The Need to Spend Without Delay in Battling the Coronavirus
The Need to Spend Without Delay in Battling the Coronavirus
The United States is in grave danger of repeating a central error: reacting to the coronavirus, instead of getting ahead of it.
One of the biggest failings in dealing with the Covid-19 health crisis has been moving too slowly, responding to events rather than anticipating problems and preventing them. Waiting to see how things went before imposing additional travel restrictions, wearing masks or restricting large gatherings ended up creating enormous amounts of unnecessary suffering.
Now the United States might repeat that mistake on the economic front.
Senators Mitt Romney of Utah and Susan Collins of Maine, two of the Republicans most open to working with President Biden, recently objected to considering another big bill only one month after passage of a $900 billion package. This past week, they became part of a group of 10 Republicans who recommended an alternative aid program less than one-third the size of Mr. Biden’s proposed $1.9 trillion package, which is making its way through the House and the Senate along strict party lines. The group has indicated a desire to wait and see whether more will really be necessary.
They may think they are being prudent. But further delay in approving a larger relief program would be a mistake. That “wait and see” approach has proved to be deeply wrong since the pandemic began. The issue is what I have called the No. 1 rule of virus economics: If you want to help the economy, you have to stop the virus. The main economic problem faced today by the United States and much of the world remains much as it has been for almost a year: The virus is out of control and causing people to withdraw from the economy.
It’s important to recognize that this economic withdrawal is not just the result of state lockdown policies. My own research shows that places that never had lockdowns fared about the same as places that did. Regardless of the governments’ rules, people need to feel safe for the economy to flourish in much of the service sector (think airlines, dentists, beauty salons, restaurants, theme parks, and many others).
In a way, the debate over the proper federal response is about the difference between stimulus and relief.
Traditional economic stimulus like the American Recovery and Reinvestment Act of the Obama administration, in which I was an adviser, is money the government spends to overcome a broad downturn in the economy, in an effort to jump-start growth. Proponents of stimulus debate how to get the timing for this spending right, but the idea is to
“prime the pump” so the economy starts to grow on its own.
Relief payments are different. This is money to keep someone’s gas from being shut off, prevent an eviction or keep a restaurant from declaring bankruptcy: payments that may prevent permanent damage but won’t jump-start growth. They mainly show up as catastrophes avoided. By a proper economic accounting, they have an important impact — things would be much worse if you didn’t make the relief payments — but evaluated as classic stimulus, relief payments may seem disappointing because they won’t make economic indicators start rising again.
The virus is simply not under control, so the economy needs help desperately. The package Congress passed in December was long overdue: It was needed because the original relief money was running out, and more is already needed. Relief payments are life support. To avoid permanent damage, they need to last as long as the virus does. Without them, the chance of deterioration and irrevocable harm soars.
Indeed, that dynamic may be playing out right now in the economy.
More than 10 months ago, at the end of March, the Coronavirus Aid, Relief and Economic Security (CARES) Act authorized close to $2 trillion in relief. The economy began to rebound rather quickly after the initial collapse, and that apparent success led the Trump administration and Congress to delay additional relief on the grounds that it might not be needed.
But it was needed. The country did not get control of the virus — a second surge in July morphed into an even bigger third surge in November and December. Everyone should have realized that would mean more economic trouble. Instead, Congress waited until late December to enact an additional $900 billion in relief. Job growth stalled before the economy had even recovered three-quarters of the jobs lost and has now turned negative. As losses pile up, there is a real prospect of slipping into double-dip recession.
Much damage has already been done — and it is evident not only in lost jobs but in lost income and lost companies. This harm could have been prevented. It definitely should not be repeated now.
The wait-and-see strategy also neglects a hard-earned lesson in politics from 2009 when President Barack Obama was fighting the last recession. Waiting in the expectation of more aid just didn’t work. Counting on doing more “if it’s needed” relies on a common understanding of what conditions warrant action. It is premised on a spirit of cooperation — and not deliberate opposition to any bill the president puts forward. Without such an understanding, and with such implacable opposition, economic reinforcements will never arrive.
Indeed, the recent history of political dysfunction has many economists calling for the enactment of more extensive automatic stabilizer spending tied to economic conditions (like extending unemployment insurance whenever joblessness exceeds a certain threshold), so in future crises there would be less need to rely on Congress to take action.
The current problem in the United States is easy to understand. If the country gets control of the virus, the economy will grow again, as it has in places like China, South Korea and New Zealand. If the virus continues its relentless advance, the economy will need more support or the damage will become permanent. There’s no waiting-to-see-what-happens with the pandemic economy. By the time you can see it, the damage will already be spreading.
The loss from spending too much will be modest and easily fixed through monetary or fiscal action. The loss from spending too little is potentially catastrophic and would be concentrated among the people who had already been hardest hit.
These days “wait and see” is better described as “prepare to fail.” Getting ahead of the pandemic is the only way to prevent it from getting worse.
Austan Goolsbee, a professor of economics at the University of Chicago’s Booth School of Business, was an adviser to President Barack Obama and was an informal adviser to the Biden campaign in 2020. Follow him on Twitter: @austan_goolsbee