A More Equitable Shutdown

With infections increasing across the country, there really is no longer any doubt: our attempts to reopen the country safely have failed. This is not a surprise. As states started reopening in early May, experts were expressing concern. Their warnings were duly reported and largely ignored. Our patchwork of testing and tracing is simply inadequate to control the spread of the coronavirus. We will need more shutdowns. But for the next round of shutdowns to be effective, they need to be more equitable than the first ones were.

The initial shutdowns were a hardship for all Americans but of course the pain was not equally shared. The millions who lost their jobs suffered much more than the rest of us. We all suffered psychologically but many of the unemployed ended up in lines at food banks and in fear of eviction. There's not much we can do about the personal anguish, but the economic suffering can be reduced. If we are going to prevent tens of thousands of more deaths, we need to ensure that all Americans can afford to stay home.

This is a moral imperative but also a practical one. The worst hit states were able to lower infection and death rates because most people complied with shutdown rules. It will be harder to get compliance with the next round of shutdowns if people aren't confident that they can economically survive them.

The first round of relief measures relied heavily on existing government programs. This was a sensible way to get aid out quickly and these measures certainly helped millions of people. But they were also a source of enormous frustration and anxiety. Getting unemployment benefits was a protracted bureaucratic nightmare for many Americans. Some people waited months to get benefits - not a small matter if you've been living paycheck to paycheck. Like our coronavirus testing 'system', the mechanism for approving unemployment benefits is an underfunded patchwork. A system of direct payments to citizens would probably work better and instill more confidence.

Whatever form relief measures take, we will have to spend a lot of money and it will have to be debt financed. Fortunately, we can afford it.

Contrary to conservative harping about 'big government', federal spending (as a share of GDP) is roughly the same as it was in 1980. Excluding transfer payments, federal spending has been declining for over half a century.

To see what really large government spending looks like, we need to look back to the 1940s. Federal spending and borrowing reached their peaks during World War II. At the height of the war, the federal budget was nearly a third of GDP and the deficit was 27%. By comparison, in 2019 the deficit was 4.6% of GDP. What did the World War II debt do to the postwar economy? Did it economically cripple future generations? Exactly the opposite. During the two decades after World War II, the U.S. economy had very strong economic growth, possibly the strongest in our history. Perhaps the World War II level of deficits could not have been maintained indefinitely. But four years of large scale borrowing had no negative effects. So the World War II deficits are a good indicator of what's fiscally feasible.

The Congressional Budget Office currently estimates the 2020 deficit at 4% of GDP. To get the deficit to World War II levels, we'd need to spend another 4.9 trillion dollars, almost 2 trillion more that the relief package recently passed by the House of Representatives.

In other words, a large relief package is imminently feasible and should have no negative effect on the economy, now or in the future. There is no non-ideological reason not to implement one. With sufficient spending, we can make the next round of shutdowns economically tolerable for all Americans. It's the right thing to do and it's necessary if we want to limit sickness and deaths from covid-19.