As Congress closed in on a $2 trillion package meant to keep the economy afloat, we asked some leading economists for their prescriptions to stave off economic ruin. Here are their responses:
Washington, thank goodness, has woken up to the severity of the situation. The Federal Reserve slashed interest rates to zero and has taken several steps to ensure “the flow of credit to households and businesses.” Democrats and Republicans negotiated a stimulus bill to include checks for individuals, as much as $300 billion in emergency loans for small businesses, support for paid sick leave, and aid to state and local governments.
But this won’t be enough. The epidemiological curve will disrupt production and spending for several months, and $1,000 per individual barely covers one month of rent for the average American. With all of the uncertainty and bank-run-like panic on Main Street and Wall Street, policy should go big. We suggest a check of $2,000 per month for all American adults for three months, which adds up to about $1.5 trillion in cash payments. Additionally, the federal government and the Federal Reserve could work with banks to suspend mortgage and loan payments for several months, a step taken in Italy, France, Canada, and Australia. It would likely require supervisory guidance and accommodation from bank regulators and support from the federal housing agencies, but loan-payment suspensions could help prevent a global pandemic from wiping out small businesses and households and encourage patience with the needed social distancing.
In addition, Congress could authorize the Fed to buy state and local bonds, opening access to the significant resources needed to address public health needs.
The economy needs a three-month timeout to flatten the infection curve of COVID-19. This is why we have government institutions to ensure economic stability. They must step up and be quick, aggressive, and creative.
— Julia Coronado, former Fed economist, President of MacroPolicy Perspectives and professor of finance at University of Texas at Austin, and Morris Davis, former Fed economist, Paul V. Profeta Chair of Real Estate at the Rutgers Business School.
The problem is enormous, but not complicated: The coronavirus has brought large swaths of commerce — notably travel, hospitality, restaurants, and entertainment — to a full stop, either from fear or mandate. Perfectly sound businesses are suddenly without revenue; their only sensible reaction is to shut down and lay off workers. This has suddenly shut off income to families who are now forced to cut back spending on everything from luxuries to essentials.
If the cash flows of the businesses were restored, there would be no need for shutdowns and layoffs. If the jobs of American households were intact, there would be no need for sharp reductions in purchases. If there were a loan to each of the sound businesses to carry them past the pandemic crisis, much of the economic tragedy for families and firms could be averted, or at least minimized. The federal government can do this.
The basic economic task is to use the enormous borrowing power enabled by the US taxpayer to raise $1 trillion or more and then pour this cash into a variety of “funnels” to firms and households. These are not bailouts; unlike the financial crisis, the COVID-19 recession is not the price of poor practices. This is simply bridge financing for otherwise economically sound business and households.
Of course, there has already been a lot of damage that government support for America’s small and large businesses cannot avert. We will need to sustain the aggressive efforts that have already begun to help those who are unemployed, sick, or forced to stay away from work to care for others.
The top priority is addressing the coronavirus itself by aggressively pushing the public health mission. This is the only way to shorten the duration of the pandemic and reduce the scale of the federal intervention. But the intervention is needed, quickly, and should not be a controversial issue.
— Douglas Holtz-Eakin, president of the American Action Forum and former director of the Congressional Budget Office.
The “coronavirus shock” is an existential threat to the global and US economies, financial markets, and a huge challenge to governments and policymakers.
External shocks have been rare but numerous, with at least 70 over the past 40 years — wars, strikes, bursting bubbles, huge changes in crude oil prices.
But the damage from this coronavirus shock is to life, health, the economy, and financial markets and it’s bigger than any seen before. How much damage occurs, for how long, and to what extent depends in part on the policy reactions.
The policy responses must range widely, to support medicine and biotechnology as well as individual incomes and access to credit. Low inflation, or deflation, likely will continue well into 2021, keeping interest rates low. Cushioning and arresting the downturn and pointing the economy higher later this year calls for measures such as cash payments to individuals, increased unemployment benefits, direct support for small business, tax cuts, and increased government purchases, 1930s-like.
Similar actions must be taken elsewhere in the world. These steps need to be global in nature, not just in any single country.
— Allen Sinai, chief global economist and president, Decision Economics Inc.