The U.S. government did a lot of things wrong in the Great Recession of 2008. But one of the most consequential screw-ups, made when it really counted, was low-balling the stimulus. President Obama's economic advisors rapidly concluded it would take $1.8 trillion to plug the hole in the economy, but never pushed for that amount for fear of the politics. The stimulus that passed was less than half that number, and the grinding decade of slow recovery that followed was the inevitable result.
Now, the global coronavirus pandemic means the president and Congress are faced with the same choice again. Numbers out of China, where the virus began, show a staggering hit to the country's economy; here in America, activity in various service sectors was down by as much as half before the mandatory shutdowns began sweeping the states; economists project output will shrink 5 percent in the second quarter; White House economic adviser Kevin Hassett told Politico the next jobs report could be the single worst we've ever seen.
This is no time to repeat the mistakes of 2008. Even a few months of shuttered economic activity could set off cascading job and income losses unless it's counteracted by a massive stimulus. Simply put, the U.S. government should spend at least a trillion dollars. Literally.
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"I am in the one-trillion-to-two-trillion-dollar camp, preferably by dinner time," Ian Shepherdson, the founder of Pantheon Macroeconomics, told The New Yorker. Olivier Blanchard, the former head economist at the International Monetary Fund, compared the current situation to World War II, and cited the massive deficits — many trillions in today's terms — the war effort justified. Furthermore, we now have a reasonably good idea of what specific policies are needed, and can do a rough back-of-the-envelope calculation.
So let's break this thing down.
There's a growing economic consensus that the most useful thing the government could do is just hand people cash. It can happen at the necessary speed, and it's flexible enough to address a situation as fluid as the coronavirus outbreak. Economists across the political spectrum support this idea. Mitt Romney, Republican Senator from Utah, supports it. The basic plan going around is $1,000 immediately to every adult American, and $500 for every child. Jason Furman, former economic chief for President Obama, estimated it would cost $350 billion.
We'll almost certainly have to do it more than once, though. The shutdown of American life needed to contain the coronavirus outbreak could last a while. "If this pandemic continues, we might have to do it again in a month," conservative economist Greg Mankiw told CNN. Even if we only had to do it twice, that would get us to $700 billion right there.
We also need to support state budgets. Another problem in 2008 was that states can't deficit-spend the way the federal government can. When the economy tanks, their tax revenue tanks with it, forcing them to cut spending, which makes the recession even worse. To avoid that dynamic this time around, progressive economist Josh Bivens recommended the federal government pick up the full tab for Medicaid for the year.
Medicaid is jointly funded by the states and the feds, who kick in 37.5 percent and 62.5 percent, respectively. It's one of the biggest expenditures on state budgets. Medicaid's total cost was $593 billion in 2018, so paying the program's full freight for 2020 will cost the federal government at least another $225 billion.
That brings us to $925 billion already. But we're not done.
Paid sick leave needs to be made available to all Americans — ideally permanently, but at a minimum for the duration of the crisis. Length, generosity, and eligibility for unemployment insurance needs to be expanded as well. Food assistance should be boosted. House Democrats have passed a bill that does all of that. But unfortunately the paid sick leave provision in particular is grossly inadequate, and the bill is being held up by GOP objections in the Senate.
Frankly, the Republicans' economic ideology is always poisonous, and especially at times like this. But it also sounds like Democrats are insisting the paid sick leave be provided on employers' dime rather than the government's — they're refusing to compromise on what they should compromise on (who pays for it) and compromising on what they shouldn't (universality and permanence). At any rate, the Congressional Budget Office hasn't scored the bill yet, so it's hard to say how much doing all this properly would cost. But it would probably put our $925 billion stimulus over the $1 trillion mark.
We're still not done, though, because we should also think about helping businesses directly. Everything I've discussed so far is about keeping Americans and their families financially whole, and the extra spending money should help businesses stay afloat as well. But plenty of businesses and industries won't be able to continue functioning whether people have money to spend or not. It's galling when the airlines come asking for a $50 billion bailout, or when restaurant chains refuse to comply with shutdown orders, but in many cases they really do face an existential economic threat.
There are multiple ways we could go about plugging holes in businesses' finances that don't collapse into gross favoritism. We can make credit cheaper throughout the economy, or offer low-to-no interest loans directly via the federal government. But economists Emmanuel Saez and Gabriel Zucman just suggested the federal government keep companies afloat by essentially acting as a buyer-of-last-resort, stepping in to replace lost revenue directly. It's a sweeping proposal that could cost as much as $2 trillion all on its own.
It's also debatable whether we need to go that big. (Again, everything else we're discussing will help businesses too.) But that proposal gives you an idea of the high-end estimate. And to prevent a repeat of the 2008 bailouts, when the banks got away scot-free, the U.S. government could attach certain requirements: that businesses avoid layoffs, implement paid sick leave, or cancel all shareholder payouts (dividends and stock buybacks), for example, so long as they're receiving aid.
Finally, there are a number of other changes the government should make that aren't quite the same thing as spending: It should push to temporarily cancel things like people's mortgage payments, rent payments, and student loan payments, for instance. Again, federal aid to businesses could help make this happen, by both covering the costs and serving as a carrot to encourage the changes.
Now, Democratic leadership in the Senate is discussing a $750 billion stimulus, Sen. Elizabeth Warren (D-Mass.) has a plan for the same amount, and the Trump administration is toying with an $850 billion injection. Unfortunately, the White House's proposal consists mainly of tax cuts and business bailouts, which wouldn't get the help to where it is most urgently needed. Getting back to Mankiw's comment about doing the $1,000 payments more than once suggests, $750 billion should really be understood as the bare-minimum low-end estimate of what's required — what we'll be able to spend if the coronavirus outbreak in America abates very quickly.
Furthermore, the bigger we go now with stimulus, the more rapid the recovery will be once the infection crisis has passed. It would behoove Congress to schedule several months of the $1,000 cash payments now, just to guarantee the economy has plenty of cushion. We are far, far better off if we get a speedy economic bounce by going overboard with the national credit card than if we condemn ourselves to a repeat of the Great Recession's slow-grind recovery in the name of "fiscal responsibility."
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