- Republicans and Democrats put together a colossal $2 trillion economic relief package that provides emergency aid to both workers and businesses hard hit by the coronavirus pandemic.
- But it may only be a down payment toward restoring the nation's economic health if the outbreak stretches into the summer and continues paralyzing the economy.
- "If we don't stem this cascade, there isn't any economic activity in the US that isn't endangered," a conservative economist told Business Insider.
- Visit Business Insider's homepage for more stories.
Under extraordinary pressure to salvage an economy on the verge of collapse from the coronavirus pandemic, the Trump administration and top Democrats assembled the largest economic stimulus package in American history. The tedious process of lawmaking, which normally takes several months, was squeezed into only 10 days.
The $2 trillion legislation is more than twice the size of President Obama's $830 billion stimulus package of 2009, which was designed to pull the nation out of its worst economic downturn since the Great Depression. Its colossal price tag didn't prevent Congress from swiftly passing the legislation this week, sending it to President Trump's desk where he signed it into law on Friday.
The relief package is unparalleled in its scope as well, reflecting the urgency of the crisis.
Hospitals will receive critical funding to combat the disease. Millions of Americans will get checks and dramatically expanded unemployment benefits. The measure will also provide distressed businesses and industries with hundreds of billions of dollars in zero-interest loans, tax breaks, and other emergency aid.
But it may not be enough to prevent a recession many experts say is already underway. That increases the odds that lawmakers will have to build another government rescue package in the near future, especially if the outbreak stretches into the summer — rendering a colossal spending initiative as only a down payment.
"If you think of what we're in as a hole in the ground, it doesn't provide enough dirt to fill it up," Jared Bernstein, chief economist to former Vice President Joe Biden in the Obama administration, told Business Insider.
Other economists struck a note of caution. Douglas Holtz-Eakin, president of the American Action Forum and a former Congressional Budget Office director during the Bush administration, said he had "no idea" whether another emergency relief bill was needed after this one, pending the outbreak's length.
"One of the things I like about some of the design here is we don't have to know. We don't have to be that smart," Holtz-Eakin told Business Insider.
The conservative economist, though, said "every business was endangered" as a result of the pandemic, and that the nation was potentially staring down its worst economic crisis since the depression of the 1930s.
"If we don't stem this cascade, there isn't any economic activity in the US that isn't endangered," Holtz-Eakin said. "It's unbelievable."
Washington and its new relationship with corporate America
The severity and duration of the pandemic is driving the federal government's response to shore up the economy.
The public health emergency caused by the coronavirus has shuttered restaurants, bars, hotels, and other businesses that power 70% of the economy through consumer spending. Many states ordered them closed in a bid to curb the number of infections.
"What you're looking at here is what economists call is a sudden-stop. Meaning a fast-acting shock to the incomes of households and revenues of firms," Bernstein said.
Layoffs are soaring as a result — 3.3 million Americans filed for unemployment benefits last week, a figure that's likely much higher as state systems often shut out gig workers and contractors from receiving them.
With that chaotic backdrop, lawmakers crafted a relief package that's "throwing out a lot of money in all different directions because it's hard to target the money in a timely way," according to Diane Lim, a former economist at the White House Council of Economic Advisers who now works at the Penn Wharton Budget Model.
The federal intervention this time goes beyond anything enacted in the aftermath of the 2008 financial crisis, one produced by a collapsing housing bubble that bankrupted large financial institutions. That disaster led Obama to sign a stimulus bill in February 2009 to jolt economic activity through new federal spending on healthcare, education, and tax credits for families.
A 2013 government study found the American Recovery and Reinvestment Act was successful in creating millions of jobs and cutting unemployment. But economists say the recovery after the Great Recession was restrained by a lack of ambition in Congress.
"One of the problems in the response last time is that many in Congress, especially Republicans, just grew tired of fiscal stimulus and we stopped it too soon," Jason Furman, Obama's former top economist, previously told Business Insider. "I would not like to see that happen this time."
Lim said given the scope of the federal response so far, she believed "once this is all over, there will be a larger role of government in this country."
In some ways, the government is already expanding its role to control the levers of American capitalism — at least for now.
Businesses with 500 or fewer employees are set to get zero-interest bank loans financed by the government to keep worker on payrolls for two months and covering fixed expenditures like rent. Loans could be forgiven if workers aren't laid off, though some of the spending could be paid back if conditions aren't met.
"The key feature there is you put the money into the business. It allows the business to survive the pandemic and we emerge the other side with the infrastructure of the economy intact," Holtz-Eakin said.
Elements of the relief package triggered significant backlash among progressives. Democratic Rep. Alexandria Ocasio-Cortez of New York on Friday blasted Republicans who sought emergency federal aid to large businesses to prevent them from going bankrupt.
That makes up a $500 billion pot of money within the legislation. The government will inject around $60 billion of it into the airline industry, which critics derided as a bailout of companies that enjoyed hefty profit margins for years.
Holtz-Eakin pushed back on the idea it constituted a bailout, saying the money was equivalent to putting companies on "life-support."
"There's no evidence of mismanagement, bad products, poor practices, malfeasance," he said. "These were perfectly sound companies operating responsibly with good labor forces and they got hit by a virus."
'This is a drop in the bucket for what we need'
States and municipal governments received $150 billion in new federal funding in the relief bill to fight the outbreak. But they're likely to need "another trip to the stimulus well," Bernstein said.
Many states are expected to get economically slammed as a surge of people seek unemployment benefits and tax revenue drops due to lower business activity.
"States can't run budget deficits," Bernstein said, adding, "they depend on the federal government at a time like this."
Constructing new mechanisms to dispense benefits and enforce new programs touching nearly every aspect of American society could also prove an administrative challenge for the Trump administration — one that will determine whether the law is successful.
New York has emerged as an epicenter of the outbreak, registering over 44,000 coronavirus cases — or 7% of the global total — on Friday. Gov. Andrew Cuomo has already criticized the bill, saying the $3.5 billion allocated for the state is nowhere near enough to address the emergency.
"This is a drop in the bucket for what we need," Cuomo said.
Democrats vowed on Friday to push for a fourth round of government aid to further expand benefits for workers and provide more funding for hospitals. But it was not readily apparent that Republicans would sign onto the effort.
Lim said another round of emergency relief would likely be more "targeted" instead of the fiscal bonanza of the $2 trillion legislation.
She expressed concern that traditional unemployment benefits — which vary from state to state — could leave out undocumented workers who make up a significant share of workers in the leisure and hospitality industry.
Lim said policymakers, though, will develop a firmer grasp of which workers are being financially ravaged by the pandemic after a month or so.
"We should understand a little bit more about where the health risk is and where the economic cost is greatest," she said.
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