Economists say that a recession fueled by the coronavirus pandemic is on the horizon and warn that if policymakers don’t move quickly, the damage could be painful. Yet so far, the White House and congressional Republicans haven’t released any actual policy proposals to deal with the economic blows of COVID-19.
“It could very plausibly be worse than the financial crisis,” said Jason Furman, a Harvard economist and former economic adviser to President Barack Obama who helped design the 2009 stimulus bill crafted in response to the Great Recession.
It’s not yet clear that a recession would be as painful or prolonged as it was a decade ago. Once the threat of the virus recedes, things could bounce back. However, serious signs of a downturn are here already, showing up in the bond market and stock market, which had its worst day since 1987 on Thursday, and in the plunging price of oil. Layoffs in sectors already affected by the virus have begun. And there’s been a widespread downturn in spending as events are canceled and Americans encouraged to stay home.
“Any questions about whether there would be economic repercussions are gone,” said Jay Shambaugh, an economist and director of the Hamilton Project. “It is clear,” he said. The NBA suspending its season and the NCAA canceling March Madness ― and all the lost revenue that comes with those decisions ― are just a few examples.
Yet the policy response from the White House has been almost nonexistent. In his Oval Office speech Wednesday night, President Donald Trump spoke vaguely about paid leave, financing for coronavirus-related health care and policies to shore up small businesses. Trump has repeatedly criticized Federal Reserve chair, Jerome Powell, and is pushing for more rate cuts. But interest rates are already at historic lows. The Fed also announced other moves on Thursday to stabilize the markets, but no one thinks that will be enough to cushion the crisis.
Trump has also been pushing hard for a cut to payroll taxes in response to the outbreak. Such a tax cut would increase working Americans’ paychecks by a small percentage and would do little to offset the economic pain of a pandemic.
“The fact that the Trump administration and the Republicans have not come out with a clear plan is an outrage. It is an outright cruelty.”
“The payroll cut is better than nothing, but we can do a lot better,” said Furman, who helped design a similar tax cut during the Obama administration. For starters, it would only help those Americans who are still employed. It would take too long before working people would feel its impact, as it would mean just slightly higher earnings. And the cut would give a bigger boost to those who earn bigger paychecks.
“It drips out,” he said. “it’s too much money for people who don’t need it. And too little for people who really do need it.”
Even conservative economists say it’s not a good solution.
Republicans in the House and Senate have been lukewarm on a payroll tax cut and are also pushing back on a plan from House Democrats that would mandate paid sick leave.
They’ve offered no solutions of their own.
“The fact that the Trump administration and the Republicans have not come out with a clear plan is an outrage,” said Claudia Sahm, director of macroeconomic policy at the Washington Center for Equitable Growth. “It is an outright cruelty.”
Sahm said that without fast and bold actions, the coronavirus will spread faster and hurt more people. And the economic blows would be significant.
Economists Have A Plan, Even If The White House Doesn’t
Economists are pushing for direct cash payments to all Americans; similar to what was done under the George W. Bush administration during the financial crisis.
The money would help many meet their day-to-day expenses as work slows or dries up.
“There’s a clear need to get more money to individuals and households to help them smooth over what is hopefully a temporary economic shock,” said Shambaugh. “This isn’t trying to get people to [go on a] shopping spree, it’s trying to get people to meet their daily needs.”
Still, the hope is that when the economy does come back after the virus fades, those checks would provide an immediate boost of cash to an ailing economy.
“You want the bounce back to be really strong, you want people to have the resources to do it,” said Josh Bivens, an economist at the progressive Economic Policy Institute. He said the hope is for a “V-shaped” downturn, in which the economy plunges temporarily during the crisis and comes back quickly when people can stop social distancing measures.
The Difference Between Now And 2008
The key difference, of course, between now and the financial crisis in 2008 is that this time around, the country is facing a public health crisis that’s creating an economic downturn. Last time around, it was the finance sector, courtesy of the mortgage bust, that sent the country into freefall.
That means the first order of business is addressing public health, making COVID-19 testing available and widespread, beefing up funding for Medicaid to the states, and ensuring that sick workers can stay home and still get paid.
But part of keeping citizens healthy will involve taking economic measures to ensure they can access health care and practice the social distancing measures that are key to slowing the spread of the virus.
Paid sick leave is crucial. Also helpful: Making sure folks that need food assistance can get it.
Though the ’08 financial crisis was obviously quite severe, back then, many Americans did keep spending money. Now Americans are already slowing down on spending, with more pain to come.
In fact, the recommended way to solve this public health crisis is to literally slow the economy ― forbidding large events and gatherings, keeping people home and away from work and shops and restaurants and theaters.
Consider all the events and travel that’s already been canceled: There will be no spectators for the NCAA basketball tournament. The NBA regular season has been suspended. Colleges are shutting down campuses. That’s all lost revenue that can’t be recovered and lost work for millions.
“Everyone in the U.S. is cutting back on their spending, not counting the stocking up they’re doing at this moment,” said Furman, who also chaired the Council of Economic Advisers from 2013-2017. “If everyone who was going to spend $1,000 spends $950, that’s a recession.”
All the economists who spoke to HuffPost emphasized that the coronavirus should not be a political issue. It’s a virus that doesn’t care about political affiliation.
During the financial crisis, the idea of who was to blame came up constantly. Homebuyers were often criticized for taking on bigger mortgages than they could handle, and bailing them out was viewed in some corners as unethical.
“This is not about particular groups that might not have done what they need to do,” said Sahm. “The coronavirus is highly infectious. The coronavirus does not care if you’re going to vote for Biden or Trump this fall.”
Shambaugh put it this way: “I’m still hopeful, and maybe I’m naive that this doesn’t need to be partisan, [but] people need help and we need to do it fast.”
There’s no such thing as an overreaction, he said. “The likelihood that someone does more than needed and looks back and regrets it is almost zero,” he said. “A week from now, you’re going to wish you’ve done more.”