The time for the long-sought-after bailout of the American people is here. President Trump has promised immediate cash transfers. It is the right thing to do, and should ideally be paired with an aggressive expansion of social safety net programs, including unemployment insurance, SNAP (the Supplemental Nutrition Assistance Program, or food stamps) and TANF (Temporary Assistance for Needy Families) These actions, in addition to more traditional stimuli, will give us the best chance to avoid needless economic catastrophe for countless Americans.
At many points in recent economic history, acts by the federal government or the central bank have prompted people to ask: “Why aren’t we bailing out the American people instead?”
The answer is that industry bailouts, whether it be through a temporary lending facility like TARP, or direct loans (like were made to the auto industry after 2008), are usually the most effective way of protecting the American people from economic catastrophe. During the aftermath of the 2008 mortgage crisis, bank failures would have had severe ramifications for everyone because everyone relies on the banking system, even if they don’t realize it. Similarly, the bailout of the automakers was intended to maintain, at least in the near term, the several million jobs that are supported by that industry. The consumer was the intended beneficiary of these bailouts.
The economic catastrophe being caused by the COVID-19 pandemic, however, calls for direct intervention. Previous bailouts were aimed at the continued functioning of the market and the banking system in order to protect consumers and workers from disruptive economic events like layoffs. In the present moment, however, we cannot keep the economy on life support in this way. The ideal policy response to this pandemic is to halt economic activity for a time, at least in many sectors of the economy. Bailing out certain industries, like the airlines, retail, and food services, may help to increase the likelihood that business activity will resume quickly once the prohibition on social activity is lifted, but it won’t help individuals who lose their jobs in the coming days and weeks to be able to stay current with their rents, mortgages, and auto loans, or to put food on the table for their families. In a recent interview, former Treasury Secretary Larry Summers aptly characterized the current challenge. He explained that “economic time has been stopped, but financial time has not.”
The best solution is direct and immediate support for individuals and families. Ideally, we would direct support to those people who are suffering immediate losses as a result of the pandemic and aim to keep them afloat until the economy recovers. This could be accomplished through an expansion of state-administered unemployment insurance programs and bolstering the states’ spending capacity with federal support. But such steps may involve too much friction to provide timely relief for those who are struggling most. That’s why the White House plans to send each American adult a check to help cover current financial obligations. The size of the check remain unknown, but some, like Senator Romney, have proposed $1,000 to start.
A payroll tax cut, which was initially embraced by the White House, would fail to meet the needs of the moment. It would be easy to enact but would not deliver aid to those who need it most. It would help businesses, which is good, but it directs aid to people who have kept their jobs and encourages people to keep working, perhaps even when they are sick.
The current economic environment is unprecedented. We’ll need to think big in order to dig ourselves out of the economic aftermath of the COVID-19 pandemic. The solutions will ideally aim at providing the most support to those who have been and are being hit the hardest, but in the meantime, getting cash in the hands of the American people as quickly as possible should be the number one priority.
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