How much damage? The true cost of the Senate's coronavirus relief bill

Senators reached agreement on a COVID-19 relief bill late Wednesday night — and suddenly, unanimously, it passed. 

The deal was in the aptly named “red zone,” according to House Speaker Nancy PelosiNancy PelosiTrump says he opposes mail-in voting for November On The Money: Economy sheds 701K jobs in March | Why unemployment checks could take weeks | Confusion surrounds 9B in small-business loans The bipartisan neutering of the Congressional Budget Office MORE (D-Calif.), when a serious objection was raised by Sens. Lindsey GrahamLindsey Olin GrahamGraham asks colleagues to support call for China to close wet markets Justice IG pours fuel on looming fight over FISA court Trump says he's considering restricting travel to coronavirus 'hot spots' MORE (R-S.C.), Tim ScottTimothy (Tim) Eugene ScottHow much damage? The true cost of the Senate's coronavirus relief bill Senate unanimously passes T coronavirus stimulus package Senate rejects GOP attempt to change unemployment benefits in coronavirus stimulus bill MORE (R-S.C.), Rick Scott (R-Fla.) and Ben SasseBenjamin (Ben) Eric SasseAmerica's governors should fix unemployment insurance Mnuchin emerges as key asset in Trump's war against coronavirus House Republican urges Pompeo to take steps to limit misinformation from China on coronavirus MORE (R-Neb.). Theirs was the issue of paying some people more money if they’re laid off than if they’re working. It reminds me of the old line one often says before seeing the check at a restaurant: “What’s the damage?

In this case, the damage is $2 trillion.

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You know you’re in a dangerous conversation when they are rounding at the trillions. Even so, that’s just the sticker price. The damage of this crisis legislation actually could be more profound if there are changes to economic institutions: Contract law. Price flexibility. Work incentives.

Will the cure be worse than the disease? I’m not talking about the Wuhan virus. The American people need to understand that the economic crisis was not caused by COVID-19. Rather, the panic ensued once China stopped lying about COVID-19 and the panic led to state-ordered economic and social shutdowns. In other words, the near-nationwide shutdown – not the virus – is why the U.S. economy now needs rescuing. Metaphorically, governors turned off the ignition, so we should be skeptical that pumping the gas pedal will fix anything.

The instinct to rush financial support directly to American citizens is understandable. What’s alarming is that the legislation does this twice — first, through direct payments amounting to $1,200 per adult and $500 per child and, second, through a radical expansion of the unemployment insurance (UI) system. The first idea will be expensive but has no side effects. The second idea is damage.

Normally, laid-off workers can get UI payments that amount to half of their monthly wages for up to six months. It’s very well known among economists that paying people not to work with a 50 percent replacement rate is a perverse incentive, one that causes more and longer bouts of unemployment. So, it’s astounding that this legislation is pushing the replacement rate up to 100 percent, and even more in some cases, with a flat $600 per week on top of the base amount. Unreal.

In a better world, the focus would be on medical deregulation: Roll back FDA rules that are blocking production of face masks, fund prize money for a COVID-19 vaccine and other treatments, and more.

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The Senate absolutely should pass legislation to support hospitals financially. It should separately consider legislation to keep cash flowing through the financial system, saving both banks and regular Americans’ savings. And it should definitely remember the most vital group of all: A $367 billion package of loans and grants for small business. 

Instead, the Senate put many of those disparate elements and dozens more into a super-bill. The concern is that government loans and grants too often morph into bureaucrats telling private-sector companies who they can hire and fire, and when. Damage.

Fine. That’s the way politics works. We can neuter zealous central planners later. Let’s vote.

But, no — already the chief executive of New York is whining that his state isn’t getting enough. Gov. Andrew Cuomo (D) calls the Senate draft “terrible” because the money is going directly to people and hospitals and entrepreneurs, not indirectly via him. I suspect he is going to find that Midwestern residents have zero patience for political brinksmanship right now, and even less for beggar-thy-neighbor tactics.

Cuomo’s lament does remind us that the panic is self-imposed by governors, and that no amount of federal funds can repair the damage of suppressing free markets. Advocates of “stimulus” seem to think that the Panic of 2020 is a bigger version of their textbook recessions based on aggregate demand. Not this time. Giving distressed consumers more money will prove pointless if workers are not allowed to work. These funds will help pay rent and buy groceries, but jobs will not recover if employers are kept closed.

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Sen. Steve DainesSteven (Steve) David DainesHow much damage? The true cost of the Senate's coronavirus relief bill McConnell says T bill is 'emergency relief' and not a 'stimulus' The Hill's Campaign Report: Biden moves to unify party before general election MORE (R-Mont.) is right to call the bill a “rescue,” and even the rescue will be short-lived if the quarantine doesn’t ease up.

Indeed, my one wish is that the Senate bill had made state aid conditional on keeping businesses open in the state. With some foresight – a second wish – Congress should ban the implementation of price controls. Markets need prices to incentivize production now more than ever. Do you think the price of an oxygen tank or IV bag is egregious? Then don’t pay it; it’s none of your business if somebody else who needs it more wants to buy it at that price.

Of course, we cannot get all of our wishes, certainly not in one piece of legislation. So the Senate has compromised, done its duty to represent the voters and acted with impressive speed.

Two trillion dollars is a lot of money. Yet, strange as it may sound, $2 trillion is a relative drop in the bucket of a $20 trillion economy. We cannot afford permanently damaging our institutions, however.

Tim Kane is the J.P. Conte Fellow in Immigration Studies at the Hoover Institution at Stanford University. He is a veteran Air Force intelligence officer. His most recent book is "Total Volunteer Force: Lessons from the US Military on Leadership Culture and Talent Management” (2017).