How To Get The Coronavirus Rescue Right

We need a nation proud of having protected its vulnerable population from the virus-as well as of saving its vulnerable businesses and workers from the infection’s catastrophic economic consequences.

There is no denying that the new coronavirus creates a health emergency, justifying federal, state, and local governments taking steps to reduce the transmission of the disease and protect the most vulnerable. But those steps are not themselves a fully rounded policy, merely one aspect of a policy that must include not only the health of our people, but the health of the economy which also affects the health of our people.

President Trump initially claimed expertise in these matters and denied that the disease existed, or if it did, that it would not prove widely transmittable. When that proved wrong, he appointed a task force to address the problem, headed by Vice President Mike Pence. Pence, in turn, quite sensibly gathered around him some leading scientists who, after initial stumbles, among them relying on the CDC for test kits it proved incapable of producing, devised a response to what has proved to be a pandemic. Meanwhile, the President declared war on the disease, and himself “a wartime President,” presumably in the tradition of Woodrow Wilson, of whom he might have heard, of Abraham Lincoln, whose memorial he has undoubtedly seen, and of Franklin Roosevelt, whose legend was still current when Trump entered the world a year after FDR’s death.

In a sensible effort at transparency, the task force, fronted by Trump, instituted a series of daily television briefings. This brought its scientist-members out of the obscurity of the federal government bureaucracy and onto center stage before an audience of millions.

Enter Congress, to address the collapse in the economy that the scientists’ policy is creating. Bipartisanship is the watchword of the day, but of a special kind: You approve my spending and I will reciprocate by approving yours. A probable $2 trillion later-10 percent of the nation’s GDP-their handiwork will be completed, later rather than sooner. Alas, few in Congress have the management skills to run a corner candy store, having spent their lives sheltered on the federal payroll, with its uniquely favorable benefits and pensions. The word “now” is not in the lexicon of Congress, a body that literally has the power to “stop the clock” when it cannot meet a deadline. Unfortunately, in the real world in which paychecks are paid, or not, rent bills must be paid, or not, interest on loans must be paid, or not, workers, employers, borrowers cannot stop the clock. For them, when they need help “now,” they need it “in the time immediately to follow,” if my dictionary is right.

Those most in need of help, owners of small businesses and the workers they are being forced to shed, need it now-as Senate Majority Leader Mitch McConnell endlessly repeats. But Congressmen have spent their careers regulating economic activity, a habit they are not about to shed. So there will be forms that the average proprietor of a small deli will find incomprehensible, proofs that any injury to the business was the result of the epidemic, guarantees that the funds will flow through to laid-off workers-all so that Congress cannot be embarrassed by the fraud and gaming of the system that is inevitable in any mass distribution of billions of dollars. And there will be procedures: One leading tax adviser tells me that the money aimed at small businesses will flow through the Small Business Administration, and that “its forms are not one-pagers”. Also, the SBA requires collateral, usually real estate, which in practice means the borrower’s home. Many small businessmen would rather fold their tents than risk their homes.

The Senate Majority and Minority Leaders have between them spent almost 100 years in the public sector, and the leader of the House, more than three decades. Like the scientists guiding policymaking, these are all-well, most or many-honorable people. But they do not work under the pressures confronted by private-sector players. For proof, consider the parlous state to which they have brought the nation’s ledgers by not understanding that somehow everything they wish for the American people must eventually be paid for.

Worse still, politicians have their own agendas that they seek to tag onto every important piece of legislation coming across their desks. Some Republican legislators often try to attach anti-abortion amendments to unrelated bills. In this instance, Democrats want to withhold relief to airlines unless they agree to limit emissions, and to other companies unless they appoint a union representative to their boards or agree to a $15 minimum wage-in short, to settle issues simmering for decades at the expense of “now”.

But let’s be optimistic, and assume that Congress will get it right, that the bulk of the $2 trillion will be more or less well-spent in order to . . . to what? To repair or offset the damage caused by a policy crafted by scientists, unskilled in weighing the need of a healthy populace for a healthy economy, and who would be less than human if they willingly surrender their newly acquired power and the associated limelight. Under ordinary circumstances, the health of the economy would have been considered when making a policy to cope with this crisis. It would be weighed against the economic cost of that policy. But given the panic understandably caused by an unseen enemy visiting illness and death for an uncertain period, medical considerations were prioritized to the exclusion of everything else. It was appropriate then, less so now.

