It is absolutely essential that Congress pass a massive economic rescue package, as soon as possible. Even so, the negotiations over the stimulus bill ground to a halt over the weekend when Democrats refused to support a Republican-written proposal that would shovel huge amounts of unrestricted money into corporate coffers while underfunding emergency and medical needs, offering inadequate income supports for laid-off workers, and lowballing other essential spending.
As I write this column (Monday afternoon), there is still no deal. Even if, as I hope, a bill is passed soon, my analysis here applies not just to the current situation but to all future crisis-related economic policy. And as I will argue below, this is highly unlikely to be the last time that Congress will need to deal with these issues.
When Treasury Secretary Steve Mnuchin said, “This isn’t corporate welfare,” we had all of the verification that we needed that this is, in fact, corporate welfare on steroids. I certainly hope that the Republicans relent and pass a better bill, but they might not. My question for today is: How bad would it be to pass their bad bill?
To be clear, I am not saying only that a bad bill is better than no bill—although that is unquestionably true. I am also asking what is the actual damage that will be wrought by including in the bill some of the extremely regressive and greedy features that Republican senators are trying to force into the bill?
Wartime Profiteering Is as Old as War Itself
When news broke last week that Republican Senators Richard Burr of North Carolina and Kelly Loeffler of Georgia appear to have acted on non-public information to sell stocks before the huge bear market began (and to buy stocks in companies that would profit from the pandemic), people were rightly shocked. Burr and Loeffler claim to have done nothing wrong, but at this point, the facts do not look good for them.
If they did act illegally or unethically, however, that would hardly be a surprise. Other than the people still alive today who lived through it, Americans only understand World War II through historical storytelling that focuses on the awe-inspiring sacrifice and selflessness that allowed our nation to join with allies to defeat Hitler and the Axis.
What we generally do not learn, however, is that there was a fair bit of profiteering in that war, and politicians who had the opportunity to help out their friends and political backers were certainly aware of how their decisions would play out in dollars and cents. Businessmen constantly appealed to regulators for exemptions from price controls, for example, and we can be sure that rationing—though a success—was hardly without its scandalous inconsistencies.
Is that bad? Absolutely. We are, and should be, dismayed whenever humans are so incapable of empathy and solidarity that they would take advantage of a war effort (and thus undermine it) simply for their own comfort and political gain. But do we allow the perfect to be the enemy of the good, refusing to do what is necessary because some people are surely going to find ways to play the system? Certainly not.
The Compromises We Make in a Crisis
To put the point more generally, there are plenty of good practices that we abandon in a crisis. When a hurricane is approaching, families leave their houses in disarray as they gather what possessions they can carry in their rush to drive to safer ground. When wildfires ravage California and other states, prisoners are sometimes taken out of prisons and put to work as not-truly-volunteer firefighters. We do these things not because we have concluded after long consideration that our houses were too orderly or that prisoners should be given vocational training in forest management, but because our priorities have radically—and we hope temporarily—changed.
The most extreme example of this phenomenon that I have ever come across was a story about an isolated and sparsely populated island in the Pacific Ocean. There, every able-bodied person must help when a crisis threatens the community, and when a particularly serious emergency arose, one man found himself working side by side with his daughter’s rapist. Why? Because even though that is a horrible crime, having that monster out of jail was better for everyone at that moment.
The global coronavirus pandemic is putting us in the position of deciding which of our practices and preferences need to be temporarily set aside. The State of New Hampshire, for example, reportedly suspended its ban on plastic grocery bags and instead is banning reusable bags, because of fears about how the virus might spread. That does not mean that the environmental damage from plastic bags is not real but that we hope to get back to our better practices as soon as we can, while reluctantly doing things differently for as long as we must.
To draw yet one more analogy, people normally do not want to put poisons into their bodies, yet thousands of people have reluctantly chosen to endure radiation and chemotherapy because that is what is needed to help them beat cancer (or at least extend the battle).
And along those lines, we will surely allow testing and deployment of anti-coronavirus medicines—both vaccines and treatments—to move forward much more quickly than usual, and with many safety protections deliberately reduced, in the hope that we can rapidly find something that works.
Moreover, we do this knowing not merely that some good-faith efforts by medical professionals will be ineffective or worse. We do so even in light of the certainty that some shady quacks are going to use the opportunity to peddle false hope—possibly causing unnecessary deaths—in an environment where the normal rules have been suspended. We still hope to catch and punish the wrongdoers (at least eventually), but our rushed efforts necessarily create more openings for bad behavior.
This is what a crisis brings. We do things that we know we would otherwise reject as being reckless, and we allow more people to get away with bad action than we otherwise would tolerate.
This Is an Existential Moment for the Country, Including the Economy
Which brings us back to the Republicans in the Senate and their efforts to use the economic stimulus bill to reward their friends (and themselves) while underfunding what is truly needed in this crisis. The fact is that the current situation is filled with opportunities for profiteering and its political equivalent, but worrying about such things cannot be anywhere near our top priority right now.
