Step aside for Fed chairman, Pelosi to save the economy
America’s catastrophically inadequate response to the coronavirus can be attributed largely to bad short-term decisions by one man. At every stage, Donald Trump minimized the threat and blocked helpful action because he wanted to look good for the next news cycle or two, ignoring and intimidating anyone who tried to give him good advice.
But here’s the thing: Even if he weren’t so irresponsibly self-centered, he’s denuded the government of people who could be giving good advice in the first place.
Trump disbanded the National Security Council’s pandemic response team in 2018, although he now, with his characteristic refusal to accept responsibility for anything, says he knew nothing about it. And he’s in general staffed his administration with obsequious toadies who never tell him anything he doesn’t want to hear.
What’s now becoming clear is that when it comes to dealing with the economic fallout from COVID-19, the situation may be even worse. Some competent professionals still hold senior positions at federal health agencies; they could give Trump good advice if he’d listen. But serious economic thinking has effectively been banned from this administration, if not the whole Republican Party. It seems the Trump team is utterly incapable of formulating a coherent response to the gathering economic crisis.
Only two potential loci of intelligent economic policymaking are left in Washington: the Federal Reserve and the congressional Democratic leadership. In other words, it’s up to Jay Powell, the Fed chairman, and House Speaker Nancy Pelosi. But will Trump and Senate Republicans let them save the economy?
Powell correctly slashed interest rates and announced a large asset-buying program on Sunday. But that won’t be sufficient, indeed will probably do little to stop the economy’s tailspin. In 2007-8 the Fed cut rates five times as much and still didn’t prevent the worst slump since the Great Depression.
Powell basically acknowledged as much, declaring that he and his colleagues “don’t have the tools” to reach those most in need of help, and that “fiscal responses are critical.”
Fiscal responses, of course, have to come from Congress. True, under another president, the White House would play a crucial role in shaping crisis legislation. But last week, as the House drafted and then passed an economic relief bill — one that was helpful, if still inadequate — it was almost entirely a Democratic effort. Democratic staff members put together the key elements of the bill — paid sick leave for many (though not enough) workers, enhanced unemployment benefits, increased federal contributions for Medicaid and more.
True, Steve Mnuchin, the Treasury secretary, negotiated with Pelosi, basically to make the bill a bit worse. But Democrats set the shape of the bill, even as Trump was proposing a payroll tax holiday, which has been panned even by conservative economists.
As Greg Mankiw, chairman of the Council of Economic Advisers under George W. Bush, wrote, “a payroll tax cut makes little sense in this circumstance, because it does nothing for those who can’t work. … President Trump should shut-the-hell-up.”
Meanwhile, Republican senators have been actively obstructionist, offering no serious proposals but holding up a vote on the House bill, despite it passing with overwhelming bipartisan support.
Why are Republicans useless in the face of an economic crisis? There are many competent center-right economists, but the GOP — not just Trump — ignores their advice. It prefers hacks and propagandists whose only idea is tax cuts. The party has nobody left who can assemble a plausible economic rescue package.
The Senate will likely pass Pelosi’s bill. But with all signs pointing to a steep economic dive, we need a much bigger stimulus package — perhaps along the lines of what’s being developed by Senate Minority Leader Chuck Schumer — and fast. It shouldn’t include tax cuts; it should focus overwhelmingly on cash grants, perhaps a basic grant for legal residents plus additional grants to those in special need.
Since there’s nobody left in the GOP who can assemble a coherent stimulus plan, Democrats need to do it, perhaps with help from Federal Reserve intervention to stabilize highly stressed financial markets.
I’m somewhat worried that Democrats won’t go big enough. But I’m more worried that Republicans will undermine their efforts. It’s now up to Powell and Pelosi to rescue the economy, and Trump and company need to get out of their way.