By Editorial Board
March 17, 2020
A CORONAVIRUS epidemic is now inevitable in the United States, but appropriate, large-scale public health measures can still forestall the worst scenarios. Similarly, economic damage is inevitable, yet large-scale monetary and fiscal measures can prevent the worst from happening in that realm.
There are encouraging signs that the national political leadership is stepping up to the task — late, but possibly not quite too late. On Tuesday, Treasury Secretary Steven Mnuchin backed a plan to get cash to ordinary American households immediately, targeted to those lower on the income scale. In doing so, he abandoned President Trump’s previous insistence on a slower-acting, less-targeted payroll tax holiday, in favor of following what economists from both parties had been recommending for days. Even better, Mr. Trump said he is fully on board, in a rare but welcome — if implicit — indication that he can listen to others when it really counts. On Capitol Hill, Democrats and Republicans in the Senate are discussing large-scale fiscal relief plans, ranging near $1 trillion, in a spirit, so far, of bipartisanship. Unemployment insurance, Medicaid funds and other aid to the most vulnerable must be part of the plan. Next up will be taxpayer-funded relief for key sectors of the economy — from transportation to energy — that have been particularly hard hit.
It’s important to understand why timely, targeted and — we hope — temporary fiscal intervention of this scale is justified, indeed essential, even at a time of already massive federal debt.
First, the Federal Reserve has nearly maxed out on its ability to help, having cut interest rates to zero, announced at least $700 billion in asset purchases, dollar swaps with other nations’ central banks and extended liquidity assistance to the financial sector. These steps can help prevent financial panic and lay the basis for post-crisis recovery, but their short-run impact is limited. Even with the Fed setting the cost of capital at rock bottom, there’s not much incentive for private investment now.
Second, this is not a downturn brought on by speculation or other forms of business irresponsibility. It is a sudden stop to both production and consumption undertaken at the recommendation of the authorities to help save lives. No one, not even a big business, deserves to be punished for that. To the contrary, many businesses in potential need of assistance now had been well run and, when healthy, represent strategic assets of the U.S. economy. Federal aid therefore does not represent a reward for “bad behavior,” as, arguably, the 2008 bailout did. And even that was better than the alternative, which was to stand aside and let the economy crash. Government can, and should, place conditions on any aid to industry: For example, companies should have to promise there will be no layoffs and accept limits on executive compensation.
In other words, Congress and the president can act without the usual concerns for budget constraints or the fear of rewarding or encouraging bad behavior. Indeed, they must do so, lest this sudden crisis go from manageably bad to disastrously worse.