Fatigue Is Here, but the Economic Fight Is Just Beginning
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.
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.
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.
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