Washington’s deep partisan divide makes such a move seem a long shot, but a deteriorating economy could be a great motivator.
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The $2 trillion coronavirus rescue package is more than double the size of Obama's stimulus plan — but it may only salvage the economy for a few months
Republicans and Democrats put together a colossal $2 trillion economic relief package that provides emergency aid...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. The measure is more than double the size of Obama's 2009 stimulus law aimed at jolting the economy and pulling it out of the Great Recession. 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. Read more: A notorious market bear says stocks are still historically expensive after tumbling on coronavirus — and warns a plunge 'of about 50% from here' is still coming "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. Read more: Legendary investor Laszlo Birinyi nailed the 11-year bull market at every turn. He shares his 7-part strategy for thriving during a prolonged crisis — and says a quick recovery from the coronavirus is 'wishful thinking.' 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. Read more: The 'trade of the century': 2 hedge-fund managers break down a simple investing strategy built to profit from wreckage caused by the coronavirus 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.Join the conversation about this story » NOW WATCH: Why bidets are better than buying countless rolls of toilet paper
A top Obama economist says there's 'a real danger' the looming coronavirus recession could be worse than the 2008 financial crisis
Obama's former top economist is warning the economic crisis that results from the coronavirus could be...Obama's former top economist is warning the economic crisis that results from the coronavirus could be worse than the 2008 financial disaster. "There is a real danger that the economic crisis that comes out of this health crisis is worse than what we experienced in 2008," Furman told Business Insider in an interview. Business Insider talked to Furman about the likelihood of recession, and how long it could take for the economy to dig itself out into a state of recovery. Visit Business Insider's homepage for more stories. The former top economist to President Obama is warning the coronavirus pandemic could throw the economy into a tailspin that's significantly worse than the financial disaster in 2008 — and believes its almost certainly in recession already. In the past seven days, stocks continued their free-fall and recorded its worst finish since the financial crisis. Congress is scrambling to construct a colossal federal rescue package that may carry a price tag surpassing $1 trillion as economists warn layoffs are soaring and entire industries could be demolished in the fallout. That type of chaos is familiar terrain for Jason Furman. Now at a professor at Harvard University, he helped shape the Obama administration's $800 billion stimulus package during the recession in 2009. Furman was later appointed to head the Council of Economic Advisors. Yet the situation now is remarkably different. Businesses across the nation have shuttered in a bid to slow the spread of infections. Around one in four Americans were urged to stay home Saturday, effectively freezing substantial economic activity. Business Insider talked to Furman about a recession resulting from a virus that's shut down vast sectors of the economy and sent unemployment claims skyrocketing. He also offered a forecast for how long the economic pain might last and what lawmakers in Washington should put into the stimulus bill taking shape. The interview has been lightly edited for length and clarity. Questions are in bold and all responses are from Furman. Congress is in the middle of designing a massive stimulus package to shore up an economy being ravaged by coronavirus. Many economists are saying we're already in a recession. Could the situation we face be worse than the 2008 financial crisis? There is a real danger that the economic crisis that comes out of this health crisis is worse than what we experienced in 2008. There is a complete shutdown of economic activity across the entire planet that happened in a synchronized fashion of a type we've never seen before. I don't think though that the terrible scenarios are inevitable. It will depend on what happens with the pandemic and also on the economic policy response. Read more: GOLDMAN SACHS: Buy these 15 cheap, cash-rich stocks in order to dominate the market, even as we barrel towards recession We got unemployment data that showed 281,000 claims were filed in the week ending March 14. Goldman Sachs is forecasting that 2.25 million Americans will file for benefits this week. What do you make of those figures, and are we already in a recession? The United States is almost certainly in a recession. The last week has to have been the sharpest deterioration of economic activity in a single week that we've ever experienced. And that was done on purpose in order to stop the spread of the virus, so that's not a surprise. The really big question is how long it lasts. That leads into my next question. How would you craft a legislative response that cushions the blow? First, you want to start with some general principles. It's better to be too big than too small. We don't know what exactly will or won't work, so you need to diversify your response. You need to have a response that continues and scales up as necessary. Finally, if at all possible, keep it simple. It's really hard to design programs in a hurry, it's even harder to design it when the people doing so are teleworking and social distancing — and their children aren't in school. So keeping it simple is really important. In terms of fiscal stimulus, there are three broad uses