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What kind of stimulus should Congress pass to rescue the economy? – USA TODAY



After the Federal Reserve fired nearly all of its bullets Sunday in a bid to rescue the teetering U.S. economy from the devastating effects of the coronavirus, investors promptly replied, “Next!”

Markets plunged again Monday after the Fed’s decision to cut its key interest rate to zero, among other historic moves, with the Dow Jones industrial average plummeting nearly 3,000 points, or 13%. And so hopes of at least minimizing a recession that almost certainly has already begun now rest with Congress.

The Fed can open the economy’s lending spigots wider but it can’t aid airlines, retailers or restaurants whose revenue has fallen off a cliff as customers fearful of the coronavirus hunker down at home. Nor can it shore up the employees of those businesses who have lost their jobs or are toiling sharply reduced hours.

Only Congress can hand cold hard cash to consumers and businesses to tide them over until the outbreak starts easing, perhaps in a couple of months.

“We need a very large package that provides cash to households and particularly, small businesses,” says Mark Zandi, chief economist of Moody’s Analyticss.

Wanted: $600B stimulus

Zandi says the virus will ultimately cost the economy $600 billion and shave 3 percentage points of gross domestic product, causing a contraction in output during the first half of the year. As a result, he says a stimulus of at least that size is needed to limit the damage and keep the economy afloat.

The House late Friday passed a bill that helps Americans affected by the pandemic, expanding paid sick leave and unemployment benefits and increasing the share of Medicaid funding that the federal government sends to states.

White House senior economic advisor Larry Kudlow said Monday those and other measures proposed by President Trump – such as deferring federal student loan interest – will cost $400 billion and said the administration is prepared to double that to $800 billion.

Yet some economists question whether the administration’s proposed measures will be most effective at jolting a slumbering economy. For example, Kudlow said the White House wants to temporally cut payroll taxes for working Americans.

“The payroll tax holiday is a serious proposal, a very serious proposal,” Kudlow told reporters, though Republicans and Democrats in Congress have reacted coolly to the idea..

Jay Shambaugh, director of the Brookings Institution’s Hamilton Project, says a payroll tax cut wouldn’t help the unemployed and would give more money to high-income households who need it less since it’s based on a percentage of income. It also would dribble out over time as workers get their paychecks.

Plus, Zandi says, “it’s peanuts, maybe 30, 40 or 50 dollars per paycheck.”

$1,000 check for every worker

Instead both Shambaugh and Zandi suggest the government should send $1,000 checks to all workers who pay payrroll taxes at a cost of $155 billion. Low-income employees, who spend more of their paychecks, would benefit most. And it would help Americans who are still working but at reduced hours. 

To be sure, Americans are spending much less since they’re going out less or not at all. But Shambaugh says, “They’ll use it to make rent payments, buy food. It’s not going to make them go on a shopping spree.”

Says Zandi, “They’ll spend it, no doubt about it,” on things like medical supplies. “They’ll buy online.”

Kudlow also said the administrations is considering providing financial aid to battered airlines.

“We don’t see the airlines failing, but if they get into a cash crunch we’re going to try to help them. He said he didn’t like the term, “bailout,” referring to it as a short-term liquidity problem.

Cancel payroll taxes

The U.S. Chamber of Commerce Monday advocated canceling all payroll taxes employers pay from March to May at a cost of $300 billion.

“The funds would be used by employers to pay employees” so they don’t have to lay off workers, chamber Executive Vice President Neil Bradley said on a conference call with reporters

Zandi and Shambaugh, however, say airlines and other large companies have the cash and lines of credit to weather the current turmoil. A stimulus, they say, would be better directed to small businesses. 

 Zandi recommends a rebate to small firms that would reimburse them for the payroll tax payments they’ve made so far this year. Those ordered by state or local governments to temporarily shut down would receive twice what they’ve paid so far.

Small business also should be able to put off paying taxes until September.

