Lessons for Congress from the 2008 crisis
Before lawmakers throw money at the current financial and healthcare emergency, they should heed what the Obama team learned about the importance of helping the most people and businesses.
When the Bureau of Labor Statistics reveals on April 3 what happened to jobs in March, we will likely discover that U.S. unemployment spiked faster than ever before. In four to six weeks, 10 million workers may lose their jobs, and that may only be the beginning.
But while in normal circumstances the unemployed can begin to look for new work, they are among the 100 million Americans being told to stay at home to slow the spread of the coronavirus — and that number could triple to include most people in the country.
No war changed both behavior and economic conditions in the United States so drastically and so quickly.
Although no two crises are exactly alike, I learned valuable lessons about the right way to respond to a crisis as a member of the incoming Obama administration’s economic transition team, which had to deal with the government response to the 2008-09 financial crisis.
The Senate is expected to announce a coronavirus stimulus package soon, but the House still has time to apply hard-won lessons from the previous crisis.
Before Congress throws a record amount of money at the current, and unprecedented, financial and healthcare emergency, it should slow down to take into account what the Obama team learned about the importance of helping the most people and businesses.
First, state in order of priority exactly what problems the federal government aims to solve. Focus before firing.
In 2008, the Obama team decided that the top priority was bailing out the Wall Street firms. This took precedence over addressing the huge downturn in the real economy, which ultimately cost 9 million people their jobs and 1 in 10 American families their homes.
Although the financial world needed public money to stabilize, in retrospect the right focus would have been to reduce the impact on all Americans of what came to be called “the Great Recession.” The failure to provide a rapid recovery for all cast a pall over the Obama administration’s eight years, increased economic and social division, and made it difficult for the country to come together even in the current crisis.
Job one today is the health crisis. Congress must fund a massive increase in healthcare hiring. Those who are risking their lives for the rest of us deserve reinforcements and bonuses. Next, Congress has to fund the manufacture and distribution of hundreds of millions of coronavirus test kits along with increased hospital bed capacity and lifesaving equipment, including ventilators. Telling governors they are on their own is not a strategy.
Job two is to help those who lose their jobs or cannot seek work because they have been ordered to stay home to slow the spread of COVID-19. Congress should provide hefty increases in the amount and duration of unemployment compensation. We simply do not know how long it will be before people will be able to leave homes to look for work.
In addition, instead of just cutting checks, Congress should enact measures aimed at helping people and small businesses cope with adversity.
In the 2009 stimulus, the Obama team relied purely on spending and tax cuts, rather than imposing requirements on business to help jump-start the recovery and protect employees from harm. This time, government should enact laws that provide employees and customers protection.
For at least the next three months, no one should be evicted because they didn’t pay rent or foreclosed on for missing a mortgage payment. No one should have to pay double-digit interest on a credit card debt. When the healthcare crisis has abated, normal business practices can return.
Congress should fund state and local government measures to get food to the needy and to provide appropriate safety equipment for beleaguered delivery workers who are making it possible for people to stay home to “flatten the curve.” This is not normally a federal function — forget that constraint.
Businesses such as travel, sitdown restaurants, entertainment and face-to-face retail simply are not going to have many, if any, customers. Those that need generous loans, to be repaid at zero interest in years to come, should get them. Instead of capping the total amount loaned, Congress should make a fixed amount available to any firm that promises, in return, not to fire employees for a period of time.
Third, to get back to full employment, Congress should fund the infrastructure projects the country has long needed.
In 2009, the Obama team discouraged spending on any infrastructure that was not “shovel ready.” As a consequence, it discouraged public-private investment in transportation, clean power, water and sewage. Since then, state and local spending on these categories has lagged for a decade.
This time, Congress should fund infrastructure in ample amounts — hundreds of billions of dollars is the right ballpark. Construction work is likely to be relatively safe, because much is done out of doors and protective equipment can be worn. The work needs doing no matter what. Money spent in these areas will create good new jobs and provide tangible positive success stories.
We can’t know what the full impact of this crisis will be in terms of health or the economy. But we can apply the lessons learned from the 2008-09 crisis to help mitigate it.