of money. One is relief to individuals: You can do that through checks or unemployment insurance, nutritional assistance, paid leave. A second big bucket is continuity for businesses. Loans, grants, those various combinations. The third bucket and the one I think has been most neglected to date is assistance to states and localities, which are going to see their revenues slammed at the same time expenditures they need to make are growing. You've notably called for the federal government to send $1,000 checks to every American adult and help people weather the economic fallout from coronavirus. Why do you believe that's an effective way of bolstering the economy? Checks are an important part of the answer, but only one part. What makes them important is they are administratively feasible, the government can do it. They are broad in that they err on the side of ensure not missing people rather than erring on the side of missing people. Read more: Bank of America lays out the 6 things that need to happen for the stock-market crash to truly end — and warns only 4 have occurred so far They're also scalable. You can make them larger if you need to. For all of these reasons, they're critical for both social insurance in the short-run to protect people — and give people more spending power to help the economy grow out of this in the medium- and long-run. Is it possible that checks may not reach people fast enough? The faster you can get people money, the better. Unemployment insurance and nutritional assistance could be faster, but they miss a lot of people. The sooner the better for checks, but I wouldn't say don't do them, because it takes a month and a half. People also have some ability to delay paying their bills. I hope there's a lot of generosity in terms of late fees under the current circumstance. If you know a pot of money is coming a month and a half from now, I think that is a big relief in the situation we're facing. The Senate Republican plan released on Thursday includes a provision that would send $1,200 checks to taxpayers as long as they earn less than $99,000 a year. Is means-testing for the money a good idea? It's a good idea. My concern is that it would slow down delivery of the checks. In talking to people, and it appears Treasury knows the answer to this, and it thinks it won't slow them down. Means-testing is completely appropriate. How would you grade the Trump administration's economic response? Letter grade? Compared to historical precedent, they've been fast. Compared to what's needed, they've been behind the curve and slow — five days behind which is an eternity in the current situation. Can I give them a letter grade? A lot of universities are shifting to pass/fail this semester, and they're on track to pass. How concerned are you that gig workers and hourly-wage earners will catch the worst of the economic fallout we're seeing? What can government do to alleviate the pain? The United States went into this crisis with an inadequate social safety net. It didn't have great portable benefits for gig workers, it didn't have a paid leave system. Unemployment insurance has the lowest coverage rate its had in a half-century. Read more: 'We have not had a single loser': An investment chief who's earned up to 90% per trade during the coronavirus crash breaks down his strategy — and explains why it will profit through the election Right now, there's not a lot of great mechanisms for getting to among others, gig workers. That's part of the motivation for the checks — that will go to everyone. I'm not sure there's something else you can specifically design, but I'd be thrilled if people prove me wrong. We've been advised by public health experts to stay home for the immediate future. How long can the economy weather a shutdown of public life as we've known it? I think if the shutdown gets much past two months, I would have exponentially increasing worries about the long-term impact on the economy. But that's why an even bigger, sharper shutdown than we've had already is an investment in buying time so we need less of a shutdown later. Do you believe the economy has the power to rebound quickly, as Trump has said recently in press conferences? A lot of economists talk about a V-shaped recovery — you go down quickly, you go up quickly. That is generally not the way business cycles work. Generally you go down a lot faster than you go up, and that's because there's a lot of asymmetries in the economy. If a worker gets fired, it takes time for them to get rehired. If a business goes bankrupt, it takes time for a business to reconstitute relationships that enable them to grow and thrive. For those reasons, large shocks to the economy tend to persist and last. I wouldn't count on a V-shaped recovery. The best argument for a V-shaped recovery is the massive amount of support the economy is in the process of getting. That gives us a better shot at a rapid recovery. But it wouldn't be safe to assume one will happen. You were part of the team that crafted the Obama administration's response in 2009 at the height of the recession. What lessons should policymakers draw from that era as they design a stimulus package that could very well surpass it in size and scope this time? Go big, go broad, go simple. I think those are some of the most important guiding principles. Make sure to stay at it as long as the economy needs it. 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. I would not like to see that happen this time. Read more: 'Massive implications': One market bear breaks down how the Fed's unprecedented actions before the coronavirus turmoil may have opened the door to a 72% crashJoin the conversation about this story » NOW WATCH: A big-money investor in juggernauts like Facebook and Netflix breaks down the '3rd wave' firms that are leading the next round of tech disruption