Low borrowing costs for the Federal government further support massive stimulus to counter this crisis

With the Coronavirus pandemic, the world is clearly facing its greatest economic challenge since The Great Recession.

Back then there was a narrative amongst conservative lawmakers that overly generous lending to poorer people caused the housing crisis. If pro-poor policies got us into this mess, they couldn’t possibly get us out of it, went the GOPs argument against bailing out Main St. (that, and pretending to care about the deficit).

This was of course always utter bullshit; while some people undoubtably borrowed outside their means, predatory lending practices were primarily to blame. If a person could not afford a house, it was the bank’s job not to lend to them. Then of course there was financial deregulation, enabling bad practices by investment banks, and willful negligence by rating agencies, all of which paved the path for the housing crisis to crater our entire financial system and the overall economy.

That brief history lesson was intended to juxtapose that crisis to this one. Whereas back then one could plausibly argue (however weakly, and against all evidence to the contrary) that regular people were responsible for the crisis and therefore had to pay the price, lest they repeat their past mistakes (the “moral hazard” argument, an old GOP favorite), that is clearly not the case this time.

This time we have a deadly, infectious disease, not a mistake made by Americans, although the Trump administration has certainly botched the response thusfar. But I digress, there is plenty of time for the blame game later, now is the time for decisive action. The point is that regular Americans clearly did not cause this crisis, so where is the support they need–right now–that only the Federal government can provide?

The answer, as it all too often seems to be these days when one asks why common sense isn’t being reflected in public policy, is that it is stuck on Mitch McConnell’s desk. Or more precisely, it is being help up by GOP Congressman Louie Gohmert (before it gets stuck on McConnell’s desk).

Even if this is only ends up delaying an adequate response by a few days (an incredibly optimistic assumption), right now every moment is precious. Every day that passes without a meaningful response means more more dead Americans. It probably means additional weeks of restrictions on the backend of this thing. And it risks turning what will already be, in the best case scenario, a significant recession, into a full-fledged economic crisis similar to The Great Recession. In other words, the longer we wait the more expensive an adequate response will be.

Economists are quite clear on what needs to be done, summed up nicely by the IMF Managing Director Kristalina Georgieva’s call for massive, coordinated fiscal stimulus:

“As the virus spreads, the case for a coordinated and synchronized global fiscal stimulus is becoming stronger by the hour,” Georgieva said.

Georgieva, in her blog, suggested that coordinated fiscal action on the scale of the 2008-2009 financial crisis may be necessary. She said that in 2009 alone, Group of 20 countries deployed about 2% of their GDP in stimulus, or about $900 billion in today’s money, “so there is a lot more work to do.

She said that governments should continue to prioritize health spending and provide support to the most affected people and businesses with policies such as paid sick leave and targeted tax relief.

Georgieva said all of the fiscal, monetary and regulatory actions would be “most effective when done cooperatively.” She added that IMF research shows that spending increases have a multiplier effect when countries act together.“

So the proper course of action is a large government spending program, coordinated with other countries. Sounds like that’s right in Trump’s wheelhouse, what could possibly go wrong?!

Can Trump and the rest of the GOP rise to the occasion, and do what everyone knows is best even if it goes against their ideology? Of course they can, but unfortunately I’m not optimistic they will. I think whatever watered-down version of a Democratic proposal they eventually pass will be too little too late. In fact it’s already later than it should be; the virus has been in the country for almost 2 months, how do we not yet have a coherent, comprehensive response? How did we not have a plan in place for the worst case scenario?

So when we look at the House-passed relief bill, and wonder why it doesn’t mandate large companies provide paid sick leave (the companies that can most easily afford it), remember which party lobbied for that exemption.

When Mitch McConnell inevitably responds to Chuck Schumer’s request for a $750 billion stimulus package to address this public health emergency and economic crisis with a call for a “bipartisan solution”, lets be clear on what that means. It means that whatever response the Democrats come up with, in line with expert advice, will be delayed in order to make sure it reflects conservative ideology, to the detriment of public health and the economy (things that affect real Americans of all political stripes).

Don’t get me wrong, bipartisanship is a good thing in theory. However when one party is putting ideology over expert advice in a time of national emergency, delaying the decisive action required and therefore making an inherently bad situation worse, with little if any benefit to anyone, then bipartisanship has become an impediment to serving the public interest. It is a hollow plea, as the party calling for it no longer truly represents the interests of its constituents.

The fact of the matter is that if the GOP was so concerned, we’d have heard proposals and seen draft legislation from them by now. Instead all we’ve seen is ideologically driven counter-proposals, divorced from need, as if this is all some sort of game. Well that’s not all, we’ve also seen a President who is so tone deaf, whose priorities are so out of wack, and who is so clearly not up to the task that it’s scary. Don’t agree with me? Ask Wall St., or Main St., or anybody who hasn’t completely lost their mind drinking the Trump Cool-Aid these past few years.