Moody’s also recommends:

• Sending a $1,000 check to Social Security recipients as well as workers.

•Paying Americans for all diagnosis and care related to the virus.

• Allowing homeowners receiving unemployment insurance to also receive forbearance on their mortgage payments.

While Moody’s proposals would cost $600 billion, they would result in an $825 billion boost to the economy. That wouldn’t prevent a recession, Zandi says, but it would lead to a swift and strong recovery.

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Japan economy: Shinzo Abe has $1 trillion coronavirus relief plan – CNN



Japanese Prime Minister Shinzo Abe on Monday announced a 108 trillion yen ($989 billion) relief package — a staggering amount equivalent to about 20% of the annual output of the world’s third biggest economy.
It includes tens of billions of dollars in cash handouts for families and small business owners who have lost their incomes because of the virus. The package also features tax breaks and zero-interest loans.
Abe is expected to give more information at a press conference in Tokyo on Tuesday.
Japan is the latest country to unleash a massive amount of government spending aimed at helping households and businesses cope with the sudden shock to the global economy as countries go into lockdown.
The United States last month passed a $2 trillion stimulus bill, the largest emergency aid package in history. Germany, France, the United Kingdom, Italy, Spain and other major economies have also announced huge spending plans.
Even in the coronavirus pandemic, the Japanese won't work from home until Shinzo Abe makes them
The flood of stimulus comes as the number of coronavirus cases continues to mount. So far more than 1.27 million people worldwide have been infected, while 69,000 people have died, according to Johns Hopkins University. Japan has recorded more than 3,600 cases and 85 deaths.
Recent unemployment, industrial production and retail sales data have suggested that Japan’s economy was showing signs of resilience as the virus ripped through Asia in February, noted Tom Learmouth, Japan economist at Capital Economics. But “there is no doubt that coronavirus disruption will deal a severe economic blow over coming months,” he said in a research note on Friday.
Infections have accelerated in major cities such as Tokyo and Osaka, he said, adding that concerns about a “second wave” of the virus has led residents to stay home and shops to close.
Abe also announced that he would declare a state of emergency on Tuesday, lasting for about one month — a notable development, as the prime minister had declined to do so as recently as last week.
While Tokyo’s governor has urged the city’s 13.5 million residents to telework where possible until April 12, many workers have continued to commute into their offices. About 80% of companies in the country do not have the ability to let their employees work remotely, according to 2019 government data, and Japan’s work culture makes it hard to persuade people to stay home.
— CNN’s Will Ripley, Yoko Wakatsuki, Julia Horowitz and Emiko Jozuka contributed to this report.

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U.S. Is Nowhere Close to Reopening the Economy, Experts Say – The New York Times



WASHINGTON — How long can we keep this up?

It is still very early in the U.S. effort to snuff a lethal pandemic by shutting down much of the economy. But there is a growing question — from workers, the White House, corporate boardrooms and small businesses on the brink — that hangs over what is essentially a war effort against a virus that has already killed more than 9,000 Americans.

There is no good answer yet, in part because we don’t even have the data needed to formulate one.

Essentially, economists say, there won’t be a fully functioning economy again until people are confident that they can go about their business without a high risk of catching the virus.

“Our ability to reopen the economy ultimately depends on our ability to better understand the spread and risk of the virus,” said Betsey Stevenson, a University of Michigan economist who worked on the White House Council of Economic Advisers under President Barack Obama. “It’s also quite likely that we will need to figure out how to reopen the economy with the virus remaining a threat.”

Public health experts are beginning to make predictions about when coronavirus infection rates will peak. Economists are calculating when the cost of continuing to shutter restaurants, shopping malls and other businesses — a move that has already pushed some 10 million Americans into unemployment, with millions more on the way — will outweigh the savings from further efforts to slow the virus once the infection curve has flattened out.

Government officials are setting competing targets. President Trump has pushed his expected date of reopening the economy to the end of April. “We have to get back to work,” he said in a briefing on Saturday. “We have to open our country again. We don’t want to be doing this for months and months and months. We’re going to open our country again. This country wasn’t meant for this.”

