Keep Your Eye on the Ball, Republicans
(Bloomberg Opinion) -- Senate Republicans are in conspicuous disarray following last week’s failed effort to unify behind a package of economic recovery measures.
In part, that’s because Republican senators are too deferential to a chaotic White House. Many GOP lawmakers also question whether the economy needs a fourth round of relief legislation to address the economic collapse caused by the coronavirus pandemic, and whether additional spending would be effective.
Senate Majority Leader Mitch McConnell understands that additional legislation is needed, and made plans to release bills Monday that he hopes will form the basis of a Republican consensus. The key word is consensus. McConnell should be satisfied with enough GOP votes to pass a relief bill based on goals shared by senators in both parties.
GOP unanimity is neither possible nor necessary. Some Republican senators, like Ron Johnson of Wisconsin and Rand Paul of Kentucky, are likely to oppose any bill that does enough to help because they are too concerned about keeping a lid on spending. Others think that no amount of fiscal support can help the economy until there is a vaccine for Covid-19. While it’s true that the economy won’t be fully healed until a vaccine has been widely distributed, that is not an argument against the efficacy of fiscal policy in the absence of one. There’s a lot of distance between “fully healed” and the disastrous state the U.S. economy is in today.
Even without a vaccine, the point of another round of spending should be clear: Alleviate human misery by strengthening the safety net for low-income and vulnerable households, and preserve the productive capacity of the economy so that the U.S. is situated to get back to normal as fast as possible once a vaccine arrives.
Congress can help prevent temporary problems from inflicting longer-term damage. For example, additional support for small businesses won’t completely prevent bankruptcies, but it will reduce their number. This would avoid wasteful liquidations, in which valuable relationships, networks and knowledge of local conditions and preferences would be lost. It would help the economy bounce back faster once a vaccine is distributed.
And by offering grants to states and localities, Congress can keep the unemployment rate lower than it otherwise would be, helping the economy and workers avoid the problems that come from lengthy spells of unemployment.
The alternative to additional recovery measures isn’t just less federal spending. It is also greater and deeper damage to workers, households and the economy overall.
There’s plenty of evidence that economic recovery has stalled, and may have taken a step backward. A weekly Census Bureau survey shows that household employment is falling. According to the survey, the economy lost 6.7 million jobs from mid-June to mid-July. The pace of job losses accelerated. Around 103,000 jobs were lost in the week ending June 23, while the week ending July 14 (the last week data are available) saw 4.1 million losses.
When the official jobs report for July is released early next month, it could show net monthly payroll employment losses for the first time since April.
The closely followed weekly unemployment insurance statistics tell a similar story, ticking up the week ending July 18 for the first time since March. High-frequency consumer spending data also suggest the recovery is treading water. Investors are seeing this. The Nasdaq, S&P 500 and Dow Jones Industrial Average all fell last week, in part on fears that the economy has stalled.
How long should the next round of recovery legislation be expected to support the economy? Politically, it’s hard to imagine another major bill passing this fall, with the 2020 elections in November. So Congress should be aiming to support small businesses, low-income households and states and localities over the period between now and late January, when the next presidential term begins.
My back-of-the-envelope calculation suggests that the virus will shave about $740 billion from U.S. gross domestic product over that period. So Senate Republicans are starting in the right ballpark by targeting a $1 trillion price tag.
But they shouldn’t allow a top-line number to constrain the design of needed programs. These should be designed as well as possible, maximizing the good they can do instead of minimizing costs. It’s better to have a well-designed program for small businesses that’s expensive than one that is cheaper and less effective.
Republican leaders need to remember that Congress is a coequal branch of government. The Senate shouldn’t worry much about what the White House wants. It was a mistake to burn time last week on issues that don’t have support in Congress, like the payroll-tax cut President Donald Trump favors.
A bipartisan bill is politically necessary and will lead to better policy. Senate Republicans should trade their priorities, like offering businesses protection against frivolous lawsuits related to Covid-19, for Democratic priorities like the federal aid to states and localities and more generous food stamps included in a $3 trillion House bill passed in May.
After last week’s debacle, some Republicans may want to retreat to a scrawny relief package — what they’re calling a “skinny bill” — before the Senate’s August recess, one that would only address the generosity of unemployment benefits, funding to help schools reopen in the fall and liability protection. This would be a mistake, putting the support the economy needs in political jeopardy by extending negotiations into the fall.
Congress gets high marks so far for its response to the Pandemic Recession. But the pandemic isn’t over, and the devastation it has unleashed on the economy hasn’t stopped. Congress shouldn’t stop, either.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Michael R. Strain is a Bloomberg Opinion columnist. He is director of economic policy studies and Arthur F. Burns Scholar in Political Economy at the American Enterprise Institute. He is the author of “The American Dream Is Not Dead: (But Populism Could Kill It).”
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