photo by Jonathan Cutrer
The $2 trillion coronavirus economic stimulus bill that (by Washington standards) rocketed through Congress last week may be the largest single public spending bill in any country’s history.
Which raises the question: How did congressional negotiators, seemingly overnight, conjure a sum that would have been inconceivable just a month ago, and which is far beyond the reach of even a multinational collective like the European Union?
This was not the first coronavirus relief bill to clear legislative hurdles since the COVID-19 pandemic arrived. Nor is it expected to be the last. President Trump had already signed measures allocating $8.3 billion for medical research and preparedness efforts, and $100 billion to support newly enacted paid leave requirements for workers and businesses affected by the pandemic.
Yet those were merely the down payments on the massive spending measure that the Senate approved 96-0 Wednesday night. The House of Representatives went on to approve it by an overwhelming majority on Friday, despite one representative’s attempt to force members to vote in person (and thus potentially delay its passage). The latest measure offers financial support to large and small businesses; enhanced unemployment and tax benefits to workers and retirees; economic aid to states and localities; and another financial shot in the arm to the health care industry, which is bulking up as fast as it can to deal with the pandemic.
To put $2 trillion in perspective, that amount is one-third larger than the entire federal government’s discretionary annual budget. In a normal year, Congress would spend months carving up the roughly $1.5 trillion it has available to spend outside of mandatory interest payments on the national debt and entitlement programs such as Social Security and Medicare. Last week’s package took less than two weeks to complete.
Somewhat less than half of the package consists of loans to businesses and potential equity stakes in hard-hit industries like airlines. This is money the Treasury stands to recoup. The equity investments might even generate a profit for taxpayers when the economy recovers. Another portion is a timeline shift, in which the government defers collecting revenue but does not sacrifice it altogether. Examples in the legislation include provisions allowing retirees to postpone taking required minimum distributions from their tax-sheltered accounts in 2020, and allowing expanded loans and hardship distributions from many such plans for younger workers in financial distress. Likewise for the potentially vast deferral of collections on employment taxes that businesses withhold from their workers, the remittance of which will be postponed beyond this year.
But beyond this vast extension of credit to the private sector and the citizenry, Congress still conjured something like $1 trillion seemingly out of thin air. Nobody else is even considering anything close to that.
The European Central Bank has announced plans to purchase up to 750 billion euros – around $810 billion at recent exchange rates – of government bonds from eurozone nations. This reflects the fact that the virtual halt in global travel and tourism hits hardest at some of the zone’s most financially strapped nations, including Greece, Italy and Spain. The latter two countries are also the world’s hardest hit by COVID-19 fatalities at this writing. The ECB’s plan is also a function of the heavy involvement of government in most of the European economy, and the attenuated connection between the ECB and Europe’s private sector. Europe’s largely sclerotic economies have neither the means to provide direct aid on the scale we are giving our companies to get them through the crisis, nor the mechanisms to efficiently deliver it.
The United Kingdom government unveiled an economic support package totaling 350 billion pounds, or about $420 billion. This is a staggering sum by British standards, comparable on a per capita basis to our own $2 trillion effort. But nearly the entire British package, 330 billion pounds, was to consist of loans to businesses to keep them afloat and retain their workers. The government will hope to get most of that money back.
China has announced plans for about $300 billion in stimulus, mainly through tax cuts. This package aims to restart growth after China’s own coronavirus lockdown, now in the final stages. The first quarter of 2020 was likely the first in modern records in which the world’s number-two economy by GDP has contracted, after 60 million people were placed in lockdown and much of the rest of the country slowed activity to fight the virus.
We should appreciate – and never overlook or underestimate – the attributes that gave our U.S. lawmakers so much firepower against the pandemic’s economic sabotage. Having the world’s largest economy is the starting point. By generating $20 trillion in goods and services when at full strength, our economy has kept the price tag for keeping America solvent at about 10% of one year’s production. That’s a big number, but manageable.
Of course it all goes on the national credit card. Baby boomers and their parents may be the most susceptible to COVID-19’s respiratory damage, but it will be their children and grandchildren who pay nearly all of the bill for fighting it. National debt still matters. But it matters less when the Treasury can borrow money for 10 years at less than 1%, or for 30 years at only a bit more than 1%, which was the case last week.
Like it or not (and many do not) the entire world needs dollars. They get them mostly by buying our government’s debt instruments, which keeps our interest rates low. Still, with the world’s best growth engine among developed and open economies – China does not fully qualify on either front – we can afford to pay interest on our debt. Europe and Japan have been keeping interest rates in negative territory for years just to sustain their current living standards.
When the pandemic is over and the 2020 elections are behind us, we will face a lot of policy choices. Those choices will determine whether we retain the ability to do what seems economically impossible in the future. We need to maintain our advantages in technology, in productivity, and in a flexible business and labor environment that allocates resources quickly and efficiently. In a world of aging populations and declining birth rates, we will need a supply of labor at varied skill levels, too. We have to get beyond fighting over how we handle illegal migration and work out how we will attract and absorb the labor we need. And, of course, we have to deal with all those unfunded promises of retirement benefits that the public and private sectors have made to baby boomers.
You hear a lot of politicians argue that our economy as presently structured does not work for all Americans. Congress just gave you 2 trillion reasons that they are wrong.