We’re not killing the economy, Henry Olsen wrote in The Washington Post; we’re putting it into the equivalent of a medically induced coma.
That’s the best analogy I’ve seen on the current course for the U.S. government amid the COVID-19 pandemic. We’re threading a fragile needle right now, between trying to flatten the curve and not spiral the U.S. economy into an all-out depression.
Defeating this virus and the threat it poses to both public health and the U.S. economy means we’re resorting to very drastic measures. In my last column, I wrote about how this is a matter of trust — we’re trusting the government to get this right, so we survive both physically and financially.
But since President Trump and the CDC are extending all social distancing guidelines until the end of April, it’s going to take more than one month of relief checks from Congress to ensure the American people survive this economic coma.
The point on this is straightforward to make. The $2.2 trillion relief package passed by Congress last week was designed to cut checks for the American people for one month. That month is March, because that’s when the guidelines first went into effect.
Trump is right in that these checks need to get out immediately. But the government is now asking for another month out of the American people. And the people won’t make it unless Congress paves the way for such.
I agree with columnist Varad Mehta that the ideal number now is probably $2,500 each month for the next three months. We cannot allow the virus to wreck both people’s health and their financial situations.
Indeed, all the previous political playbooks politicians and technocrats have developed over the last century for recessions, depressions, and economic malaise do not apply in this situation. We’re fighting a pandemic.
At this point, new policy should focus on the people as its priority — but we will also likely end up having to help businesses more. Remember, just four weeks ago, everything was fine in the economy. But even CNBC and CNN’s cranks couldn’t predict this.
The back-end threat from this virus is the corporate debt bubble. For the better part of the last decade, many corporations have fed off the introduction of long-lasting, low-interest loans as a means of expanding their business. After ensuring Americans don’t lose their homes and can eat while this virus rolls across the country, the next order of business for Congress is ensuring that the corporate debt bomb does not go off.
I’ve seen and read many libertarian friends of mine who have said that like in any other recession, we should just allow these firms to collapse. That may make sense in an economic downturn, but remember, this is a situation unlike any other. Old playbooks do not apply here.
We’re not saving failed firms; we’re trying to prevent a bomb from going off. Put another way, it’s like a controlled burn in the middle of a forest fire. We’re trying to get downwind of this to prevent good businesses from needlessly failing.
There are two threats to the corporate debt bubble. First, there’s the fundamental part where people and businesses can’t make their monthly payments. Sometimes it’s loan debt, other times it’s rent (see the Cheesecake Factory being unable to make rent payments anywhere in the country because all their revenue vanished overnight). But all these businesses are impacted the same way; suddenly their entire plan for the year is up in smoke, and now they’re floundering.
The second threat is related to the supply chain. Sometimes a business can stay afloat during a crisis, but because they’ve routed part or all of their supply chain through China or some other area that’s shut down, they can’t sell the products they make. They’re not like restaurants who are told they can’t open; these places are open but don’t have a product to sell because the supply chain got shut down or severely rerouted or bottlenecked and delayed.
The point is with both, we’re dealing with a situation in which businesses aren’t failing because of bad choices they’ve made (at least, not in every case). They’re failing because either the government has shut them down, or the government has impacted their ability to make and sell products. If that goes unchecked, it could trigger a systemic meltdown across the corporate debt bubble and more.
If, on the other hand, we act quickly, we can avoid this meltdown by getting ahead of it. The priorities are the American people first, then businesses. We can do this through checks to the American people and loans to small businesses.
The point is to keep the American economy alive so we can kickstart it after the virus passes. It’s a very fine balance, but we can do it. However, Congress will have to pass another relief bill to cover this month and the next.
That’s the price for keeping this patient alive. They should move with haste.