
Meanwhile, states and cities raise the alarm about billions of dollars in budget deficits they face. Their expenditure has skyrocketed as a result of the health crisis, while their sources of income have disappeared. States cannot have deficits; if the federal government does not intervene, they will be forced to cut their spending considerably, which will only do more harm to the economy. “The last recession felt like I was going down a hill,” Phoenix Mayor Kate Gallego recently told me. “It feels like you’re falling off a cliff, it happened so fast.”
The government can and must do more and faster
In a speech at the Peterson Institute for International Economics on Wednesday, Federal Reserve Chairman Jerome Powell highlighted the actions taken by Congress and the Fed to boost the economy during the pandemic. Congress has provided nearly $ 3 trillion in fiscal aid to households, businesses, health care providers, and national and local governments. The Fed has also taken extraordinary actions; it cut interest rates to almost zero and announced a series of drastic measures to stimulate the economy and ensure liquidity in the markets.
And yet, he emphasized, there is a need for more and a high risk of under-reaction.
“The record shows that deeper and longer recessions can continue to damage the production capacity of the economy,” Powell said. Debts, unemployment and blind companies can weigh on the economy for years.
“At the Fed, we will continue to use our instruments fully until the crisis is over and the economic recovery is well underway,” said Powell, although he warned that the central bank can only do so much. “Additional fiscal support can be costly, but worth it if it helps prevent long-term economic damage and gives us a stronger recovery. This consideration is one of our elected representatives, who have powers in the field of taxation and expenditure. ‘
Congress has so far enacted three major coronavirus-related packages, the last of which is the Coronavirus Aid, Relief and Economic Security Act, or the CARES law, a $ 2.2 trillion stimulus package signed by President Donald Trump in March. Legislators have been rolled out a variety of introduce and plan for possible legislation, and on Tuesday, House Democrats unveiled their proposal for a fourth package, the $ 3 trillion HEROES Act, which will be put to the vote on Friday. As Vox’s Ella Nilsen and Li Zhou explained, this is just a burst of Democrats – some Republicans have indicated they have no intention of spending more without cutting back elsewhere.
But is now really the time to worry about the deficit, especially if interest rates are low and the economy is so messed up? As Matt Yglesias of Vox said, a great way to boost the economy right now is ‘just spend the damn money.’
It will be worth it in the long run if Congress sends money to those who need it, gives the states full support, and supports small businesses. Officials need to think beyond the liquidity problem – the measures taken to keep the economy going now – and ensure that the country does not have a persistent solvency problem, where demand has fallen so badly that it cannot bounce back.
The risk of passivity is greater than the risk of overreaction
Charlie Anderson, adviser to Senator Michael Bennet (D-CO), delivered on Twitter that “we are about to watch a slow motion train wreck” in the country. “Up close, it feels like we’re sleepwalking toward a heartbreaking, painful failure”, He wrote. Many are really trying to shake up the system. But sluggishness feels like it inevitably takes us to a half-hearted, disjointed response. “
The country has seen what happens when the government falls short – now and in recent history.
As Vox’s Ezra Klein recently wrote, 60 days after the coronavirus crisis, the US has no coordinated action plan or even a specific goal. “It’s not that the President is doing anything wrong – he’s not actually doing anything,” Klein wrote. “But he’s combined substantive passivity with a showman’s desire to dominate the story and a political street fighter’s obsession with scoring, so he makes the work of governors and mayors harder, doesn’t give them what they need to defeat the virus or leave to make their own decisions, free from its interference and criticism. ‘
Some states are starting to reopen gradually, but their economies are not returning. It turns out that people don’t like to walk into restaurants and get on planes while a deadly disease is circulating. In other words, ignoring the crisis and hoping for the best will not solve it.
The current inactivity has led to a weak economy and a deadly pandemic in sight.
And after the global financial crisis and the great recession, America experienced how long and terrible a slow recovery can be. It took years for unemployment to reach its pre-recession level, and even then wages continued to stagnate. Government funding for higher education, K-12 education, and local aid was still down even years later.
The worse the economy may get during the current crisis, the slower the recovery will be if and when it expires. Unemployed workers and closed companies will bring everything down. Congress can do much to mitigate the blow, the question is whether it will happen, or if the country is instead doomed to go even more spiraling.