In one of its worst-ever years in peacetime, the US has been able to nurse a consolation. As badly as it handled the Covid-19 pandemic, it was quick to soften the economic effects. Fiscal relief for a shuttered economy achieved bipartisan support in March. The $2tn Cares Act — worth roughly a tenth of national output — raised unemployment benefit, offered credit to companies and shored up state governments. Given the initial defeat of the 2008 bank bailout in Congress, none of this was inevitable.
Even this solace, it seems, is shortlived. Another round of fiscal intervention is clearly necessary. Continuing hardship, a surge in infections and the re-closing of many businesses that had opened put that beyond doubt. This time, however, the politics is failing.
Democrats and Republicans cannot agree on the size or duration of another bill. Among the unseen victims in this tiff are the recipients of the extra $600 in weekly unemployment aid that passed in March. It ran out on July 31. Democrats want to extend it until the end of the year, while Republicans cite the moral hazard of disincentivising work. Democrats propose $3.4tn in total stimulus. Republicans balk at that cost.
It is not frivolous to worry about intervention on this scale. It can have distorting effects and lead to waste. A return to some semblance of normality will involve unpicking this tapestry of fiscal transfers and lines of credit. Such is the nature of the crisis, however, that politicians must for now err on the side of action. Congress debates at leisure: the human cost in lay-offs and home-evictions mounts at pace. In haggling over aid, to the unemployed for instance, the bias of lawmakers should be towards generosity, and towards speed.
Ideally, it would be enough to appeal to conscience. If this is not enough, then lawmakers should remember that the jobless rolls include many of their own voters (they are simply too large not to) and that an election is less than three months off.
As well as the domestic suffering, Congress should also heed the implications for a world economy that America helps to drive. The first bill was an international event. If it transpires, this one will be, too. Jay Powell, chosen to chair the Federal Reserve by President Donald Trump and hardly a notorious socialist, urges against premature withdrawal of government support.
It would help matters if Mr Trump took a lead. He is less of an ideological free marketeer than many of his partisan colleagues, including Larry Kudlow, his economic adviser. Tellingly, the president made sure to associate himself with the original stimulus in the Cares Act. With the presidential election in the offing, he has an interest in what is proving to be popular intervention in the economy.
Of late, though, Mr Trump’s contribution has been to suggest a cut in payroll taxes. (“What payroll?” those without jobs will ask). He also repeated insinuations on Wednesday that Democrats want to bail out states they run. The first notion is one his own side say they will not support. The second just sours the cross-partisan mood that is needed for a deal.
In the end, this unprecedented intervention will have to be paid for through some blend of tax, borrowing and cuts to spending. Politicians who dread the growth of government, or of the deficit, should certainly set out a path to a more “normal” state of fiscal affairs. In the meantime, however, a devastated economy needs their help. An often traduced Washington salvaged some of its reputation in the spring. It is close to forfeiting it all over again.
