The coronavirus spending proposal that the Senate Majority Leader, Mitch McConnell, released on Monday, was much as expected. At a time when nearly thirty million Americans are out of work, the draft bill would cut their unemployment benefits by four hundred dollars a week. It contains only very limited relief for states and municipalities that have seen their tax bases hit hard, and nothing in the way of bonus payments for essential front-line workers, such as nurses, hospital orderlies, emergency responders, and bus drivers. The roughly trillion dollars in proposed budget authority does include enhanced tax breaks for business lunches, as well as $1.75 billion for a fancy new F.B.I. headquarters across the street from Donald Trump’s hotel in Washington.
Fortunately, this odious G.O.P. proposal represents merely an opening bid from McConnell and the White House. (Under questioning from reporters, McConnell said that the White House was responsible for the inclusion of funding for a new F.B.I. building.) Because Democrats control the House of Representatives, and both parties are eager to pass something before Congress breaks for its August recess, compromises seem likely.
Even at this stage, though, one outcome is clear. Trump’s abject mishandling of the pandemic has greatly increased the financial cost of dealing with it. By botching the initial response, discouraging the use of masks, and encouraging many states to reopen too early, the President and his allies at the local level have created a situation in which the economy is now teetering on the edge of a renewed slump. Senator Ted Cruz and some of his G.O.P. colleagues can complain all they want about the federal government running up more red ink. It’s Trump’s ghastly blundering that has given Congress no choice but to authorize another costly stimulus.
Back in March and April, Congress passed three emergency spending bills, including the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Together, these pieces of legislation allocated roughly three trillion dollars in cash and loans to help families, workers, businesses, and municipalities get through the coronavirus shutdowns. Totaling about fourteen per cent of G.D.P., this was the biggest economic-rescue package that the United States has ever introduced outside of wartime.
The relief measures, which included a six-hundred-dollar-a-week boost to jobless benefits, couldn’t prevent the stay-at-home orders from leading to an unprecedented drop in spending and employment. They did put a floor under the economy and prevent a massive upsurge in poverty and destitution, which would certainly have resulted if Congress hadn’t acted promptly. A study by economists at the University of Chicago and the JPMorgan Chase Research Institute showed how the newly jobless cut back their spending until they received unemployment benefits, at which point their outlays rebounded sharply. That’s how stimulus programs are supposed to work.
With some of the relief measures, including the enhanced jobless benefits, scheduled to expire during the summer, it was always clear that another substantial spending bill would be necessary. In May, House Democrats passed the three-trillion-dollar HEROES Act, which provided for a second round of cash payments to low- and middle-income Americans; big increases in federal outlays on health care, food stamps, housing and rental assistance, and student-loan relief; plus about a trillion dollars in additional financing for the states. Republicans dismissed the bill as a partisan wish list. They also claimed it was premature. “We think that we have a little moment . . . the luxury of a moment to learn about what's going on so that the next step that we take can be prudent,” Kevin Hassett, a White House economic adviser, told CNN’s Jake Tapper.
We now know what was “going on.” In May and early June, the number of new infections fell sharply in the Northeast, and many states—particularly ones run by Republicans, like Florida, Georgia, and Texas—rushed to reopen their economies without taking adequate public-health precautions. For a time, spending and hiring surged. Before long, though, the number of COVID-19 infections also surged, at which point the economic rebound stalled, as some businesses were forced to close again and consumers got wary. “Since mid-June, everything has gone flat,” Mark Zandi, the chief economist at Moody’s Analytics, told me. “Everything points to the economy flatlining. It isn’t falling yet, but it won’t take much to push it over the edge.”
Zandi and other economists are particularly worried about the jobs picture. In March and April, employers laid off or furloughed more than twenty-two million people. In May and June, employers restored about 7.5 million jobs. In a healthy recovery, this gradual build back would continue. But recent figures for unemployment claims and a real-time employment survey from the Census Bureau both suggest that job growth may have stopped already. When the Labor Department releases its July employment report, next week, it may well show a rise in the official jobless rate from its current level of 11.1 per cent, Zandi said.
If that happens, it could have a very negative impact on consumer sentiment and the stock market, which in turn could lead to further spending reductions and job cuts. But even if the employment report isn’t quite as bad as some experts fear, the recent stall in the economy means another hefty stimulus package is essential to prevent a downward spiral. “The V-shaped recovery is toast—there is no question about that,” Ian Shepherdson, the chief economist at Pantheon Macroeconomics, said. “The Nike swoosh might also be toast soon. And the way to prevent that is for the federal government to step in and spend more.”
How much more? Given all the uncertainties, it’s hard to know for sure. To cover the period between now and January, Zandi and Shepherdson both said that, at a minimum, a spending package of about $1.5 trillion is needed. That’s roughly fifty per cent more than McConnell’s proposal. The two economists also emphasized another key point: the worse the pandemic gets, the more money the federal government will have to borrow and spend to prevent an economic disaster.
Citing simulations from the statistical model by Moody’s of the U.S. economy, Zandi presented me with an arithmetic formula. For every daily increase of ten thousand new infections recorded nationwide, he said, the economy needs an additional hundred billion dollars in stimulus spending. Since early June, the daily figure for new cases has jumped from about twenty thousand to about sixty-five thousand. On Monday, more than fifty-four thousand new cases were reported. So, over the same period, the amount of necessary new spending and borrowing has risen by about four hundred and fifty billion dollars, Zandi estimates.
That’s a considerable sum, even in an economy in which the gross domestic product was about $21.5 trillion before the virus hit. It comes to about three thousand five hundred dollars for each household in the country, and it confirms that, during a deadly pandemic, you can’t separate the economy from public-health policy. The Trump Administration tried and, as a result, the country is now faced with a tremendous human and financial cost. McConnell and the Republicans can’t avoid this harsh reality.
