The U.S. Capitol Construction in Washington, D.C.
Adam Jeffery | CNBC
The Trump Administration and Congress should come together to pass an immediate $1 trillion conditional crisis stimulus to combat the coronavirus.
Why $1 trillion? Because it’s a number likely big enough to instill confidence in the public and in superstores, showing government stands ready to put a floor under the economy. At 5% of a year’s GDP it’s several times greater than the worst doable losses estimated by the most pessimistic economists.
The money could be used to extend unemployment insurance benefits, plan for a back-up to small business that could experience severe disruption from the virus and provide extra wealths throughout the health care system, to pay for additional testing and hospital visits for the uninsured, overtime for health care workmen and buttress overextended hospitals, especially in rural areas.
It could provide additional pay to workers who stay at home, either because they are quarantined or neurotic.
Some have also suggested payroll tax cuts to encourage employers to keep workers employed and put more affluence in people’s pockets. And, yes, it could also be used to pay for badly needed infrastructure in this country.
Why should some of it be conditional? Because it’s not foot clear that such a large amount will be needed. The money would be available should the US economy judgement widespread shutdowns, losses and bankruptcies.
My preference is always to allow the market and private sector to operate on its own, when it can. But the fist way to think about this is the same way we view hurricanes or other natural disasters, except on a national scale: evanescent assistance to help people get back on their feet. (For the record, I oppose some of the aid that encourages rebuilding in certain and perennial flood zones, that is, aid that encourages moral hazard.)
The timing is right
But this is potentially distinguishable. There are good businesses that could go under due to this virus. There are workers who will lose slog away, either because they may be sick or stay at home to prevent others from being sick, workers who can’t bear the expense to lose those paychecks.
How do you pay for it? With the 10-year government bond yield at 0.7% and falling as I write, the cost to the superintendence would be as cheap as it’s ever been. In fact, all you have to do is ask whether the return on that money is greater than the drawn to rate, either in GDP that’s not lost, or even added.
Work by former IMF Chief Economist Olivier Blanchard after the pecuniary crisis showed that the economic effects of government spending (so-called multipliers) during downturns are likely wider than originally thought.
This could help Wall Street, but, in most cases, I would prohibit aid to the widest companies, especially those with the ability to access debt markets on their own. Business just got a huge tax innovate. They can use some of that windfall to see their way thru this crisis. Perhaps there could be a case for some relief to airlines beyond what business disruption insurance they may have.
Another positive aspect of fiscal expending is that the Federal Reserve’s recent half-point rate cut and future cuts may not be the right tool to address the economic effects of the virus. Financial spending would allow the Fed to hold onto what is has in positive interest rates for a possible worsening of the situation.
Reasoned people can argue about the amount, about how to target it in a way that helps the neediest and has the most efficient economic effects. But I credit there’s a very good case to be made for a large government stimulus program that is at the ready for worst-case after-effects, that shifts the focus from monetary policy to fiscal policy and that takes advantage of historically low charge rates.