Image: Al Drago/ The New York Times
Dear Mr. President:
The American people face enormous challenges.
Your immediate task is obvious: The economy is in a deep hole, and will need immediate help.
In the short run, beat the virus to boost the economy.
This downturn is different from past recessions because the current economic crisis was caused by a public health crisis. The pandemic has made it more dangerous for people to go about their economic lives. It’s as if every service-sector transaction came with an added tax, paid in increased health risk rather than dollars. The key to the recovery will be to remove this tax.
This suggests that your most potent economic tools will be public health measures. Some of the measures your public health team will suggest — like widespread testing, a more robust contact tracing infrastructure or bigger investments in vaccine distribution — will come with a hefty price tag. Before you blink, consult your economists, because a raft of careful research has shown that the benefits of beating the bug exceed the costs.
The logic is simple: The U.S. economy is large, and the coronavirus is very disruptive.
Indeed, the Harvard economists David Cutler and Larry Summers have estimated that once you account for deaths and damage to physical and mental health in addition to the direct loss of income, on average a family of four will have endured total pandemic losses valued at nearly $200,000. That study was published in October, and the pain has continued to mount since then.
Unless you take powerful measures, the damage could be much larger. So far, the country’s economic weakness reflects the reasonable precautions that people are taking against the pandemic. But isolation exhaustion might set in, and if people resume their economic lives without concern for others, the virus is likely to rip through the population. I fear that the current recession is mild compared with the devastation an uncontrolled pandemic might wreak.
Beyond public health measures, you must make fiscal stimulus a priority. Before the election, the Democratic-controlled House of Representatives passed roughly $3 trillion in new stimulus, while the White House countered with $1.8 trillion and Senate Republicans offered only $500 billion. Ultimately, the negotiators came up with nothing, though the economy is still in a hole that’s roughly as deep as the darkest days of the last recession.
As you devise a new fiscal package, remember that the twin health and economic crises have had very uneven effects, so targeted help can both stimulate the economy and strengthen the safety net for those who have been hit hardest.
In the medium run, inoculate the economy against future shocks.
Think of this initial fiscal stimulus as a down payment on your most important medium-term macroeconomic goal, which must be to fortify the economy against future shocks. Another downturn could be catastrophic for many households and businesses that are teetering now. Your policy options will be severely limited if Congress is deadlocked, and the Federal Reserve has already pushed interest rates as low as they can go.
The only reliable rule of recessions is that they’re caused by a shock you don’t see coming — whether it’s a natural disaster, financial disruption, a global slowdown or a surging virus — and you must make sure that you’ve built the financial infrastructure you’ll need to respond with force.
The last few months have shown how much remedial work needs to be done.
It’s striking that an outfit like Amazon can deliver thousands of products to American doors in only two days, yet in March and April it took the federal government weeks to deliver $1,200 checks to taxpayers.
And when the government tried to tweak unemployment benefits, state agencies pointed out that sensible choices — like raising benefits by a fixed percentage — were infeasible because it would take months to reprogram their archaic computer systems. Your government should pay for states to modernize their systems so recipients no longer need to send faxes, websites can deal with the crush of new applicants that recessions bring and you will have the flexibility to make changes if the economy craters.
The problems aren’t just bureaucratic; they’re also political. Emergency fiscal measures got tangled in reelection politics, and measures that one side might normally favor were rejected lest they help political rivals.
The fading sense of urgency over recent months suggests that stimulus fatigue is real, and it’s unhelpful. When enhanced unemployment benefits expired in July, both your party and its opponents argued that jobless workers needed further help. But Congress dithered. In the end, the program was never renewed, after a paralyzing period of uncertainty for the unemployed that ultimately turned into disappointment.
The solution is to introduce a form of fiscal autopilot designed to counter economic turbulence even in the absence of congressional action. In econ-speak, we call this an “automatic stabilizer.” Current examples include safety net programs, like unemployment insurance, that automatically put money in people’s hands when the economy falters, and progressive income taxes that are structured to reduce tax rates and revenues when incomes fall.
Automatic stabilizers should be built into just about everything the government does. This means that all programs should be guided by funding formulas that ensure spending will rise — and taxes fall — whenever the economy tanks. Devise those rules now, before it becomes clear whether they’ll ultimately help a Democratic or a Republican incumbent. And do it while the recession has created an appetite for reform.
Solving long-run problems starts today.
And finally, Mr. President, don’t lose sight of your longer-run goals. The environment is under threat. Inequality is rising. Health care remains inefficient. The safety net is frayed. Many of America’s most important institutions need renewal. And the pathway to a post-pandemic economy will involve wrenching structural change.
If you put these issues off until the next crisis, and then wait for another election cycle, and then your successor does the same, and then … well, you can see how these problems fester.
As daunting as these issues might seem, remember that economists have spent decades exploring many of them. Our textbooks are full of potential fixes.
While the politics are tricky, often the economics is not. As a believer in specialization, I’m going to leave you to navigate the politics, but as you do so, remember that the economics profession stands ready to offer you the technical advice you need to design better policy responses.
©2019 New York Times News Service
