What Happens Now?

Posted in: Government

We are all statists now. Will we also be humane?

As I write, we are told the Senate is in final negotiations over the details of a $1.8 trillion bailout package to mitigate the economic impact of the COVID-19 virus. In case you’re keeping track, that’s $1,800,000,000,000.00. Details are still sketchy, but the original proposal by the Trump administration called for a trillion-dollar package that was divided between $500 billion in direct aid to Americans (estimated at $2,500 for a family of four, paid in two installments), and $500 billion in aid to businesses. Of the latter, $50 billion would go to the airline industry, $150 billion to “Other Severely Distressed Sectors of the U.S. Economy,” and $300 billion in guaranteed loans to small businesses.

As negotiations have gone forward and the crisis has deepened, it appears that nearly every aspect of the original proposal has been expanded. Businesses representing more and more sectors of the economy are lining up to get a piece of the pie. Reflecting on the enlargement of the bailout, the economist and New York Times columnist Neil Irwin recently mused that “a week ago, the big question in Washington was: Which industries will be bailed out of their losses because of coronavirus? This week, the question is: Which industries won’t?”

This package is actually the third wave of COVID-19 government funding, or Phase 3, as it is now called. On March 6, the President signed a bill providing $8.3 billion for, among other things, research on a vaccine, an amount that now seems laughably small (this bill is now called Phase 1). On March 18, he signed a second bill (now referred to as Phase 2), estimated to cost just over $100 billion and ensuring free testing for the virus and two weeks’ paid sick leave for certain workers. Apparently, the proposal for sick leave was a bitter pill for Republicans to swallow.

All of this is on top of the many aggressive steps taken by the Federal Reserve and the United States Treasury. On March 3, the fed made an unscheduled cut of 0.5% to the federal funds rate, the largest cut since the 2008 recession. (The fed funds rate is the interest rate banks may charge each other for overnight loans). On March 12, the fed injected $1.5 trillion of liquidity into the banking system in the form of short term loans, which provides banks with fast cash to allow them to continue operations at a time when far less money is circulating in the economy.

Three days later, the fed slashed interest rates to zero. The next day, it injected another $500 billion in liquidity to banks. On March 17 and 18, the U.S. Treasury revived Obama-era programs to purchase short term, unsecured loans extended by businesses and that now appear unlikely to be repaid. These loans could have dragged businesses under water, but will now be taken off their books and taken over by the federal government. In time, all these steps, and especially the massive infusion of liquidity, will provide an enormous boost to earnings and the stock market, just as it did during the Obama administration.

(And of course, these steps to shore up the economy come on top of the countless coercive measures imposed by state, local, and federal government to restrict social contact and slow the spread of the disease.)

Suddenly, everyone is very relieved we didn’t drown government in the bathtub, as famously championed by anti-tax advocate Grover Norquist. People who wanted government off their back had second thoughts when their back was against the wall. We will always remember that Trump didn’t take the virus seriously until nearly every penny of the paper wealth created since he took office had been wiped out. Then, lo and behold, big government—in fact, VERY big government—seemed like a swell thing.

What a difference a month makes. Recently, I wrote a column describing the pervasive influence of neoliberalism in American life and its enthusiastic embrace by the Trump administration. Neoliberalism is the idea that social problems are better solved by the private sector than by government. But neoliberalism is more than an economic or political model. It supplies a mindset, an ideology. Government not only cannot solve problems, it should not (or so the neoliberals argued). Government support is enervating. It creates dependence and stifles drive and ambition. People are only truly free when they take responsibility for their own lives. In short, neoliberal thinking promotes the virtue of individual choice at the expense of communal obligation. Government should shrink and people should be free to chart their own financial future.

How quaint.

I am all in favor of these bailouts. In fact, I was a statist before it was cool. But now that everyone else has joined me, the question is whether we will also be humane. We recognize the idiocy of pretending that government has no role in relieving economic suffering. What will we do with our new-found wisdom?

Those who are now faced with economic uncertainty are finally getting a taste of what tens of millions of Americans have faced every day, for decades. A 2019 report by the Brookings Institute found that more than 53 million people, or 44% of all workers aged 18-64, are now in low paying, hourly wage jobs. For many of these workers, financial security is a contradiction in terms. According to a 2015 study by the Pew Research Center, one in five adults in the United States, or just under 50 million people, lives in a household that is in or near poverty, an increase of more than 100% since 1970. A three-person household in this quintile typically lives on income of less than $31,402 per year.

Many of these people are on the knife-edge of financial ruin. According to the Federal Reserve, roughly one of every eight Americans could not cover an unanticipated expense of $400. Nearly three in ten could cover the cost but would have to borrow or sell something to do so. Other surveys capture different pieces of the same picture. Just under three in ten Americans report that they have no emergency savings whatsoever. One in four non-retired adults have no retirement savings or pension, and nearly six in ten say they live paycheck to paycheck.

What happens when these people cannot work, perhaps for months? For the good of the country, we are telling tens of millions of people to stay home. We have closed thousands of schools and shuttered millions of businesses. The President says we will be fighting the virus into August. Does anyone remotely think $2,500 will allow a struggling family of four to survive that long—to buy food, clothing, and medicine; pay rent and utilities; make the car, insurance and school loan payments; maintain a phone or Internet connection (which is increasingly the only way to stay connected with the outside world)? What good will two weeks of sick leave do, when our efforts to flatten the curve also lengthen it? What will we do for tens of millions of Americans facing disaster?

We are all statists, but are we all compassionate?

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