Yep, better late than never. This was supposed to be coming all along. But the hyper-partisanship was to be expected as well. Trump and GOP will be okay to put more dosh in business owners pockets. Democrats will want to put some purchasing power in the general public's pockets. They'll have to compromise.
What I miss in the contemplated measures: the medical cost. People without adequate insurance, a great many!, may want to avoid seeking medical help. That will keep the epidemic going. A period of a voucher-based 'Emergency Medicare for All' may kill two birds with one stone.
Does anyone know what the payroll tax is for?! We are already being told how SS is on the brink of bankruptcy and this financial genius wants to cut its funding even more! If anything we need to get rid of the ceiling on payments.
3
Trump's call for a "Payroll Tax cut" is NOT the answer. The so-called "Payroll Tax" is FICA OASDI, which funds Social Security. Cutting the Social Security tax would put more money in the pockets of people who work for a living, but it will cause the Social Security trust fund to run out of funds sooner than currently projected. The cut will lay the groundwork for a Republican push to cut Social Security benefits, something Trump will push for if he's re-elected in November.
Don't take the bait.
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Irwin writes, "how the government might use its power to tax and spend to mitigate the economic pain."
this is still straight out of kitchen table economics. If you or your business or even your state or local gov wants to spend, it has to tax (or borrow) to get the money.
This is certainly NOT true for the federal gov which can create as much money as it needs out of thin air. After all, the idea of fiscal stimulation is to get more money into the economy so people will be able to buy more stuff thus causing businesses to make more stuff thus causing businesses to hire more people who then will have more money to buy more stuff......
Why in the world would you want to tax some of the money back OUT of the economy?
Also consider this. If we cut rich Rich's taxes, he does not need to spend the money; he uses it for financial speculation. If we cut poor Joe's taxes, he spends the money on stuff--food, house paint, etc.,etc. This promotes production of food, etc. Even better if we pay Joe to fix a bridge, the money still gets into the economy,
AND we get the bridge fixed.
PS if you are worried about inflation, recall that increasing production LOWERS prices. A bumper wheat crop produces LOWER wheat prices.
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When you have a hammer, everything looks like a Nail. What else can the Federal Reserve do to fight the Corona Virus?
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Be honest, this is trump recession, and he is solely responsible. Although solid market correction was perhaps quite necessary anyway. Blaming some random short lived sneeze is unfair to how big trump really is.
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We need to give the corporations a big tax cut so they can survive this catastrophe. They can use the money to buy their own stock and that way show how strong the market and the economy are. That will minimize the harmful effects of the corona virus.
Corporations may have to lay off people and lower wages as well.
We must protect the corporations at all costs.
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Off topic here but look at that photo of Bush signing the bill with Nancy Pelosi and Mitch McConnell standing side by side, beaming. Boy those were the days when the two parties actually talked to each other.
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Interest rate cut backfires, giving the impression things are worse than previously thought. Spooks the stock market. Corporations are already swimming in cash and have little need to borrow. As far as fiscal stimulus, we've already been stimulating big time to the tune of annual trillion dollar budget deficits.
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@HB - No, the tax cuts went mostly to the Rich who do not spend the money on goods and services , but use it to speculate. Hence the stock market went up while wages stood still and and the economy grew glacially.
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To add to my comment above, a fiscal stimulus is a good idea but the irony is that the GOP was dead set against it during Obama's tenure despite the glaring need and the historically low interest rates.
The other issue is that we already have a record deficit despite the boasts of the GOP for fiscal responsibility and we have even less ability to pay for any stimulus.
Ideally we should have embarked on the infrastructure renewal projects in Obama's term as the benefits would still be in effect and boosting income and tax receipts to pay for the stimulus. The additional advantage would be that these jobs would have been domestic construction and engineering jobs and not service jobs that defined the more tepid recovery we did have.
So, in short, we have the consequences of GOP churlishness coming home to roost. Playing with economic policy for cheap political games is the most expensive game one can play.
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A half point interest rate cut signals panic to a market that is already very nervous after a terrifying few days.
The real issue is just who is going to decide to borrow in such unpredictable times? Businesspeople are risk averse people.
I know of no one who is saying "Hmm, look at those rates! I think I will expand my business even though I see no increased demand."
