President Donald Trump pushes a stimulus package, which includes a moratorium on Social Security and Medicare payroll taxes as well as rebate checks of between $600 and $1,200 sent to Americans, exceeding $1 trillion. This comes atop the Families First Coronavirus Response Act, signed into law on Wednesday.
“This is not like a normal economic situation,” Treasury Secretary Steve Mnuchin redundantly explains. “The government has requested that parts of this economy shut down.”
Indeed, but if everyone admits the uniqueness of the problem, why do all offer the rote solution? Tax cuts, spending, quantitative easing, rinse, repeat.
Beyond the abnormality acknowledged by Mnuchin lies the problem nobody in politics speaks of: the deficit. Slated to exceed $1 trillion for the current fiscal year prior to the coronavirus calamity, it now likely exceeds $2 trillion and possibly exceeds $3 trillion. Like people with underlying conditions, economies suffering from underlying conditions suffer most from coronavirus.
“Moody’s Analytics estimates the budget gap will hit $2.1 trillion this year and $1.8 trillion the next,” the Wall Street Journal reports. “J.P. Morgan economists project deficits of $1.7 trillion this year and $1.5 trillion next. Decision Economics Inc. projects $1.9 trillion this year and $2.5 trillion next.”
But adding $1.2 trillion or more in stimulus — Larry Kudlow speculates that it exceeds $2 trillion, and Sen. Lindsey Graham sees the problem requiring greater amounts than the numbers currently floated — atop an existing $1 trillion deficit, and subtracting such an enormous portion of revenues given the global depression, likely makes for unprecedented deficits for many years to come. (This is particularly true when one considers the inevitable rise in the interest due on the debt and the delay in the collection of income taxes.)
The stimulus on the monetary side already started. The Federal Reserve offered $1.5 trillion to the repo market last week to add liquidity. But this did little to calm markets. The Dow, Nasdaq, and S&P 500 all endured their worst week of losses since 2008. The Dow, peaking at 29,551 last month, closed lower on Friday than it did on the first day of the Trump presidency. Investors do not feel as though they know bottom yet.
Actions by the Fed and the Congress may help many people suffering from a lack of employment. But it does very little to address what ails the economy — the same disease that ails more than 25,000 Americans. Coronavirus stopped our economy. The governments of California, New York, and Illinois ordered their populations, 73 million people, to stay home from work. Elsewhere, many do not need a state order to stay home.
What does money in your wallet mean from stimulus when stores remain closed and work is hard to come by? It means, save for the bare necessities, it stays in your wallet. The economy remains mired in a recession, or worse, until the day people feel safe to shop and work and go to bars and restaurants and games and shows.
Productivity, or lack thereof, fuels this recession. Consumption, or lack thereof, fuels this recession. When you’re not producing or buying anything, your economy shrivels. Creating enormous amounts of money out of thin air, and taking trillions from us to give to us, does not address the fundamental problem: receding productivity and hampered consumption. If it did, then the don’t-just-stand-there-do-something approach of officials, elected and unelected, would earn everybody’s support. As it stands, the stimulus packages, fiscal and monetary, appear as non sequiturs that address the problems underlying some other downturn, but not this one.
Miss Havisham shelters in place. Normal people like to go all over the place. That resuming, and not quantitative easing or a stimulus package eclipsing the entire size of the U.S. government 20 years ago, rescues the economy from the abyss. So long as so many can neither work nor consume in any normal fashion, this stimulus merely throws money into an abyss without a bottom.
One imagines that the same people Americans rely on to save them from this sickness ultimately rescue our economy from the related sickness. When Anthony Fauci, Deborah Birx, and the other doctors at the forefront of the coronavirus fight say, loudly and confidently, that it’s safe to come out of our hiding places, one imagines the American economy rushes out of its hiding place with the rest of us, too.