How coronavirus stimulus is an opportunity to fix recessions going forward

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published 11 March 2020

It looks like the U.S. government will pass a stimulus package in response to the coronavirus outbreak any day now. But within every crisis there is also opportunity: In this case, an opportunity to fix America's broken and haphazard responses to economic collapses in general.

Specifically: If we pass stimulus measures, they should be passed as permanent fixtures, designed to automatically respond to future economic shocks.

Speed is of the essence in any economic stimulus, and doubly so in the case of the coronavirus crisis. But Congress does not handle urgency well, and lawmakers tend to grab for solutions that are more politically expedient than economically sound. President Obama's economic advisers, for instance, purposefully undersold the size of the stimulus needed to combat the 2008 collapse, out of fear of sticker shock among lawmakers. Meanwhile, the Trump administration is reportedly proposing tax relief and low-interest emergency loans to help out businesses in the oil, gas, hospitality, cruise, and travel industries — sectors hard hit by the coronavirus, to be sure, but also ones with lots of personal political connections to President Trump. (Aid for oil producers is especially suspect, as the industry was in bad straits due to its own missteps well before the outbreak hit.)

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The second problem, to put it bluntly, is that the Republicans are cynical, bad-faith negotiators. As Brian Beutler recently observed, look at what happened during and after the Great Recession: Democrats worked with the Bush administration to pass the bank bailouts and tax relief, "only for Republicans to return the favor once Barack Obama became president by opposing all further stimulus and saddling him with countercyclical austerity demands." Now, Democrats find themselves in the same pickle again, and there's every reason to believe the GOP will turn right back into unremitting deficit hawks should Democrats take the White House in November.

"An opposition party that governs responsibly in a crisis invariably helps the incumbent party hold on to power," Beutler continued. "But the need for action gives the opposition leverage, too." In this case, Democrats can use that leverage to solve both problems with the same strategy: Demand that stimulus measures be passed as on-going programs that will kick in automatically the next time the economy tanks. As an example: President Trump has also proposed a payroll tax cut to boost the economy. Democrats "should make a payroll tax cut automatic whenever the country is in or entering recession," Beutler wrote. You could imagine a setup where federal payroll taxes are reduced as the unemployment rate goes up, and stay cut until unemployment comes down again. That would eliminate the need for Congress to pass a new bill every time there's an unexpected crisis, and it would take the option of holding stimulus hostage off the table for either party.

In policy jargon, this is called an "economic stabilizer" — a program that runs on autopilot, boosting the economy whenever it needs the help. Medicaid, food stamps, and unemployment benefits are like this: their spending rises automatically in downturns, as more people lose their jobs and incomes and qualify for the aid. And Democrats are reportedly focused on juicing precisely those programs in their own coronavirus response proposals.

For example, the federal government can improve both food stamps and unemployment benefits by rewriting eligibility thresholds, generosity of benefits, and length of benefits to all automatically improve as unemployment rises, and by automatically dumping extra money into those programs to make it happen. (In fact, the federal government already started doing this after the 2008 recession, but the policies have been cut back since.)

As for Medicaid, it may already function as an automatic stabilizer, but it's also jointly funded by the federal government and the states, which is a problem: States can't weather tax revenue losses in recessions like the national government can, and have to cut spending elsewhere to hold up their end of Medicaid. That austerity makes the downturns worse. Ideally, of course, we'd just pass a single-payer health insurance system and take the burden off the states entirely. But the federal government could also automatically start footing the whole Medicaid bill when unemployment goes up — it could even do it on a state-by-state basis, responding to each state's unemployment rate. We could also establish a system of permanent cash aid the U.S. government provides to state and local budgets, which again could automatically rise and fall with unemployment.

Then there's paid sick leave, for which America should have a permanent and national program regardless. To their credit, Democrats have a bill that does exactly that — while also making extra sick days immediately available to all workers in a health emergency. I also wrote about how numerous economists are recommending direct cash aid to all Americans: a kind of temporary universal basic income (UBI) as a coronavirus response. Once again, a UBI is really something that should be permanent, and a floor for incomes no one could fall below. But you could also imagine an extra top-up to everyone's UBI benefits that automatically rises in a recession and then recedes back to the minimum level with the recovery.

Heck, even the Republicans' idea of low-interest loans — while hardly the best idea — could be fit into this schema. There's nothing inherently wrong with the government "picking winners and losers," and the need for a smart industrial policy in the U.S. should be apparent by now. It's just that it's the sort of thing that requires real long-term planning, as opposed to a panicked spur-of-the-moment response. Still, if we could figure out a set of objective criteria to decide who gets the low-interest loans, you could imagine a system that automatically made the loans available — and increased or decreased their generosity — with the business cycle. (Technically, you could design the GOP's tax relief for businesses to do this too. It's that tax cuts for corporations and owners are about the most useless form of economic stimulus there is.)