Just a month ago Donald Trump was still insisting that COVID-19 was a trivial issue, comparing it to the “common flu.” And he dismissed economic concerns; after all, during flu season, “nothing is shut down, life & the economy go on.”
But pandemics come at you fast. Since Trump’s blithe dismissal, something like 15 million Americans have lost their jobs — the economic implosion is happening so quickly that official statistics can’t keep up.
In our last economic crisis the economy shrank around 6% relative to its long-run trend, and the unemployment rate rose around five percentage points. At a guess, we’re now looking at a slump three to five times that deep.
And this plunge isn’t just quantitatively off the charts; it’s qualitatively different from anything we’ve seen before. Normal recessions happen when people choose to cut spending, with the unintended consequence of destroying jobs. So far this slump mainly reflects the deliberate, necessary shutdown of activities that increase the rate of infection.
As I’ve been saying, it’s the economic equivalent of a medically induced coma, in which some brain functions are temporarily shut down to give the patient a chance to heal.
While a deep slump is unavoidable, however, good policies could do a lot to minimize the amount of hardship Americans experience. The problem is that the U.S. political landscape has long been dominated by an anti-government ideology that left us unprepared, intellectually and institutionally, for this crisis.
What should we be doing? Serious economists have already reached a rough consensus over the appropriate policy response to a pandemic. The bottom line is that this isn’t a conventional recession, which calls for broad-based economic stimulus. The immediate mission, beyond an all-out effort to contain the pandemic itself, should instead be disaster relief: generous aid to those suffering a sudden loss of income as a result of the economy’s lockdown.
It’s true that we could suffer a second round of job losses if the victims of the lockdown slash spending on other goods and services. But adequate disaster relief would address this problem, too, helping to sustain demand.
So it’s all about helping the economic victims of the coronavirus lockdown. How are we doing?
The good news is that thanks to Democratic pressure, the CARES Act, the $2 trillion not-a-stimulus bill that became law less than three weeks after Trump dismissed the notion that COVID-19 might pose an economic problem, is mostly focused on the right things. The core provisions of the legislation are aid to hospitals, the unemployed and small businesses that maintain their payrolls; these are exactly the kinds of things we should be doing.
What’s especially remarkable is that we got mostly sensible legislation even though the president was talking nonsense, pushing for — what else? — tax cuts as the solution for the economy’s problems. Actually, I can’t think of any other recent example in which Republicans agreed to major fiscal legislation that mainly involved spending to benefit the needy, without any tax cuts for the rich.
The bad news comes in two parts.
First, the bill falls far short of what’s needed on one crucial dimension: aid to state governments, which are on the front line of dealing with the pandemic. Unlike the federal government, states have to balance their budgets each year. Now they’re facing a surge in costs and huge revenue losses; unless they get a lot more aid, they’ll be forced to cut spending sharply, which will directly undermine essential services and indirectly deepen the overall slump.
And it’s not clear when or whether that hole will be filled. Senate Republicans are hostile to the idea of another rescue package; White House officials are reportedly still talking about tax cuts.
Second, decades of hostility to government have left us poorly positioned to deliver even the aid Congress has voted. State unemployment offices have been underfunded for a long time, and red states have deliberately made it hard to apply for benefits. So the surge in unemployment is overwhelming the benefits system; Congress may have voted disaster relief, but the money isn’t flowing.
The loan program for small businesses is also, by all accounts, off to a shambolic start. And those $1,200 checks everyone is supposed to get? Many Americans won’t get them for weeks or months.
It doesn’t have to be like this. Canada has already set up a special web portal and phone system to provide emergency unemployment benefits. Germans have been pleasantly surprised by how quickly aid is flowing to the self-employed and small businesses.
But decades of conservative attacks on the idea that government can do anything good have left America with a unique case of learned helplessness. And this is combined with utter lack of leadership from the top.
We know what we should be doing in terms of economic policy, and Congress passed a relief bill that, while flawed, was better than I expected. But right now it looks as if our response to the economic emergency will fall far short.
Paul Krugman, Ph.D., winner of the Nobel Memorial Prize in Economic Science, is an Op-Ed columnist for The New York Times.