The real issue is small businesses that have minimal capitalization cannot borrow even at low rates. Moreover, the rates they could get are closer to 8-12 points. When volume slips just a bit for a short time you will see scores of them fail. That will be the inflection point in the upcoming recession.
The market is telling businesses and the public that things are not OK. What that will do is cause wallets to slam shut across the land and concomitant layoffs. Then a cascade of bankruptcies and foreclosures will occur irrespective of whatever the Fed and Trump do.
2
After Bush Jr we get Tea Party - NO FISCAL STIMULUS and DEBT IS BAD - right up until we get Trump and tax cuts. Dems need to hold firm this time around until Trump is GONE!
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A small payroll tax break will do almost nothing to negate the economic dislocations caused by the Covid-19 virus. Only economic mechanisms directly related to the dislocations themselves will help assist with the dislocations. Maybe subsidizing virus-related testing and healthcare or self-quarantining to lower the spread, and so the economic disruptions. A general tax cut will only benefit the president’s re-election efforts. Republican just love “free stuff,” especially when it is paid by future generations.
7
Of course, we might also consider that the US needs a trillion dollars of work on infrastructure to keep the bridges up and planes flying and rural communities connected.
5
Not sure what immense problems global warming will bring, but the Covid-19 virus is an interesting proxy of just how the GOP would respond. Transfer wealth to rich. Gaslight the citizens that it is not as bad as it feels. And wash their hands of the problem.
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“Do we know enough about the V shape to merit a policy response?”
The last time the geniuses predicted a V shape, it turned out to be an L shape, which took us ten years to get out of. The reason the market fell, and may continue to fall, is because it has been overvalued for too long a time. The coronavirus is just the kicker to get it started.
3
Don't these people have any common sense. The reason for the economic "upheaval" is the interruption of labor inputs because of mandatory and voluntary quarantines. People are not working because of this and production has stalled, especially in China. This has sent shock waves through entire international economy. No amount of money is going to change that. The only thing money is going to do is allow business to pay their non productive expense during the production lull.
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Pretty soon, our economy will be so awash in liquidity that there will be a run on the dollar. The Fed is debasing our currency just to keep the stock market up. It's insane.
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Responsible economic management would suggest that governments should keep a stock of fiscal and monetary ammo to fight external/internal shocks to the economy. Unfortunately, politicians have depleted these stocks with irresponsible fiscal policy - huge corporate tax cuts that mainly benefited shareholders and added hundreds of billions to the country's debt service that future generations are now saddled with. The sins of the fathers... A responsible government would have tightened fiscal policy and reduced debt when the going was good, putting money aside for a rainy day. Sadly, politicians know that raising taxes isn't popular with their electorates, which is why they're tempted by the easy option - handing out more candy. When the hard times come, the cupboard is bare.
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@John Boot - Er, you do understand that the federal government can create as much money as it wants out of thin air.
AND every time we "reduced debt" by 10% or more, we fell into a terrible real depression. This has happened 6 times and accounts for ALL of our country's 6 depressions.
And when from 1996 to 1998, the deficit was too small (it was less than our trade deficit), we would have had a 7th depression if we had not had a FED able and willing to pour TRILLIONS into the banking system to save it and us from a 1929 style depression.
Jus sayin.
2
“At the same time I think politicians don’t want to be seen as stonewalling on a possible answer to a crisis, so I think the politics are a little more friendly to getting some kind of fiscal package through than it might seem.”
Don't bet on it. The US economy was in far dire straights in 2009 when every Republican refused to vote for the modest fiscal stimulus proposed by the Obama administration.
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The idea that increased fiscal stimulus would rescue us from the current economic crisis should be filed in the, "If all that you have is a hammer, everything looks like a nail," folder. After all, shouldn't the $1 trillion budget deficit be enough stimulus already? Does anyone actually believe that throwing another several hundred billion dollars at the problem should do the trick?
Both traditional monetary and fiscal policies are designed to address inadequate (or, rarely, excessive) demand in the economy, but the fallout from the coronavirus is not a demand-side issue. The problem is with the inability of the global economy to supply all of the goods and, increasingly, services that people (including governments) want to buy. Spending even more money in the economy may affect demand, but it will barely affect supply. Something about more money chasing the same number of goods . . .