And beyond this, much of our economic thinking—which has long been misguided even in more normal times—will have to be revised for the foreseeable future.
For example, the headline of the Washington Post article that reported on the Senate’s political deadlock referred to the proposed stimulus as “massive,” and the text of that article said that the total cost of the bill had “ballooned to about $2 trillion with Democrats pushing for more money for hospitals, state and local government and other provisions.”
This bill is not massive at all, however, at least compared to the size of the problem that arose in only a few short weeks. The U.S. economy, which generated about 21 trillion dollars in income last year and would have hit 22 trillion this year, is now in danger of shrinking by as much as a third, meaning that six or seven trillion dollars could be lost in the next year alone unless we can stop the freefall.
To be honest, any economist looking at this situation would have to say that a two-trillion-dollar bill is likely to be only the first of what could become multiple interventions. And that means that “ballooning” from 1.8 trillion to two trillion dollars is honestly chump change and was a great idea.
But surely, one might think, there are limits. U.S. debt as a percentage of GDP was approaching 80 percent before the crisis hit. (Note that this is “debt held by the public,” which is the only meaningful measure of debt. The debt-scaremongers prefer to focus on “gross debt,” but that measure includes debt that the government owes to itself and thus means nothing.)
Based on pre-crisis forecasts, federal debt was set to rise under Trump administration policies by about one trillion dollars per year, which is generally faster than we would want but hardly catastrophic, or for that matter irreversible. Even so, however, I am no fan of Trump’s policies, because much of that debt is not being used in a way that will do us any good.
After all, the 2017 Trump/Republican tax bill was hugely regressive and did nothing to help the long-term growth of the economy. We would have been better off borrowing that money for other reasons, like building up the public health system to deal with pandemics, strengthening the transportation system, and so on.
The point, however, is that even though we have made mistakes in the past, those mistakes should not cause us to shrink from making the right decisions today. Japan dealt with its “lost decade”—a grinding near-depression that began in the 1990s—by increasing its government’s debt-to-GDP ratio from 50 percent to over 100 percent, and it subsequently rose to almost 200 percent. Yet that country still has one of the richest economies in the world (just behind France and the UK on a per capita basis), and there was no Japanese debt crisis in sight even after all of that seemingly large borrowing.
My point is that there are good and bad reasons for a government to borrow money, and the U.S. government—like all governments, businesses, and people—has done some of both. What we need to do now is to borrow and spend wisely—but we should not be scared by the large numbers involved, nor should we be surprised when we find that some opportunists in the Republican Party try to make some unearned money by exploiting the situation.
The Economic Version of Better-Than-Nothing (But Still Regrettable) Compromise
In a column on Dorf on Law last week titled “Yes, We Must Throw Money at the Problem,” I recounted a famously sarcastic proposal offered by the great economist John Maynard Keynes. It involved completely—and deliberately—wasteful spending.
Keynes was actually trying to convince people that his government should respond to the Great Depression by borrowing money and doing wise things with it, such as improving public housing in Britain. The problem was that the “captains of industry,” as Keynes contemptuously called them, believed (as their heirs in the Republican Party do today) that government is always inefficient and businesses are invariably efficient. They thus opposed direct government intervention to end the Depression.
Rather than saying “do it right or not at all,” Keynes ingeniously suggested that the government’s stimulus plan could involve hiring workers to bury tubes of money in the forest and then allowing those oh-so-efficient entrepreneurs in the private sector to go out and dig up the riches—to be reported as “profits” of “tube-mining enterprises.”
This suggestion was not merely a swipe at the gold standard, which Keynes despised, but it made clear that in a depression it is not only “not terrible” but actually good to do things that would seem quite stupid in normal times. If this is the best we can do, Keynes thought, then apparently improvements in public housing are not going to happen even in this crisis. But second-best—or even twentieth-best—is better than nothing.
We must remember, of course, that some things do no good at all. And that is what the Democrats in the Senate are angry about, with Republicans defaulting to their long-discredited trickle-down arguments to defend creating a slush fund for their business backers. It would be like responding to the Great Depression by directly sending every British aristocrat a tube full of money, turning Keynes’s sarcastic-but-enlightening suggestion into a cruel joke.
But this is not surprising, because we know that the Republicans’ habits of mind are deeply ingrained. They cannot overcome their biases in believing that poor people are poor due to their own laziness and bad behavior, or that the possession of wealth is evidence of great virtue, intelligence, and sheer manliness. Even as poor children starve, Republicans give billionaires tax cuts and corporate subsidies.
I am glad that the Democrats are trying to stop the money grab from happening, but they do not have the votes in the Senate, and they will have to agree to something quickly—and the sooner the better.
There will be other opportunities—unfortunately—for Congress to revisit these issues, because the current bill will surely end up being inadequate. Each time they return to the table, Democrats should try to limit the profiteering. But each time, they cannot allow purity to prevent them from getting something done. Too much is at stake.