The U.S. House of Representatives is expected to shortly pass a $2 trillion stimulus and relief package — the largest bailout in American history.
On Wednesday night, the Senate passed the package in an attempt to save the American economy from the worst ravages of the COVID-19 pandemic.
The plan includes direct payments of $1,200 to most Americans, $250 billion to bolster the unemployment insurance system, $350 billion in loans for small businesses and $500 billion for hard hit industries. Airlines will get a combined $50 billion. There is $130 billion in aid for hospitals and $150 billion for state and local governments.
For an assessment of the package, we turned to Benjamin Jones, an economics professor at Northwestern University’s Kellogg School of Business who served from 2010 to 2011 as a senior economist for the White House Council of Economic Advisers and, prior to that, at the U.S. Treasury.
Obviously there’s a lot in it. What are the highlights? How will it help ordinary Americans and businesses?
I think there is some good stuff in there. I think there is some stuff that is not as helpful.
In terms of the good stuff: First of all, it is going to help workers who have lost their jobs through both surging unemployment insurance but also by extending unemployment-type insurance and support to gig workers or self-employed workers who don’t normally qualify for state-level unemployment insurance. That’s going to be a big help.
Another important piece is supporting businesses who are shutting down or seeing huge collapses in demand. It’s very important that they don’t go bankrupt because if they do that is going to make this — what could be a fairly temporary recession — into a much longer and more brutal economic event.
What’s the stuff that you don’t like so much or have reservations about?
Well it is really this stimulus piece. Sending out a lot of money in a non-targeted way. I want to be generous and I think the bill is very generous but I think it should be targeted.
The other thing that I think is not in the bill that I think is a big misfire is a solution. Is money targeted toward a solution? Right now we are doing this very difficult sort of trade-off between health and wealth — a quarantine that is very important for public health but which is just Kryptonite for the economy. And there is really no good trade-off there. You see policy makers all over the world struggling with how much economic pain to take in pursuit of the public health measures. We can of course take some pain for a while. But what if this isn’t going to go away this summer? Then what? Really the only solutions here are in innovation, in vaccine development, treatment and infection control.
If you look at the biomedical research enterprise in this world it is absolutely enormous. It produces about one million peer-reviewed articles a year. But a very, very small share of all that expertise is devoted to infectious disease and vaccines. There’s a lot of expertise that could pivot into this work pretty quickly if we surged a lot of money into biomedical research channels. And I think that really is a piece that we really need to engage immediately because the fruits of that will take longer to develop.
Is there help in this bill for the front-line medical workers who are confronting this crisis without all the equipment and protective wear they need?
Yes, there is in this bill but there is also in a prior bill that was passed a few weeks ago — a much smaller bill, about $8 billion — but it was more targeted to Health and Human Services, the NIH, the CDC so that they can help … local hospitals and systems, etc.
$17 billion for Boeing? Should huge corporations that only recently benefited greatly from President Donald Trump’s tax cuts be getting help over others who may need it more? I read that Boeing has access to multibillion-dollar bank credit lines — why should the taxpayers bail them out?
I think that’s a very important question in terms of policy. But big vs. small companies, I think we need to support both. Keep in mind that most of the people in the country work for big companies. If you let them go bankrupt you are creating a huge worker cost. It’s not just the people that own those companies that are benefitting, it is the people that work there. If it’s a cash-flow situation where you simply don’t have cash – you can go bankrupt whether you are big or small.
But larger companies might have more reserves to fall back on. Smaller companies might need that help faster.
Correct. I do think this comes to targeting. You don’t want to just spend money willy-nilly everywhere. What you want to do is to put money out there, credit lines, etc. that can be back-stopped by the Fed, but you still want to qualify. A larger corporation might have more cash on hand but they also have a lot more costs. … The question really is, is this company going to go bankrupt and that really is a more case-by-case, sector-by-sector assessment.
There are forecasts that the pandemic could lead to 30% unemployment. If we have unemployment at that level, are the measures in this bill going to be enough?
That is possible, though predicting the future is somewhat challenging. If that is the eventuality then what is in this bill is nowhere near enough. Keep in mind that the unemployment claims today, 3.3 million, that’s 2% of the workforce — in one week. If this continues it could certainly ramp up to extraordinarily large numbers very quickly.
How about help for small businesses? What will businesses have to do to qualify for aid?
There is a continued employment condition about keeping 90% of your payroll from what I have read in the bill. Whether they can pay the loans back we will see. I can give you a zero-percent loan, but it is still a loan.
The reality is that giving these loans or loan guarantees doesn’t really stave off bankruptcy in the long run. We will need a generous loan forgiveness program for many businesses, and the bill has features along these lines. But this will be an ongoing challenge. We have to take care over how we do bankruptcy so that we are not closing businesses that are healthy in some general sense but just got wrong-footed by this crisis.
There are some businesses that are actually doing OK right now, and even thriving, right?
That’s right. I think Amazon is hiring, delivery businesses are hiring but I think that in the end that’s going to be a small portion of the workforce. So it is some compensation but it’s not something we can rely on.
Retirement savings — how quickly might the market come back after this virus passes?
I think the longer it goes on the less recovery we are going to see. This is where we come back to the bankruptcy channel. Remember stock prices are equity holders. If those businesses go bankrupt the debt holders might be OK but not the equity holders. If we do see waves of bankruptcies the actual values of these companies in the long run is legitimately plummeting. So that would lead to a more sustained decline in the stock market indices. Are markets resilient? Yes. Will they come back? Yes. We haven’t forgotten how to do things and the technology hasn’t gone away. So I think in the very long run we are OK. If this were over in a week I would expect a strong rebound in the markets. But in the more likely case that this goes on through the summer and we fail to secure policies that limit bankruptcy, I would expect a much more significant shock and a more significant wealth shock to Americans, with implications not just for retirement but also their sense of wealth and their ability to consume coming out of this. It’s a new reality.