Fatigue Is Here, but the Economic Fight Is Just
Beginning
Precious
public support will be squandered if the economic relief effort isn’t handled
with full transparency and accountability, a former presidential adviser says.
By Austan Goolsbee
·
Published May 1,
2020 Updated May 2, 2020
As
early as we are in the fight against the Covid-19 virus, I fear that many
Americans may already be exhausted by it.
A
medical crisis created an economic crisis. But a political crisis can make the
economic crisis much worse, and that may be where we are heading.
Deteriorating
economic conditions plus some dubious decisions by the federal government could
erode public support and cripple efforts to limit the long-run damage
precipitated by the coronavirus.
You
can see the exhaustion brewing: Individuals with “quarantine fatigue” are disregarding public
shelter-in-place guidelines, some state and local government officials are pushing to reopen
over the objections of health experts, and Congress is dragging its feet on
further support because of “bailout fatigue.”
We
seem to have lost sight of an important lesson: In long economic crises, as in
long wars, the government must maintain public support to succeed. But there
are two quick ways for this support to collapse.
One
is for the government to embark on ambitious acts but fail to produce
observable short-term “success” in the economic data. Another is for government
to seem to be squandering aid money or sending it to the “undeserving” (which
could be banks, speculators, the profligate, self-dealers or people unwilling
to work, depending on who is doing the observing).
On
these grounds, the United States has substantially raised the risk of premature
public exhaustion.
At
the very outset of this crisis, I warned that an outbreak in the United States
would come with a particularly savage economic impact — worse even than in
China. To deal with the damage, Congress initially passed a $2.2 trillion relief package, but continued deterioration
brought legislators back less than a month later for an additional $484
billion.
To
put that in perspective, that amount surpasses what the Congressional Research
Service estimates (correcting
for inflation) the
United States spent over more than 50 years of conflict in Iraq, Afghanistan,
Vietnam, Korea and World War I.
These
outlays provide critical assistance, but as big as they are, they are not
“stimulus” to jump-start the economy. They are more like relief payments. We
will almost certainly need more money in short order.
Yet
observable conditions will only get worse. Unemployment is likely to rise more
in the next few months than in any full year in history, including during the Great
Depression. The statistics for the growth of gross domestic product
in the second quarter will come out at the end of July, and may show the
fastest rate of decline ever.
If
the federal government doesn’t help the individual states, they will be
required by law to balance their budgets — forcing them to raise taxes and lay
off workers in the face of the downturn. That would only make the misery worse
and add hundreds of thousands to the unemployment roles (as in the Great Recession a
decade ago).
One
problem is that the administration has repeatedly expressed overly optimistic
timelines of when the crisis will end and when things can start returning to
normal. Doing that will make the disillusionment by the public worse when it
doesn’t happen.
And
now the question of whether the money is going to the right people has added
another blow to public confidence. Relief checks were deposited in the wrong accounts.
Backlogs in various states have prevented millions from receiving unemployment
insurance relief payments. In Florida, only one out of seven claims has been processed after weeks of
waiting.
The first $350 billion for loans to small business ran
out within days and did not go to industries or states in proportion to how hard
they have been hit. Banks favored their high-income clients over those most
in need, and many large companies and investment trusts figured out ways to get the
money earmarked for small businesses.
These
are exactly the kinds of things that can destroy public support. Even if they
end up amounting to a small share of total spending, they enrage people.
A
similar dynamic played out during the Great Recession while I served in the
Obama administration. In President Barack Obama’s first month in office, the
United States passed an $800 billion stimulus package and prepared to do
more if needed. But as unemployment rose through the fall and the unemployment
rate hovered at almost 10 percent for more than a year, even proposals for
minor additional stimulus generated heavy opposition.
Many
people concluded that the initial stimulus had not worked. Their anger ramped
up with every discussion of projects that had not been “shovel ready” or of
money that went to homeowners who bought homes they couldn’t afford or of the
fact that banks that caused the crisis had received $700 billion in 2008 (under the previous
administration).
Similar
frustrations have played out many times in many countries and may be happening
in the effort to relieve suffering in the current downturn.
What’s
worse, the largest cash infusion of all — $500 billion for large businesses and
a corresponding $5 trillion lending facility at the Federal Reserve — is likely
to be disbursed without much clarity on who gets the money or how recipients
can use it.
The
administration has been adamant that it is not required to be fully transparent
or accountable in handling these funds. At the signing of the relief bill,
President Trump declared that
the special inspector general designated in the legislation could not report to
Congress without his approval, and he subsequently ousted the man assigned to the job. Mr. Trump
declared that he would personally provide all the oversight needed.
The
president may view the removal of oversight and the control of the allocation
of funds as political victories. But they are dangerous victories. They set the
stage for greater popular frustration and exhaustion. They undermine the
credibility of the crisis response, which the government will desperately need
soon enough.
The
administration should expand its managerial capacity and commit to total
transparency and oversight of the trillions of dollars to come. No doubt that
would make life more difficult and embarrassing in the short run. It might well
lead to multiple House investigations into various programs. But in the long
run, the administration could show the public that it was committed to getting
the money out to where it was needed, not to the favored or connected. In the
end, accountability is credibility.
Fundamentally, this economic crisis
will continue until we control the spread of the virus — either through testing
and public health measures or through medical treatments and vaccines. Until
then, we will need to keep spending billions to fight the economic devastation.
The president had best remember that the money will continue only if he can
maintain public support.
Austan Goolsbee, a
professor of economics at the University of Chicago’s Booth School of Business,
was an adviser to President Barack Obama. Follow him on Twitter: @austan_goolsbee