Chek the Channels
Economic Aid Programs – A Gargantuan Experiment with only Modest Expectations
The coronavirus has had a devastating impact on the U.S. economy as companies have all but shut down to promote social distancing guidelines and government-mandated “stay-at-home” orders. According to an article in the Wall Street Journal, at least one quarter of the U.S. economy has gone idle due to the coronavirus pandemic. In March, U.S. employers shed 701,000 jobs: the worst month for job losses since the 2007-2009 recession. The employment picture may get a lot worse depending on how long it takes to contain the virus and re-open the economy. Including $350 billion for small business payroll protection grants, President Trump signed into law a $2 trillion stimulus package that includes sending checks directly to individuals and families, a major expansion of unemployment benefits, funds for hospitals and health care providers, financial assistance for small businesses and $500 billion in loans for businesses. Additionally, the Federal Reserve cut the federal funds rate to a target of 0 to ¼ percent and pledged to use its “full range of authorities to provide powerful support for the flow of credit to American families and businesses.” However, many are concerned that without proper oversight, the money may end up in the wrong hands or be used improperly. After all, it seems that a stimulus bill would be most effective if it provided businesses with the incentive and funds to maintain payrolls through the duration of the crisis so workers could be made whole and have jobs to return to once the crisis has passed. Will the government’s efforts at providing fiscal and monetary stimulus be effective?
The stimulus package is appropriately sized. In an interview on CBS’s “Face the Nation,” James Bullard, the President of the Federal Reserve Bank of St. Louis stated that the $2 trillion stimulus package signed by President Trump was “well-sized for the situation.” However, he thought that getting it to the right people represented a challenge.
Avoiding the appearance of corporate bailouts. Rather then bailing out corporations, Congress appears to have taken a more direct approach to helping families and individuals. For example, under the recently passed stimulus package, if a person lost their job as a result of COVID-19 and they qualify for unemployment insurance payments, they may be eligible for an additional $600 per week through state unemployment. Additionally, taxpayers who filed a tax return in 2019 or 2018 will also receive a one-time check from the IRS subject to certain requirements and may also receive $500 for each qualifying child claimed as a dependent.
Keeping some dry powder. While Congress and the Federal Reserve acted swiftly, it likely makes sense to adjust financial aid in response to evolving needs. On April 3, House Speaker Nancy Pelosi told CNBC that she is calling for another bill to expand the provisions in the $2 trillion package Congress passed and wants to extend the provisions in the $2 trillion coronavirus relief package and is pushing for more small business loan funding, additional direct payments to individuals and the extension of enhanced unemployment insurance.
Employers are already reducing payrolls and furloughing workers. Despite significant fiscal and monetary stimulus, companies are reducing payrolls and furloughing workers. While the stimulus package provides direct aid to individuals, it doesn’t replace the security of employment.
Implementation problems. Already implementation challenges have arisen from large banks’ initial reluctance to participate in federally backed small business lending programs to individuals having trouble receiving economic aid in a timely fashion due to bureaucratic red tape. Efforts need to be clearly communicated and resources marshalled to deliver benefits in a timely manner.
A matter of approach. While the Federal Reserve and Congress have responded to the pandemic’s severe economic consequences, some question the method for saving the economy and maintaining employment. During PBS NEWSHOUR on April 3, David Brooks of the New York Times stated that in Europe, the emphasis has been on providing funds to businesses on the condition that they maintain their payrolls so people don’t face the insecurity of unemployment and may return to their jobs. In the U.S., the approach has been more individualistic by providing direct payments to individuals, up to $1,200, and unemployment insurance, along with a backstop measure which is $350 billion for businesses. In Brook’s opinion, economic aid to businesses should be increased so payrolls can be protected.
The coronavirus pandemic is taking a devastating toll on the U.S. economy and workforce. Government and federal agencies are responding. While some may question the amount of economic aid needed or the most effective method of delivery, the answer is likely unknowable at this point. Therefore, a flexible approach is needed and one that encompasses the needs of businesses and individuals. While Congress’ stimulus package is likely a first step, economic aid may need to be expanded over time. A bipartisan approach with adequate oversight may help ensure a program that is sufficient in scope and effectiveness.
State Shutdowns Have Taken at Least a Quarter of U.S. Economy Offline, The Wall Street Journal, Josh Mitchell, April 5, 2020.
White House, Senate Reach Deal on $2 Trillion Stimulus Package, The Hill, Alexander Bolton and Jordain Carney, March 25, 2020.
Why the Trump Administration Won’t Be Able to Make the Stimulus Work, Politico, Joshua Zeitz, April 4, 2020.
Top Federal Reserve Official: Further Coronavirus Stimulus Bill May Not Be Needed, The Hill, Rebecca Klar, April 5, 2020.
‘It’s Not Enough’ – Pelosi Wants More Small Business Loans, Direct Payments and Unemployment Benefits, CNBC, Jacob Pramuk, April 3, 2020.
Analysis-U.S. Stimulus Package is Biggest Ever, but May Not be Big Enough, Reuters, Lawrence Delevingne and Howard Schneider, March 30, 2020.
Big U.S. Banks Start Accepting Small Business Aid Requests, Reuters, Imani Moise and Elizabeth Dilts Marshall, Reuters, April 3, 2020.
Shields & Brooks, PBS NEWSHOUR, Judy Woodward and David Brooks, April 3, 2020.