Paul Krugman: Will Republicans allow Powell and Pelosi to save the economy?

(Manuel Balce Ceneta | AP file photo) In this July 31, 2019, photo, Federal Reserve Chairman Jerome Powell speaks during a news conference following a two-day Federal Open Market Committee meeting in Washington.

America’s catastrophically inadequate response to the coronavirus can be attributed largely to bad short-term decisions by one man. And I do mean short-term: At every stage, Donald Trump minimized the threat and blocked helpful action because he wanted to look good for the next news cycle or two, ignoring and intimidating anyone who tried to give him good advice.

But here’s the thing: Even if he weren’t so irresponsibly self-centered, he has denuded the government of people who could be giving good advice in the first place.

Trump disbanded the National Security Council’s pandemic response team in 2018, although he now, with his characteristic refusal to accept responsibility for anything, says that he knew nothing about it. And he has in general staffed his administration with obsequious toadies who never tell him anything he doesn’t want to hear.

What’s now becoming clear is that when it comes to dealing with the economic fallout from COVID-19, the situation may be even worse. There are still some competent professionals holding senior positions at federal health agencies, who could give Trump good advice if he were willing to listen. But serious economic thinking has effectively been banned from this administration, if not the whole Republican Party. As far as I can tell, the Trump team is utterly incapable of formulating a coherent response to the gathering economic crisis.

As a result, there are only two potential loci of intelligent economic policymaking left in Washington. One is the Federal Reserve; the other is the congressional Democratic leadership. At this point, in other words, it’s pretty much up to Jay Powell, the Fed chairman, and Nancy Pelosi, speaker of the House; the question is whether Trump and Senate Republicans will let them save the economy.

Powell, of course, slashed interest rates and announced a large asset-buying program on Sunday. He was right to do so. But it’s painfully obvious that these moves won’t be sufficient, indeed will probably do little to stop the economy’s tailspin. Remember, in 2007-8 the Fed cut rates five times as much as it did Sunday, and it still wasn’t able to prevent the worst slump since the Great Depression.

In fact, Powell himself basically acknowledged as much, declaring that he and his colleagues “don’t have the tools” to reach those most in need of help, and that “fiscal responses are critical.”

Fiscal responses, of course, have to come from Congress. True, in another time, under another president, the White House would have played a crucial role in shaping crisis legislation. But last week, as the House drafted and then passed an economic relief bill — one that was helpful, if still clearly inadequate — it was almost entirely a Democratic effort. Democratic staff members put together the key elements of the bill — paid sick leave for many (though not enough) workers, enhanced unemployment benefits, increased federal contributions for Medicaid and more.

True, Steve Mnuchin, the Treasury secretary, negotiated with Pelosi, basically to make the bill a bit worse. But Democrats set the shape of the bill, even as Trump was proposing the grandiose notion of a payroll tax holiday, which has been panned even by conservative economists.

As Greg Mankiw, chairman of the Council of Economic Advisers under George W. Bush, wrote, “a payroll tax cut makes little sense in this circumstance, because it does nothing for those who can’t work. … President Trump should shut-the-hell-up.”

And while the White House was basically out of the loop, Republican senators have been actively obstructionist, offering no serious proposals of their own but holding up a vote on the House bill, even though that bill passed with overwhelming bipartisan support.

Why are Republicans useless at best in the face of an economic crisis? As I’ve pointed out before, there are many competent center-right economists, but the GOP — not just Trump, but the whole party — doesn’t want their advice. It prefers hacks and propagandists, the people Mankiw famously called “charlatans and cranks,” whose only idea is tax cuts. The party truly has nobody left who is capable of putting together a plausible economic rescue package.

The Senate probably will eventually pass Pelosi’s bill. But with all signs pointing to a steep economic dive, we need a much bigger stimulus package — perhaps along the lines being developed by Chuck Schumer, the Senate minority leader — as soon as possible. This package shouldn’t include tax cuts; it should focus overwhelmingly on cash grants, perhaps a basic grant to every legal resident plus additional grants to those in special need.

And since there’s nobody left in the GOP who can put together a coherent stimulus plan, Democrats will have to do the job, perhaps with help from the Federal Reserve intervention to stabilize highly stressed financial markets.

I admit to being somewhat worried that Democrats won’t go big enough. But my bigger worry is that Republicans will undermine their efforts. It’s now up to Powell and Pelosi to rescue the economy, and Trump and company need to get out of their way.

Paul Krugman

Paul Krugman, Ph.D., winner of the Nobel Memorial Prize in Economic Science, is an Op-Ed columnist for The New York Times.