So what can we do about it? At this point just practice good hygiene, try to get tested if you have symptoms, socially distance yourself, and don’t buy more stuff than you need. That and remember which party just gave a trillion dollar tax cut to the wealthy but will tell you we can’t afford to properly address this crisis. Remember which administration recently pushed relevant medical experts out of the government. Remember which party is delaying the response the American people need and deserve. Remember all these things, and hold them accountable during the 2020 election.

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Note: While clearly very critical, this post is not meant to be a partisan attack. Rather it is a challenge, a throwing down of the gauntlet. It is a reminder of past mistakes, and a plea for the same party not to make them again when the stakes are arguably even higher. The answers are there for them, all they have to do is not stand in the way.

Please, GOP, prove me wrong. I want to be wrong. I want to look back on this blog a few days from now and feel like a reactionary, partisan fool for writing it. I just don’t think that will be the case or else I wouldn’t have written it in the first place. I take no pleasure in writing these words.

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Update (4/13):

I maintain that the stimulus bill was well developed. There are a few holes in it–not enough funding for state and local gov’ts hit hardest by this, for testing and protective gear, or for hospital and other essential workers. These are issues the Democratic party is trying to address in the next bill, but the GOP has balked at, with Senate Finance Committee Chairman Chuck Grassley (R) calling them “things that right now do not need to be done”.

There is also a very large tax cut for wealth real estate developers tucked into it ($170 billion over the next decade)–talk about a “thing that right now did not need to be done…”

Still, this bill was an overall success. Maybe I’ve set the bar too low, but some “pork” in a bill this size, that was passed this quickly, seemed inevitable. It was still, in my mind, a rare example of swift, bipartisan cooperation.

There are, however, two major issues with it:

1. It was developed too late, playing catch-up to a worst case scenario we should’ve been preparing for for weeks (in other words, it shouldn’t have had to have been developed so swiftly).
2. It is being administered through government agencies that have either been starved of funds for decades (the IRS), or were never meant to operate at this scale (states unemployment insurance agencies, the Small Business Administration)

Both of these are really tied to the original sin of lack of planning and leadership by the Trump administration. The first issue is explicitly that–lack of planning. The second issue is related because, had we planned in advance, we could’ve hired the people needed to administer these programs.

With the exception of the IRS (which as been bled of funding for decades by a GOP that doesn’t want it to enforce tax laws on it’s wealthy donors), no one is suggesting the SBA or state’s unemployment insurance offices should always maintain emergency levels of staffing. But that’s exactly the point. When you fail to plan, not only are you playing catch-up in developing the plan, you are also playing catch-up in administering it too. Congress did it’s immediate job in passing a huge bill relatively quickly. But if that plan cannot actually be carried out in a timely matter, it will be much less effective than it otherwise could have been.

People living paycheck to paycheck cannot afford to wait. Neither can most small businesses.

Update (3/25):

Well I gotta give it to them, Senators came together and it seems like they will get a very workable bill passed. I said I wanted to sound like a partisan fool for writing this article, and now I am happy to say I do.

The $2 trillion package should help mitigate the worst economic damage of this crisis. It should help ease the humanitarian crisis that would otherwise hit a large swath of economically insecure American’s (the number of people this includes is troubling, and points to larger structural problems in our economy, but those are longer term issues that could not be addressed under the barrel of a gun). It should generally help businesses maintain employment levels, provide protection for people who are laid off, and put the economy in a good position to spring back once the health crisis is resolved.

Now IF only someone could get into POTUS’s ear and tell him not to restart the economy too soon (and to authorize wider use of the Defense Production Act), I’d say on a policy level we’ve addressed the economic crisis reasonably well (for now, we will still need to have a recovery plan in place for when the economy opens back up, something House Speaker Pelosi has started to address). We can and should ultimately discuss what we should’ve done in the weeks and months we saw this thing coming down the pike; I certainly do not absolve the Administration of it’s missteps and their grave results. But lets take a moment at least to acknowledge a win when we have one–the nation deserves that.

The numbers of cases and deaths will continue to rise as we move along the curve, that much is clear. Those cases already exist, and this lag is due to a shortage of tests (an example of a Trump admin failure), and due to the nature of this virus–a long incubation with many asymptomatic vectors spreading it around. That is not a good barometer of how effective this economic rescue plan is. Nor is how bad the economic numbers get in the short term. Rather, this is about how the economy ends up bouncing back.

Lets be clear, any handwringing here is contingent to getting the health crisis under control. If we restart the economy too soon then this stimulus money will have been needlessly squandered, and many people will needlessly die. But at least now we can refocus our efforts on the more important task at hand. The spotlight now turns from Congress back to Trump (gulp).

