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The coronavirus is spreading across our economy every bit as much as it is spreading across our communities. As businesses shutter and travel bans go into effect, a recession is almost certain. To lessen the crash and its very real human impact, Democrats in Congress must take immediate action. There are three essential aspects to the stimulus plan we urgently need right now: It should be bold and equitable, it should automatically renew, and its temporary programs should be able to evolve into more permanent ones.
Each of these would help address the threat that hangs over the economy: that we will repeat the mistakes of the Great Recession. That recession started in December 2007 and technically ended after two years—but 13 years later, we still aren’t sure if unemployment is as low as it would have been had we taken stronger action. We failed in our response then, and in our era of continued low interest rates and weak corporate investment, we could be setting ourselves up to fail in exactly the same way again.
The first way to avoid past errors is to make sure any spending package is big enough to address the scale of the coming downturn. Issuing $2,000 checks to every American would cost upwards of 3 percent of GDP and would be enough to start pushing back a recession. It would also be equitable, reaching all people, unlike a payroll tax cut, which would disproportionately benefit those at the top of the income distribution. The Federal Reserve has acted more quickly this time, lowering interest rates and beginning a purchasing program. To take advantage of these low rates and boost the economy, we also need a major spending package—for example, an infrastructure project designed to mitigate carbon emissions and fossil fuel use—on the order of an additional 4 percent of GDP. Interest rates are projected to be low for many years, and the economic boost from this investment will be necessary to invigorate what is certain to be a slow recovery.
The second way to avoid our previous blunders is to make sure the spending automatically renews itself if the recession continues. Economists like Claudia Sahm of the Washington Center for Equitable Growth have proposed ways to automatically send money to people once certain thresholds that predict recessions have been met and to continue those payments until the recession is over. This would help solve the problem of doing too little.
But there’s also a political dimension: Democrats in 2009 designed their response assuming that they could go back and do more later. In the end, this option wasn’t available, even as it became clear that the recession was far worse and more prolonged than originally understood. There’s a reasonable chance that a Democrat will take the White House next year with Republicans still in control of the Senate—and if a recession is ongoing, it’s important that any fiscal stimulus won’t be held hostage by them, as was the case in 2011, when unemployment was over 9 percent. And even if Democrats control both houses of Congress, they won’t want to squander months simply reenacting the measures they agreed to the year before.
Third, the stimulus package should ensure that temporary programs are executed in a way that lets them easily become permanent. Much of the response to the Great Recession was designed to be hidden from everyday people, but even more than last time, we can’t just enact a fiscal spending package. The coronavirus crisis has exposed how little security we provide to workers. The fissuring of the workplace, where many full-time employees have been replaced by independent contractors, has shifted risk to individuals instead of being managed through social insurance. Democrats should demand permanent paid sick leave and a broader set of protections for all workers. But these should be structured so the programs can endure after the recession is over. This is a real trade-off, as the pressure will be to do something quick and easy rather than something better and more permanent.
Many mistakes will be made in the months ahead. But the greatest one would be to repeat our errors, hoping something will be different this time. The most important lesson from the Great Recession is that the serious risk is in doing too little, not in doing too much. To meet the challenges of protecting ourselves and our economy from the coronavirus, we must expand social insurance and full employment investment policies—the proven remedies for economic ills in times like these.