And, the mother of all bailouts amid Covid-19

It can be said without fear of contradiction that the government’s strategy for dealing with the economy’s pandemic collapse is utterly simple: Throw money at the problem. Lots of money. That’s the chief legacy of the Coronavirus Aid, Relief and Economic Security Act, or CARES Act.
Remember, it and other related measures will cost $2.4 trillion over a decade, with more than 90% being spent in 2020 and 2021. There were those $1,200 checks for most households (for couples, the phase-out began at income of $150,000). Unemployment insurance was sweetened by adding $600 to weekly payments. The Paycheck Protection Program lent up to $10 million to firms with fewer than 500 employees — loans that were converted into grants if the businesses used the funds to maintain workers’ salaries. State and local governments got $150 billion. Airlines got $46 billion.
This was the mother of all bailouts — and it’s not finished yet. The amounts above must be increased by roughly $3 trillion, representing what the Federal Reserve has lent to keep credit flowing, prevent financial panic and stimulate a recovery. Is this the end of it? Nope. What comes next? You guessed it. More bailouts. Conceivably, the next stimulus could be even larger than the last.
The theory is that if the first stimulus lapses, the economy’s recovery will falter. House Democrats have already passed legislation whose price tag is estimated at $3.4 trillion. (The bill is called the HEROES Act, short for the Health and Economic Recovery Omnibus Emergency Solutions Act.) The proposal has two purposes: First, to prevent an economic free-fall by making up the income lost to unemployment or “sheltering in place”; and second, to stop the virus from multiplying. Economist Mark Zandi of Moody’s Analytics summarizes the outlook this way:
“A downturn is more than likely without additional fiscal support [more spending, tax cuts and deficits]. With the HEROES Act, the economy is expected to recover all of the jobs it lost this spring and by summer 2023. Without any additional fiscal support, that job recovery would take until the end of 2024.”
About one third of the HEROES act spending would go to state and local governments (the $150 billion in the CARES act reimburses states and localities for expenses caused by the virus), the remainder would support unemployment insurance and other “safety net” programs, according to Zandi.
As yet, there is no consensus on the size or contents of another package. According to press reports, President Trump favors cuts in payroll taxes and in capital gains taxes (profits on stocks, bonds and other financial assets). Some Republicans reportedly worry about the lax use of deficits; they suspect that the economy may be recovering faster than expected. In May, retail sales rose 17.7%.
Oh, did we mention there’s an election this year? We are addicted to deficit spending. At present, that’s OK. When the country faces a calamity — war, natural disaster or a national emergency — large deficits are often necessary and desirable. We need the ability to bail ourselves out of hard times. But normally, we should be running balanced budgets, small surpluses or (at worst) small deficits. Government worth having should be worth paying for through taxes.
The trouble is that we’ve violated this sensible principle repeatedly. Except for five years (1969 and 1998-2001), we’ve consistently run deficits. The discovery by politicians and economists that we could run deficits without incurring any immediate adverse consequences led — predictably — to more deficits. The operative theory was “all gain, no pain.”
The ease of running deficits inspired more deficits. That’s well-known. What’s less well-known and, frankly, more speculative is the effect on businesses.
Corporate executives and the owners of small businesses have been quietly conditioned to follow the government’s lead in setting their own policies. They’ve become more risk-averse. It’s safer to wait and watch what government does before doing anything yourself. The result is that our business system is less spontaneous and, in dire circumstances, more dependent on government.
That is one sobering lesson from today’s turmoil. It’s easy to deplore all the bailouts, but — on the spur of the moment — it’s also hard to think of something better, especially when the consequences of being wrong are so
momentous.

—The Washington Post

Robert J Samuelson writes a twice-weekly economics column.
Both appear online, and one runs in The Washington Post in print on Mondays. He was a columnist for Newsweek magazine from 1984 to 2011