Global policymakers are turning to their fiscal arsenals to meet the coronavirus-induced economic challenges, a welcome development as central banks have pushed monetary policy to the edge of exhaustion.
In the U.S., the politics around a large spending bill undoubtedly have changed; as recently as two weeks ago, policymakers passed an $8 billion spending bill limited to the health response to COVID-19 endangering lives. Yet the rapidity of the coronavirus’ spread, the dramatic drawdown in the market, and economic weakness have made a bolder fiscal response an economic imperative – and a political one.
As of this writing, Congress has passed a nearly $100 billion package that offers a mix of policy responses to affected workers, such as 14 days’ paid leave, expansion of Supplemental Nutrition Assistance Program benefits, increases in unemployment insurance, and increased Medicaid funding.
Yet, as the market continues to wobble and the economy slows, an even bigger stimulus package, which could range from $600 billion to $1 trillion, looks to be just a matter of when, not if. However, to the potential disappointment of the market, passage of that legislation could be more incremental than comprehensive (i.e., Congress may be forced take several bites of the apple, with the stimulus spread over multiple smaller bills rather than one large bill), possibly taking weeks, not days, to pass. An added complicating dynamic is that members of Congress may not be allowed to return to Washington, D.C., for the next several weeks as the number of virus cases spreads on Capitol Hill and members are forced to help fashion legislation remotely – a challenge in its own right.
Another challenge particular to this downturn is that some of the traditional fiscal levers and tools may be less effective. For instance, it may be difficult to set up lending facilities that reach all of the small and midsized businesses that will be the most affected by disruptions. Meanwhile, sending checks directly to individuals may be welcome to meet basic needs, but it is unclear whether that could help to increase demand for services, particularly from those industries hardest hit. After all, if Americans are self-quarantining, few people will be shopping for leisure or traveling.