Rough days ahead in virus fallout

Bailout talk is a start, but experts say impact could last years after crisis abates

WASHINGTON — Federal officials are moving quickly to enact massive spending packages to replace the lost revenues and wages of workers and businesses as halfempty planes leave airports, restaurants and bars close across major cities and social distancing measures keep people at home, bringing the consumer-driven U.S. economy to a crawl.

President Donald Trump on Tuesday proposed a stimulus plan that could exceed $1 trillion as the administration seeks to contain the rapidly spreading economic damage caused by the coronavirus pandemic. The proposal followed legislation filed by Senate Minority Leader Chuck Schumer, D-N.Y. that would inject $750 billion into the U.S. economy and an earlier plan by Sen. Mitt Romney, R-Utah, is to give a $1,000 stipend to every adult American to help ease them through the coming economic downturn — a play on former Democratic candidate Andrew Yang’s basic income proposal.

The stimulus proposals open another front in the efforts to fight the coronavirus, efforts that so far have focused almost exclusively on public health. Economists are increasingly worried that sudden collapse of demand will force mass layoffs and smaller businesses to shutter all together, sending the economy into a yearslong recession from which it would be difficult to recover.

“It is honestly hard for anyone to have a clear picture of exactly how big the impact will be, but we know it’s going to be large,” said Jay Shambaugh, a senior fellow at the Brookings Institute who served as the chief economist of

the White House Council of Economic Advisers under President Obama. “If it’s two weeks it will be a lot of pain for some businesses, but with the appropriate response they can get out of it. But two months is a very different story, with a much wider impact.”

Checks to workers

The Democrat-controlled House took the first steps toward addressing economic impact of the pandemic on Saturday when it approved a relief package Saturday to provide paid sick leave for infected workers and funding for state unemployment benefits. The Republican-controlled Senate has yet to take up the bill, but both parties are discussing far-more ambitious approaches that would exceed the stimulus enacted during the worst of the Great Recession in 2009.

At a press conference in the White House, Treasury Secretary Steve Mnuchin said the administration’s plan would send checks of a still undetermined amount to American workers within two weeks. Mnuchin added that individuals and companies owing income tax for 2019 will get an extra 90 days to pay, without interest or penalty — a delay that would inject $300 billion into the economy.

“It’s going to be big, and it’s going to be bold,” Trump said of the stimulus proposal. “The level of enthusiasm to get something done, I don’t think I’ve ever seen anything quite like it.”

The scenarios facing U.S. leaders are daunting. In 2006,the Congressional Budget Office estimated that a repeat of the 1918 Spanish Flu epidemic, which killed between 17 and 50 million people worldwide, would cause a 4 percent decline in U.S. economic activity — on par with the recession of 2007 to 2009, which was the worst in 70 years.

In Houston, such a scenario would likely cause the loss of up to 50,000 jobs and 1.5 percent decline in economic activity, as the city, because of its fast growth in recent years, doesn’t experience as deep recessions as the rest of the country, said Bill Gilmer, director of the Institute for Regional Forecasting at the University of Houston.

“This is what government is for,” said Rep. Al Green, D-Houston. “If we fail to step up for our country now, history will not be kind to us.”

Better to overreact

For now, the message in Washington is better to overreact than underreact. Following the 2008 financial crisis, the Obama administration was credited by economists with avoiding a repeat of the 1930s Great Depression by pumping more than $800 billion in stimulus funding into the U.S. economy.

The Federal Reserve has moved swiftly as financial markets have plunged — the Dow Jones industrial average has fallen 30 percent over the past month — enacting two emergency rate cuts. On Sunday, the central bank said it would slash its benchmark interest rate to near zero and launch a $700 billion bond-buying program to lower long-term rates, such as mortgages, and pump more money into the financial system.

“They have learned lessons from [2008], which is why you’ve seen these measures to assure

markets liquidity would be available,” said Stephanie Segal, a former economist at the International Monetary Fund, now a fellow at the Center for Strategic and International Studies. “Markets opened lower and some people have interpreted that as rate cuts are not the answer. But it could have been a lot worse.”

The threat of a long lasting U.S. recession has already brought together Republicans and Democrats on Capitol Hill in ways not seen in years. In a speech on the Senate floor Tuesday Senate Majority Leader Mitch McConnell called for “bold and bipartisan action” and said, “I know senators on both sides are eager to assist workers, families, and small businesses with the financial fallout of this extraordinary period.”

‘It will get worse’

Rep. Sylvia Garcia, D-Houston, said any debate about the need for action was over now, with leadership from both sides rushing to get legislation together as quickly as possible.

“There’s no need for convincing this an emergency,” she said. “The challenge is how it’s structured and who gets the money and in what form.”

Methods to get cash into Americans hands run the gamut, from a payroll tax cut that would benefit employers, potentially allowing them to avoid layoffs, to government checks or income tax breaks. Congress also is discussing bailouts for those harder hit industries, such as airlines, cruise lines and oil and gas.

Some energy companies, including major Houston employers such as Occidental Petroleum and Halliburton, have seen their stock price decline more than 70 percent over the last month.

But there is no clear end in sight to the economic disruption, as government officials seek to slow the infection rate by closing schools and offices, hoping to avoid overwhelming American hospitals, as has been seen in other countries.

“We don’t want to go down the path of Italy and shut down all together,” said Rep. Michael McCaul, R-Austin. “It will get worse before it gets better, but it will get better.”