Evan Vucci/AP Photo
No social distancing at the signing of the coronavirus stimulus relief package, March 27, 2020
This is part of our economists roundtable on the corona crisis.
The coronavirus is, above all, a public-health crisis, and the economic impact could be devastating. But before any of us even heard of COVID-19, our society and economy suffered from deeply-ingrained problems, starting with economic inequality, which this crisis will undoubtedly exacerbate. The need for substantially increased public spending and investment will not diminish once the public-health crisis fades.
What will diminish is the broad political consensus that made possible the recently approved $2.2 trillion burst of federal spending to support families and businesses during this economic shutdown. Indeed, if recent history tells us anything, that consensus will fall apart once the immediate health crisis dissipates and people can gradually return to work.
That will be another dangerous moment for the country.
First, it’s likely that the economy will be at a precarious tipping point, and the risk of doing too little to support families and businesses will still far outweigh the risk of doing too much. We will need to continue to pump money into the economy if we are going to avoid a coronavirus recession that makes the Great Recession of 2007–2009 a fond memory. Families will continue to need support, as businesses struggle to ramp their operations back up. And states and localities will need to avoid spending cuts, as the crisis decimates their tax revenues. Such cuts would exacerbate hardship for families and undermine recovery.
There was a need for substantially greater public spending before any of us ever heard of the coronavirus: to address pervasive economic inequality, to invest in human, physical, and intellectual capital. That need will be even greater in the virus’s wake.
But deficit hawks—particularly the über alles crowd, who believe that budget deficits are acceptable only when caused by tax cuts—will be out in force, demanding austerity. We got a taste of what’s to come when some members of Congress objected to the $600 weekly increase in unemployment-insurance checks contained in the Coronavirus Aid, Relief, and Economic Security Act, because some low-income workers might receive a little bit more now than they do when they’re working.
Politicians who fretted about short-term work disincentives in a week when more than 3 million people had just been laid off are not going to give a damn about workers a few months from now. So, the rest of us must.
Some of the needs were exposed by the current crisis. For example, we need to permanently, not just temporarily, reform our unemployment-insurance system to cover more workers and increase benefits. There is plenty of room to do that without creating work disincentives. The logic supporting guaranteed paid sick days for workers and families affected by COVID-19 will not go away with the virus. That, too, needs to become permanent policy, and the ridiculous policy of exempting large employers needs to be scrapped. Likewise, the need for accessible, affordable, and quality day care and early childhood education is critical for supporting working families and maximizing labor force participation, especially for women. And certainly, to stave off an even deeper recession, any recovery legislation will need to include temporary additional direct payments to individuals. That is a surefire way of supporting aggregate demand to mitigate and recover from a recession. What’s more, there is a massive, longstanding need to invest in our outdated infrastructure, in our human capital, and our store of scientific and other knowledge. And, of course, this crisis underscores that it is imperative that all have access to health insurance.
The fear of inflation and soaring interest rates that lies at the supposed concern about deficits and spending never seemed more irrational than it has over the past several years. We were already in an era of prolonged low interest rates, partly because of low investment and an aging population. Even when the economy seemed to be flying, with the unemployment rate as low as it had been in decades and jobs continuing to be added each month, the economy was not being pushed beyond its capacity. Even in these seemingly ideal conditions, wages for average workers had only recently begun to budge, after decades of stagnation.
Clearly the financial markets have not been concerned, as investors were still putting their money in U.S. treasuries, keeping interest rates low, even before the coronavirus. Now, rates in inflation-adjusted terms are about as close to zero as they can get, and inflation concerns feel like a distant memory. There’s a huge opportunity cost in failing to spend on critical priorities out of fear of phantom inflation. Deficit and debt concerns should not stand in the way of bold action.
Even if we decide that raising deficits indefinitely is not sustainable, cutting spending will not be the answer. Taxes are the best way to reverse these trends, particularly on corporations and the wealthy. The failure to tax those at the top—not only due to the 2017 tax cuts but also to decades of supply-side tax policies since the 1980s—has contributed to higher inequality. U.S. tax laws lowered federal revenue to only 16.2 percent of GDP in 2018 and 2019, compared with 19.8 percent in 2000 (before President George W. Bush’s tax cuts) and 17.8 percent in 2007 (before the recession). It’s been heartening to see proposals for higher taxes on the wealthy and on corporations from every major Democratic candidate for president, from those on the left to those in the middle.
President Barack Obama’s chief of staff admonished him to never to let a good crisis go to waste. Unfortunately, by turning to austerity in 2009, his administration did just that. As the past decade has shown, austerity was not the answer then, and it surely is not now.