The fiscal hammer will miss the nail, but with sudden, large inflationary pressures, we'll all get screwed.
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@JB - There are lots of ways the government can spend money that do not involve the global economy. Infrastructure repair and modernization is one. Developing a viable renewable energy industry is another.
4
In 2008, the only fiscal stimulus that was needed was a massive public works program to pay out of work people to fix our crumbling infrastructure. But instead, we just gave it to the very banks that had tanked the economy. How did that work our for the 99%?
The only fiscal stimulus that is needed now is for the government to pay for ALL coronavirus testing and treatment, as well as unemployment for people who don't have sick leave. The vast majority of working Americans can't afford to fight this epidemic, and that is just going to make it worse.
But by instead, let's just make sure billionaire stock investors don't feel any pain. Because after all, now that money is speech, those are the only Americans who matter.
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The politics of not helping the other side are real. The House Democrats are not going to help Trump get reelected. Tax cuts not steered to investors has zero allure to the GOP. The GOP has trapped itself with multi trillion dollar increases in the national debt. So Trump has foolishly cut public health funding and proposes more cuts in the CDC and Medicaid. Trump has now left the response to the coronavirus to state level public health resources.
14
No stimulus!
No more debt!
Obama spent trillions on stimulus programs which now appears to have had very little effect on the economy. He doubled the US debt to just over $21 trillion.
Forget the virus - the interest on that debt is nearing $500 billion -that's the crisis.
Stimulus - please - spare me. Low rates have done little to spur the economies of the world - negative rates are insidious and will come back to haunt the global financial markets.
No stimulus - let the economies deal with the virus - spend what needs to be spent by taking money from....let's see the Defense Dept. which is wasting half of it's $600 billion budget.
I've never met an economist I can truly believe in - I only know taking on debt - like credit card debt - and paying only the interest month after month, year after year - increasing the balance without regard to the future is fiscally irresponsible -
Congress is to blame - politicians who care about getting elected and re-elected - give away the money - it's the only way to get votes.
3
@JMS: I must disagree with your cynicism. First, I think Steve has good ideas for fiscal stimulus that could help, i.e. better government funding of the response and help with sick leave.
As for the Obama stimulus, Obama got all he could, considering that no Republican would vote for it. It was not the $797 B advertised because kicking the can down the road on the AMT and Medicare reimbursement constituted old wine in new bottles. The real number was closer to $600B over 2 years. We learned from when Sweden blew up its banking system in the early 1990's and the Asian Contagion in the late 1990's that to recover an economy from a banking collapse requires a stimulus of about 10% of GDP delivered in 12-18 months. For the US, that would have been about $1500 B. So we got 60% less than we needed drip fed over too long a time period. No wonder it felt anemic!
And as for the debt, as Dick Cheney said, "Deficits don't matter." If they did, we could repeal parts of the 2017 tax cut to pay for it.
8
@JMS - When the Treasury borrows from the FED, the FED returns the interest on these bonds back to the Treasury. It is NOTHING like credit card debt where you can borrow up to a certain amount. Congress can order the FED to create as much money as we need out of thin air.
BTW you ought to contrast post WWI with post WWII. After WWI we DECREASED the federal debt by almost 40% by October of 1929. Then what happened?
In fact, ALL 6 periods in which we paid down the debt significantly were ended by a terrible depression and of our depressions were preceded by such a period.
After WWII we INCREASED the federal debt by 75% from 1946 to 1973. This period has been called the Great Prosperity in which GDP growth averaged 3.8% and real median household income surged 74%.
(If you want to raise the "Europe was Rubble Myth,". look at
http://piketty.pse.ens.fr/files/capital21c/en/pdf/F1.1.pdf
which shows that the output of
Europe was about the same as the US in the Great Prosperity).
2
Pumping money into the economy now will probably have the effect of staving off any problems until after the election, when we will either have a Democratic president stymied by a ginormous deficit or Trump, who will want to slash benefits and impoverish us all.
6
@SAO - Why should a Democratic president stymied by a ginormous deficit? In 1946, the debt was 40% larger as a percentage of GDP than today and we had deficits for 21 out of the next 27 years. We increased the debt by 75%,
That period has been called the Great Prosperity.
