"The risk of doing too little is greater than the risk of doing too much."
- Larry Summers on the 2009 stimulus package
Summers should know. He was the one who advised then President Barack Obama to go with an $800 billion stimulus rather than the more aggressive $1.2 trillion stimulus that Christy Romer was pushing. Well we all know what happened. Yes, the $800 billion stimulus kept the country from going into a depression, but it never provided the jump start the economy needed to get going. Instead of a robust recovery, what most Americans saw was an economy that limped along; incrementally improving, yes, but ultimately unsatisfactory to a majority of Americans.
The economic tsunami that is headed our way is considerably worse than the one Obama inherited that year, and it will require bolder and more drastic measures in order to avoid disaster. Think about it: eleven years ago, the banking industry was teetering on the verge of total collapse; a lack of liquidity brought the economy to a virtual standstill; companies with impeccable credit couldn't get bus fare, the stock market was in a free fall; and consumer spending ground to a halt, as more and more people grew worried about losing their jobs.
Unlike '09, there is no liquidity problem here. The banks are on solid footing, at least as far as their capital requirements are concerned. And there's no housing bubble ready to burst. What's different this time around is that every sector has been profoundly impacted by this virus. State and local governments are shutting everything down. It's as though someone pulled the plug on the entire U.S. economy. To badly paraphrase a couple of well-known pop songs, the lights are off and we're at home, all revved up with no place to go.
The Trump Administration is asking for a trillion dollar stimulus package to stave off what many economists are predicting could be a second Great Depression. Well if I may be entitled to another paraphrase, this one from a well-known movie, they're going need a bigger package, a much bigger package. $1 trillion won't be nearly enough to deal with this crisis. Putting aside the long-term medical consequences of this pandemic, which could well kill millions of people before it's done, $2 trillion is more like it. $1.2 trillion in direct payments to millions of Americans who are likely to be unemployed for the foreseeable future, and $800 billion in loans, tax deferments and direct payments to businesses - small, medium and large - to keep them from going bankrupt.
I understand the hesitancy to bail out industries like the airline industry, especially considering that they used the vast majority of the money they received in the Republican tax-cut law to buy back their own stock, but if we don't help them, they will go under. Tens of thousands of people work for that industry. What do we say to them? If we could bail out G.M. and Chrysler, we can certainly bail out Delta and United. Then there's the millions of small businesses across the country that are empty and are this close to insolvency. If something isn't done to help them, they won't survive.
But the lion's share of the stimulus must go where it is needed most. As we speak, hundreds of thousands of people are filing for unemployment insurance. By April, it will be in the millions. Many of these people live paycheck to paycheck. We cannot send them out into the streets, homeless, with a killer virus on the loose. A one-time payment of $1200 doesn't even cover the cost of one-month's rent for many people, let alone pay for food and utilities. To be of any benefit at all, the checks would have to be at least $2000 and would need to be paid out once a month for the next six months to all people who are either out of work or underemployed, with a provision to extend out another three months if necessary. And trust me, it will be necessary.
There would have to be a separate bailout for states to cover the massive increase in unemployment benefits and the loss of tax revenue from as much as a quarter of the workforce being out of work. Don't laugh. In 1933, the unemployment rate reached 24.9 percent, so it's certainly possible. Most of us have never lived through a scenario in which one out of every four of our fellow citizens is unemployed. This is truly unchartered waters.
In my own life I've learned that half measures avail me nothing. If something is worth doing, it's worth doing right. With Fed rates practically at zero, now is not the time for fiscal restraint. There'll be plenty of time to figure out how we pay for this stimulus. What we won't get is a second shot at saving the American economy. If Congress screws this up, we can kiss the third decade of the 21st century goodbye.
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