Big stimulus packages required, but they risk political blowback
During the financial crisis, the Bush and Obama administrations — with the Federal Reserve — saved America, and the world, from an economic cataclysm.
They also, inadvertently, paved the way for Donald Trump.
Those policy makers essentially got it right. In the vastly different coronavirus crisis, there are important lessons to be learned from that experience, especially a few things they got wrong.
The first lesson, which this week’s congressional measure meets, is to go big. In 2009 the Obama administration pushed through a $800 billion stimulus package. Independent economists like Moody’s Analytics Mark Zandi praised the “unprecedented policy efforts” by the Fed and the administration for curbing the financial crisis, ending the recession.
The recovery, however, was sluggish. The Obama administration wanted a larger package, but with no Republican support in the House, it was pared back to squeak through the Senate.
This time, the Federal Reserve again rose to the occasion, and Congress is on the verge of passing $2 trillion in assistance to individuals and businesses; it’s a decent start because Democrats forced changes in the flawed bill that Senate Republican leader Mitch McConnell (R-Ky.) first offered.
More will be coming.
Harvard economist Ken Rogoff, co-author of the history of financial/economic crises and a debt hawk, says the situation is so serious he “would have no problem with the government debt magically going up $5 trillion in the blink of an eye.”
New York Gov. Andrew Cuomo, who has provided real leadership during this crisis, says more aid must come soon to New York.
The mandate is political as well as economic. This is where Donald Trump comes in.
Again, back in 2008-09, the government bailed out the financial firms (as well as the automobile industry) to prevent an economic meltdown. There still are arguments about the specifics, but it undeniably was the right move.
However, the outcomes were strikingly unequal.
Almost 9 million people lost their homes, many were scammed, others went bankrupt and lost their jobs, wages stagnated. But the big bank and mortgage lenders made out like bandits. Most of the CEOs and mortgage bankers kept their jobs — and lavish perquisites. Oversight of financial assistance was erratic.
There were some fines, but not a single top Wall Street executive went to jail — despite well-documented fraud, deception, using of exotic financial instruments for greedy self-interest.
That was in contrast to previous scandals: After the great crash of 1929, the head of the New York Stock Exchange went to prison — so did the culprits of the junk bond, savings and loan and Enron financial scandals.
There were two explanations after 2008, both unacceptable. One, these are hard cases — but top officials like Attorney General Eric Holder and the Manhattan U.S. Attorney Preet Bharara took a dive on the tough ones. Economic policy makers like Treasury Secretary Tim Geithner, otherwise a hero in the saga, argued that to demand dismissals and crackdowns on executive compensation could rattle confidence in markets, imperiling a recovery. That may have been legitimate, but the consequences were profound: a widespread perception that we came back but the rich got richer and we got nothing.
Trump capitalized on that resentment.
In 2016 I spent time in Western Pennsylvania counties that used to be reliably working-class Democratic strongholds. Dozens of voters complained about how the “elites” — Washington, Wall Street, the media, intellectuals — took care of their own and screwed people like them.
They were Trump voters.
Most of these families will get the generous benefits Congress is expected to enact this week, but ultimately may need more in unemployment benefits and cash assistance.
Likewise, the $367 billion in loans for small businesses which will be forgiven if their workers are retained, is essential. But the hundreds of thousands of restaurants, start-ups, dry cleaners, small manufacturers, craft breweries and other businesses currently closed but employing millions will need more if the pandemic and economic dislocations are prolonged. Suspension, not just deferral, of employer payroll taxes for small businesses that retain employees may be in order, as well as state and local governments enacting moratoriums on rents and utilities.
Democrats also forced tougher restrictions on assistance to big businesses, including the airlines: oversight of the assistance and no stock buybacks. Earlier Trump declared, “I’ll be the oversight.” That would have allowed largesse to be doled out, in secret, to places like the Kushner companies.
Corporations — like Boeing — that may already have behaved irresponsibly, may need federal assistance, but it cannot be unconditional. In hastily-drafted legislation, there will be loopholes — which K Street lobbyists helped craft and will be advising how to exploit.
It’s up to the media and congressional oversight to expose and prevent excesses.
And any member of Congress or the administration that benefits financially from inside information needs to be dealt with harshly.
The consequences otherwise will be a political backlash that makes the Tea Party and Trump look mild. Imagine a 2024 race between a right-wing faux populist Trump wanna-be and Alexandria Ocasio-Cortez.
Al Hunt is the former executive editor of Bloomberg News. He previously served as reporter, bureau chief and Washington editor for the Wall Street Journal. For almost a quarter century he wrote a column on politics for The Wall Street Journal, then the International New York Times and Bloomberg View. Follow him on Twitter @AlHuntDC.
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