2
Democrats believe in government, and would want to demonstrate its value. Doubtless you're right that it would taste sour to them to give Trump a win, and they'd negotiate well, but they wouldn't kill it.
1
Trump closed a department of 700 experts who would have been versed on this virus. At a rally, he proudly bragged about the best health system in the world - Obamacare. This, after spending years dumping on it and claiming it useless and void.
18
Let's consider the economic and fiscal environment in which the fiscal stimulus is being considered. We're projecting trillion dollar deficits for years to come, courtesy of the Republican congress and Donald Trump's massive tax cuts for the uber-wealthy and big corporations. Those tax cuts did not stimulate the economy by much, and Trump's trade war has sent manufacturing into recession already.
Further, as The Upshot noted, Republicans are hostile to providing support for working people, even back in 2008 when the economy was collapsing. Congressional Republicans fell back on Hooverism and refused to back desperately needed stimuli.
Today, Trump/Hoover is still in charge, with Trump asking for more tax cuts for the wealthy, when more money in the pockets of working people is what we need.
Neither economic growth nor trillion dollar deficits will be helped by Trump's policies.
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Agree with @alan about the primary concern should be prevention and cure. We need concerted efforts to produce and distribute vaccine.
Increase funding to CDC and allow them to do what they are best at - disease control.
Education through public service announcements on TV and through all forms of media is critical to reduce panic in the public. This should come from CDC and doctors - not bureaucrats or politicians.
Most of the fiscal / monetary policies being floated are wrong headed - what we have now is a supply issue, not a demand issue. Pick any product that is sourced from China - no amount of rate cuts or tax cuts will increase their supply.
Longer term strategy - treat manufacture of essential goods, medical supplies, etc. as a matter of national security. Bring some of the manufacturing back to US, and develop multiple supply chains - source some from China & SE Asia, some from Eastern Europe, some from S. America, etc.
13
@Tara - So long as we rely on private companies (Big Pharma) to develop and produce vaccines, we will be behind the curve.
https://www.nytimes.com/2020/03/02/opinion/contributors/pharma-vaccines.html?searchResultPosition=1
2
Our primary concern over Covid-19 should be prevention and cure. Ever since the advent of online trading in the Stock Market every little thing has caused large up or downs in the Market. Covid-19 is a very big thing so the Market swings have been big. There is no need to for the Fed to manipulate the Market.
6
History has taught us that careful moves by the Fed or gov't can only soften a great economic downturn not prevent them.
We did not have this tool in the Great Depression and mistakes were made.
We did not have another major disaster (not counting recessions) until 2007 and again Obama's careful handling of the economy prevented it from becoming another Great Depression.
Learn from history or be condemned to repeat its worst mistakes.
8
@Paul - A bit of history for you:
The federal government has balanced the budget, eliminated deficits for more than three years, and paid down the debt more than 10% in just six periods
since 1776, bringing in enough revenue to cover all of its spending during 1817-21, 1823-36, 1852-57, 1867-73, 1880-93, and 1920-30. The debt was paid
down 29%. 100%, 59%, 27%, 57%, and 38% respectively. A depression began in 1819, 1837, 1857, 1873, 1893 and 1929.
And an aphorism:
The definition of insanity is doing the same thing over and over and expecting different results.
4
@Len Charlap thank you for your reply. I am not quite sure I understand it.
As stated above, if you are agreeing with me, depressions were regular until we figured it out after the Great Depression.
The Fed, fiscal stimulus, and other tools has helped prevent another depression since 1929.
The complicating factor here is the virus, and another "crash" coming ie big downturn. The crash will come, based on an insane trade war with friend and foe alike, near record national, student, consumer, corporate debt.
The recession will come. The only question is when and how bad.
The Corona virus complicates things. It may hasten the downturn or be separate from it.
@Paul - No, the point was that we ONLY got depressions after a period of fiscal responsibility in which we paid down the federal debt. Thus depressions always followed bad fiscal actions, not monetary ones by the FED.
Private debt has always exploded when the federal deficit is too small because the deficit measures the amount of money the federal government sends to the private sector net of taxes. When this is too small, people and corporations, etc, must borrow from banks and other lending institutions.
4