Emergency Response, Necessary Deficits

Blog Post
Wednesday, March 18, 2020

On the latest Facing the Future, I was joined by Concord Coalition Executive Director Robert L. Bixby and Policy Director Tori Gorman. We discussed the federal government’s response to the Coronavirus, including stimulus packages and their potential impact on long-term fiscal policy.

“The crisis that we’re facing is unprecedented,” Gorman said. “But we’ve learned some lessons from the financial crisis of 2008 and 2009 that will help guide monetary policy today.” 

“That said, when it comes to stimulating the economy and the fiscal response to this current crisis, we are in completely uncharted territory,” she added. “Normally fiscal stimulus is used as a tool to increase aggregate demand at a time when people don’t have or don’t want to spend money … but to do so at a time when individuals are being encouraged to stay home … seems counterintuitive.” 

Gorman discussed and evaluated the three different stimulus packages that Congress is considering in response to the Coronavirus pandemic. The measuring stick she used, as outlined by Concord, is whether the stimulus or aid is targeted, timely and temporary. 

The first package, which has already passed Congress, was $8.3 billion in public health programs and aid. “I think it definitely fell into the bucket of targeted and timely; it definitely directed money exactly where it needed to be,” Gorman said. 

The second stimulus package, assistance for workers who may lose their jobs due to the outbreak: “I think they’re trying very hard to target it to those who are directly affected,” she said.  

But she expressed concern over the third package Congress is exploring, which Gorman referred to as a $750 to $850 billion “money bomb” aimed at keeping the economy from sliding into a deep recession. 

“We know there is going to be a significant economic slowdown in this quarter, whether or not we slip into a full-on recession, which is defined as two consecutive quarters of negative GDP, that remains to be seen,” Gorman said. “Some of the policies that I think they are considering, for example, a payroll tax cut, do not fit the definition of targeted.” 

A broad-based tax cut like that is unlikely to reach all who need it, such as those who have been laid off or work in the gig economy. Moreover, not everyone who is subject to the payroll tax needs a tax cut, such as higher wage earners. 

“I think it would be better if they were to focus any kind of income support to those industries that are directly affected, rather than doing this broad-based, scatter-shot money bomb, that inevitably will be exorbitantly expensive but actually make a difference to very few people,” Gorman said. 

Bixby said that the current scenario is a real-time validation of the concern that a downside to large-and-growing budget deficits in a strong economy is that our fiscal health will get much worse when we run into a crisis. “The debt is going to be much higher, and we are going to have some pretty astronomical looking deficit figures.” 

He added, however, that this is a normal and necessary response to the kind of sharp economic downturn the COVID-19 outbreak is likely to cause. Action is needed, Bixby said, to help affected workers, industries and the economy as a whole, but ultimately “addressing the health care crisis is the best thing we can do for the economy.” 

Gorman said, “One of the things that people say about Congress is that Congress never lets a crisis go to waste … I think one of the lessons from the Great Recession is ‘don’t let a recovery go to waste.’ ” 

“We had an opportunity to right our fiscal house in the last five to seven years and we didn’t do it,” she said. “My hope is that once we get past this, policymakers look back, and once we are on the path to recovery, use that as an opportunity to fix what we didn’t fix before.”

Hear more on Facing the Future. I host the program each week on WKXL, NHTalkRadio.com (N.H.), and it is also available via podcast. Join me and my guests as we discuss issues relating to national fiscal policy with budget experts, industry leaders and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, iTunes, Google Play Music or with an RSS feed. And follow Facing the Future on Facebook