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Update (3/23):

An almost $2 trillion stimulus bill is stalled in the Senate, where Democrats are arguing it fails to put enough conditions on loans, including restrictions on stock buybacks and requirements that companies maintain employment levels:

“At the heart of the impasse in the Senate is a $425 billion fund created by the bill that the Federal Reserve could leverage for loans to assist broad groups of distressed companies, and an additional $75 billion it would provide for industry-specific loans. Democrats have raised concerns that the funds do not have rules for transparency or enough guardrails to make sure companies do not use the funds to enrich themselves or take government money and lay off workers. They also argue the measure would give Mr. Mnuchin too much discretion to decide which companies receive the funds, calling the proposal a “slush fund” for the administration.

Democrats are also pushing for more jobless aid and money for states as part of the agreement. 

“Let’s be clear about what we are talking about here: We don’t think your bill works,” said Senator Chris Murphy, Democrat of Connecticut. “This is a policy disagreement, and I have an obligation as a representative of my state to stand up and say when I don’t think a $2 trillion bill is going to solve the problem.”

“This bill is going to affect this country and the lives of Americans — not just for the next few days, but in the next few months and years,” Mr. Schumer said Sunday evening, “so we have to make sure it is good.”

Sen Schumer is right, a bill this big will undoubtedly affect every policy debate in some way for at least the next decade. Every budgetary dispute will be viewed through the lens of what is shaping up to be the largest stimulus package in modern U.S. history (that and our weak tax code).

This needs to be done quickly. This needs to be done right. Lock em’ all in a room until they figure out a way to make that happen.

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Update (3/20):

The Senate passed the House’s bill expanding paid sick leave, unemployment insurance, and testing. A good first step (well technically second).

The Trump admin’s new larger stimulus proposal seems to be more direct cash payment based than payroll tax cut based. While this is an improvement, it is still not the proper response.

We should be helping the most vulnerable people; both economically vulnerable people and those on the front lines fighting this thing. Any resources those on the front lines need must be provided. We should expand unemployment insurance and social safety net measures (for those working in the informal economy that wouldn’t be covered by unemployment insurance). Simply put if you keep your job you do not need $1,000, and if you lose it you need a hell of a lot more.

Small businesses will need help as well. A targeted payroll tax cut should help with this. Small restaurants, bars, and other small business owners should get direct aid (independently owned and franchises–not major corporations). Directly impacted industries dominated by large companies (airlines, cruises, hotels) should get preferential loans with the condition they maintain employment levels. Other than that large companies in other industries should get some loan assistance, but generally speaking have already claimed their “aid” through decades of tax avoidance and the recently passed GOP tax bill–they can largely weather this storm themselves.

With all the demands on the government right now, we need to be both swift and targeted in our response. Our leaders can deliver a package that checks both those boxes if they so choose, as long as they continue to put the good of the nation over partisan politics.

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Update (3/18):

The Trump administration wants a stimulus package in the area of $850 billion to $1 trillion. This is a good thing, right? I was wrong, right?

Overall yes–that both parties and the White House are acknowledging that a large stimulus plan is needed to address this crisis is a good thing. But there are major caveats to that statement.

For one, the Senate still hasn’t passed the House’s smaller measure mandating paid sick leave and providing funding for poor kids who will stop getting school meals and other vulnerable groups, so lets hold off on congratulating anyone just yet.

But the larger issue here is that it’s not just the size of the stimulus bill that matters, but it’s substance as well. Back in 2009, Obama’s stimulus package was criticized for being too tax break heavy, as opposed to targeted government spending which has a higher “multiplier” effect (basically return on investment–how much each dollar of stimulus impacts the overall economy). Guess which party was pushing for more tax cuts and less spending back then?

Unfortunately, it seems like we are going down a similar route now to appease conservative ideology. Trump’s plan is very payroll tax cut heavy, an idea that economists and lawmakers of both parties are not very excited about. But because it was the stable genius’s original plan, and any stimulus package will require his signature, it may end up needing to feature it.

Look, I have no problem with a targeted payroll tax cut for small and medium sized businesses who really need it to keep from laying people off, but not a blanket one that helps big businesses that can already weather the storm with huge cash reserves. But as we saw from negotiations in the House, where the GOP insisted large employers be exempt from providing paid sick leave, there is little to suggest that a targeted cut is what is on the table.

Everything we do now has to be about protecting the most vulnerable–both people and businesses. Relief for people should come in the form of expanded unemployment insurance and social safety-net provisions (to help those who work in the informal economy), not in blanket payments to all Americans (which benefits the wealthy and those lucky enough not to lose their jobs). Any relief to large companies should come in the form of interest free loans (like the auto industry bailout), not further cutting their already ridiculously low tax bill.

While some GOP lawmakers probably just want to do what we know is right, many will probably fall in line with what the POTUS and their party’s broken economic ideology dictates. Unfortunately, the GOP really does seem to be intent on repeating it’s past mistakes.