In its way, this pitched battle over economic stimuli seems like a refreshing return to normalcy. Both Republicans and Democrats recognize that the economic shocks of the coronavirus outbreak will require some buffering, but the debate over the means and approach to do so has fallen mainly into a comfortable and perhaps even comforting pattern. Donald Trump and his advisers will meet today with Senate Republicans to pitch a package of tax holidays and paid leave to goose consumption and quell panic in the markets:
President Donald Trump and top economic officials will pitch wary Senate Republicans on a payroll tax cut and other policy proposals meant to ease the economic fallout of coronavirus during a closed-door lunch on Tuesday, two people briefed on the matter told CNN.
White House economic officials plan to lay out additional measures to try and arrest the economic pain stemming from the spread of the virus, including proposals to implement paid sick leave, deferral on tax collection on specific industries including airlines, cruise lines and hotels, and specific proposals to make small business loans more available and with flexible repayment options, according to the two people. …
There remain disagreements inside the White House over specific proposals — most notably the scope and scale of the payroll tax proposal, the people said.
But while Trump has made the payroll tax cut a focal point of the White House economic response, the administration’s top economic policy officials have started to focus more on the small and medium business loan elements of any proposal, as they have become keenly aware of the lack of demand that could lead to a credit crunch in the days and weeks ahead, one of the people said.
Normally, Democrats prefer the payroll-tax cut or holiday approach. This time, the Washington Post reports, they’re balking. Instead of tax cuts, they want paid leave and indemnification for insurers and health care providers:
“I don’t think we think that the payroll tax cut is what we need right now,” Hoyer said. “What the economy needs right now is some stability and confidence that we are addressing the issue that is undermining the economy. And I mean, the president’s answer for almost everything is a tax cut. We think we need to make sure that people in health facilities and insurance companies and others have confidence that they’re not going to be bankrupted by this and they’ll have some support of the government.”
Later in the day, House Speaker Nancy Pelosi (D-Calif.) and Senate Minority Leader Charles E. Schumer (D-N.Y.) went into more detail about the Democrats’ planned proposal. They said they would pursue legislation that provided free coronavirus testing for all Americans, paid leave for those affected by the epidemic, expanded food subsidies and an expansion of the federal unemployment insurance program.
Still, other senior Democrats said it was inevitable that Washington will have to step in with measures to stimulate the economy. “We’re going to reach that point,” said Sen. Richard J. Durbin (D-Ill.). “If we’re serious about this, we have to put all the cards on the table.”
There did appear to be growing common ground between the White House and Democrats over paid leave for workers. Vice President Pence, who is leading the administration’s coronavirus task force, said the administration would work with Congress to make sure people who contract the coronavirus do not lose paychecks as a result, although details of such a plan were unclear.
I’m not the only one finding some comfort in partisan normalcy, by the way:
JUST IN: Dow jumps more than 800 points after President Trump said he will take "major" steps to ease concerns about the economy in light of the coronavirus outbreak. https://t.co/ra3502Qcka
— NBC News (@NBCNews) March 10, 2020
As an emergency measure, paid leave makes sense — but only as an emergency measure. The trick for stopping the spread of an epidemic like COVID-19 (or any other respiratory disease) is “social distancing,” or the encouragement of self-isolation. In the US especially, it’s tough to do as we are a mobile and gregarious people used to free association and social engagements.
We are especially addicted to working through colds and other ailments, however, mindful of the penalties for missing too much work. Businesses run on small margins can’t afford to be much more generous with paid time off than they already are, which incentivizes employees to come to work with their coughs and fevers. In an epidemiological emergency, it would make sense for the US government to intervene to fund some social isolation directly, or to offer it as a tax incentive and make it less direct. That could slow the transmission of the disease and allow people to lessen their personal risks, which could have a salutary effect on market psychology as well.
If that’s what they want to do, though, they’d better do it fast. If it takes a month to fund and roll out such a program, it will probably be too late for it to do much good. By that time, the disease will have progressed through to the point where transmissions flatten out on their own, and when warm weather will likely slow the transmission even further. The money for paid leave would arrive at about the time when it’s no longer an emergency to supply it.
The payroll tax cut might make for a nice temporary boost for consumption, and it might even be necessary if retailers continue to see a big drop in demand. For the most part, though, that kind of policy is simply a way to shift demand up rather than actually create an economic boost. It just gooses the economy rather than build in long-lasting support for expansion. It also limits the flexibility for later interventions by complicating matters unduly.
Treasury Secretary Steve Mnuchin pointed out that these kinds of complications could end up making things worse in the long run, especially in an economy that was otherwise operating on all cylinders before the WuFlu:
“This is not like the financial crisis where we don’t know the end in sight. This is about providing proper tools and liquidity to get through the next few months,” Mnuchin said. “The economy will be in very good shape a year from now.”
The paid-leave incentives should be kept in mind for the next crisis, even if it doesn’t get done in time for this one. There will be another epidemic, and having that tool in the box for emergencies might make a lot of sense. If we’d had it deployed a couple of weeks ago, the markets might not be as panicked as they are this week.