In October, the White House proposed a $1.8 trillion economic-relief bill that included small-business assistance, enhanced unemployment insurance, and checks to households. At the time, House speaker Nancy Pelosi called it “insufficient.”
Now, congressional Democrats have agreed to a bill half the size. What changed? “We have a new president — a president who recognizes that we need to depend on science to stop the virus,” explained Pelosi earlier this month.
We applaud the speaker’s newfound bipartisanship: The $900 billion package contains necessary relief at a time of continued uncertainty. It includes $330 billion in additional funding for the Paycheck Protection Program that will support the estimated 18.6 million workers who remained employed thanks to the first phase of the program. Even with a vaccine in the offing, widespread business closures and layoffs represent the largest ongoing economic risk of COVID-19 — there is no way for the costs in human and physical capital to be recouped after the pandemic.
Where loans do not suffice to keep workers on payroll, enhanced unemployment insurance will provide temporary relief. The $300 top-up in this bill, more modest than the $600 in the CARES Act, is an appropriate adjustment to create an incentive for the unemployed to return to work as vaccines are administered.
In contrast, the $600 stimulus checks included in the bill do little to target the economy’s pain points. With PPP and unemployment enhancements covering those who need assistance, direct checks mostly supplement incomes: The lion’s share will go towards savings and debt-servicing, neither providing relief nor spurring economic growth.
Perhaps more notable than what’s in the bill is what isn’t. Democrats repeatedly attempted to launder blue-state bailouts through COVID-19 legislation, jumping on the opportunity to paper over perennial fiscal imbalances. Republicans were right to hold the line, not only because of the moral hazard of rewarding profligate governments, but also because states and cities are poor channels for swift economic aid. Research from the left-leaning Brookings Institution finds that the economic benefits of state and local aid would not materialize until 2022, because governors and mayors are slow to spend federal grants.
The deal also withdraws the Treasury funds that backstopped Federal Reserve lending programs to corporations and cities, codifying Treasury secretary Steve Mnuchin’s decision last month. Considering how strong financial markets are despite the limited use of Fed lending programs, it makes sense to redirect this money. But Democrats sought to retain the funds in order to provide cheap, long-term loans to cities, turning the Fed into a piggybank for New York, San Francisco, and other cities facing budget shortfalls.
Senator Pat Toomey’s success in ensuring the Fed’s emergency-lending programs remain limited to emergencies may be the most consequential provision of the bill: A permanently politicized central bank would threaten economic stability well beyond the pandemic.
The U.S. economy recovered more swiftly from the pandemic than most expected. With vaccines already being administered, COVID-19 should be behind us sometime around the middle of next year. That means we should do everything in our power to make the next few months go as smoothly as possible. After a long delay, Congress has done just that.