Late yesterday the President told the television audience tuned to the briefing of the Pence task force-its usual star, Dr. Fauci did not attend-“Our country wasn’t built to be shut down . . . If it were up to the doctors, they’d say let’s shut down the entire world and let’s keep it shut for a couple of years.” In short, Trump is hearing the voice of his inner businessman-an imperfect voice that often misled him in private life, but now is a much-needed offset to the advice of the doctors and scientists. Trump plans to begin unwinding some of the restrictions that have the economy headed for the rocks, and permanent damage. And sooner rather than later. New York governor Andrew Cuomo, most often a Trump critic and presiding over a state hard-hit by the virus, agrees that there must be “a pivot back to economic rationality.”

He will be told by many that this is simply not feasible, that the consequences will be an unacceptable increase in the spread of the virus. Trump might decide that these critics are right, that the balance of considerations dictates sticking with the current policy. But it will be a decision that has considered a range of factors. Besides, as Michael Mandelbaum pointed out in a recent TAI conference call/seminar, if the President doesn’t act soon, Americans will gradually begin to make their own pragmatic adjustments to the guidelines-not suddenly convening in large groups, or stopping washing their hands, but moving their behavior closer to what it was before the economy was shut down. Indeed, it is not clear that a centrally contrived loosening of the rules would prove more efficacious than the sum of individual decisions-but that’s a subject for another discussion. The point is to arrive at a policy that gives weight to previously ignored facts. My guess is that the restrictions will be eased, with life breathed into the faltering economy.

Unfortunately, the President’s chief economist, Larry Kudlow, has forfeited some credibility by abandoning his long-held belief in freer trade and fiscal responsibility in order to line up with Trump on trade and tax policy, and early on adopted the Trump-Fox line that the virus was a minor annoyance soon to disappear. Unfortunately, too, Gary Cohn, a pragmatist with deep knowledge of how the economy and the financial system work, has long since departed the administration, removing a dissenting voice and leaving the President reliant on those who either agree with him or are reluctant to surrender the White House passes that they treasure.

Fortunately for the President, he has had one lucky break while succumbing to the siren song of the doctors. The Federal Reserve Board has dug deep into its toolkit to prevent a complete seizing-up of the credit and financial systems. The thank-you note from the President seems to be lost in the mail, but no matter: An independent central bank has proved more adept, quicker off the mark, than both Congress and the President.

And another lucky break when Kevin Hassett decided to return to the administration as an unpaid adviser acting in his personal capacity. Hassett did depart his first stint with honor intact, and his good sense and pleasant mien might enable him to broaden the horizons of Pence’s existing team to the point where the post-crisis economy will be worth living in. Correlation does not prove causation as we economists like to say, but the arrival of Hassett and the President’s new insistence that the cure for the epidemic might be worse than the disease-that at least some consideration be given to that possibility-is likely more than mere coincidence.

Now that we are headed towards a more balanced policy, “What is to be done?” as Vladimir Lenin famously asked in another connection in 1901.
For starters, get an imperfect rescue package passed and fix it later by having it expire at year-end. Ignore the pleas of companies (such as Adidas) that any rescue bill include long-sought special tax treatment (such as for purchases of gym equipment and memberships). Don’t turn the relief legislation into a Christmas tree on which Elizabeth Warren can hang the baubles she offered her party when it rejected her as its standard-bearer, or that House Speaker Nancy Pelosi wants to include: elimination of the Post Office debt, guaranteed same-day voting registration, reduction of airplane emissions, and credits for solar and wind power. Build in quid pro quos (a phrase well understood by all parties) such as an opportunity for taxpayers to profit in any recovery, as they did in the Great Recession. For political and economic reasons, bar share buybacks. Constrain or eliminate executive compensation.

We need a nation proud of having protected its vulnerable population from the virus, and its vulnerable businesses and workers from the catastrophic economic consequences of an onslaught they cannot reasonably have been expected to anticipate. Those goals are attainable, but not unless the existing policy-making mechanism undergoes major improvement and recognizes, as Hassett put it, if everyone stays home for six months “it’s going to be like the Great Depression.” And not unless Donald Trump is willing to become what George W. Bush called “the decider,” using such facts as are available rather than waiting for the completion of the enormous global database the doctors say they need. Presidents are elected to apply their judgment to imperfect data and if they get it wrong, admit it (not easy for this President) and try again.

Doing nothing might seem safer, but doing nothing is a policy, and in this case seems riskier than implementing a new one. Now.