Some governors have set much more conservative targets, like Ralph Northam of Virginia, who canceled the remainder of the school year and imposed a shelter-at-home order through June 10. Other states, like Florida, only recently agreed to shut activity down but have set more aggressive targets — April 30, in the case of the Sunshine State — to restart it.

Those targets are at best mildly informed guesses based on models that contain variables — including how many people have the virus and how effective suppression measures will prove to be. The models cannot yet give us anything close to a precise answer on the big question looming over Americans’ lives and livelihoods.

To determine when to restart activity, said R. Glenn Hubbard, a former top economist under President George W. Bush, “we need more information.”

Interviews with more than a dozen economists, many of whom are veterans of past presidential administrations, reveal broad consensus on the building blocks the economy needs — but does not yet have — to begin the slow process of restoring normalcy in the American economy.

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That includes widespread agreement that the United States desperately needs more testing for the virus in order to give policymakers the first key piece of evidence they need to determine how fast the virus is spreading and when it might be safe for people to return to work.

Without more testing, “there’s no way that you could set a time limit on when you could open up the economy,” said Simon Mongey, a University of Chicago economist who is among the authors of a new study that found that rapid deployment of randomized testing for the virus could reduce its health and economic damage.

“It’s going to have to depend on being able to identify people that have the coronavirus, understanding how readily those people can transmit the disease to others and then kind of appropriately isolating people that are contagious,” Mr. Mongey said.

Policymakers will also need better data on how strained hospitals and entire regional health care systems are likely to be if the infection rate flares up and spreads. Ideally, they would sufficiently control the rate to establish so-called contact tracing in order to track — and avoid — the spread of the virus across the country.

Once such levels of detection are established, it is possible that certain workers could begin returning to the job — for example, in areas where the chance of infection is low. Some experts have talked about quickly bringing back workers who contract the virus but recover with little effect. Testing is the best way to identify such workers, who may have had the virus with few or no symptoms and possibly not realized they were ever infected.

While they wait for the infection rate to fall, policymakers will need to provide more support to workers who have lost jobs or hours and to businesses teetering on the brink of failure. That could mean trillions more in small business loans, unemployment benefits and direct payments to individuals, and it could force the government to get creative in deploying money to avoid bottlenecks.

Lisa D. Cook, a Michigan State University economist who worked in the Obama White House, said lawmakers should consider funneling $1,500 a month to individuals through mobile apps like Zelle in order to reach more people, particularly low-income and nonwhite Americans who disproportionately lack traditional bank accounts. Mobile payments, Ms. Cook said, would also make it “easier and faster to make onward payments to family members and friends in need.”

The government’s efforts could prove crucial to maintaining public support for what amounts to a prolonged economic drought. Adam Ozimek, the chief economist at Upwork, said additional money for small business will be crucial throughout the full extent of the crisis — both to prevent a crush of business failures and to keep owners and customers from flouting the national effort to reduce infections.

“I don’t think you can force hundreds of thousands of small business owners to voluntarily shut down and let failure happen to them,” Mr. Ozimek said. “They won’t do it, the public won’t support it, and frankly I don’t think local authorities would stop them.”

Policymakers will also need to give better support and protection to Americans who are putting their own health at risk to keep the essential parts of the economy running, like doctors, nurses, grocery store clerks and package delivery drivers.

Heather Boushey, the president of the Washington Center for Equitable Growth, a think tank focused on inequality, said those workers needed to have paid sick leave, adequate health coverage, access to coronavirus tests and affordable care for their children while they worked in order to stay healthy and to protect consumers from further spread of the virus.

“That is the economy at this point, those workers,” Ms. Boushey said. “And their health and safety is imperative to my safety.”

Policymakers will need patience: Restarting activity too quickly could risk a second spike in infections that could deal more damage than the first because it would shake people’s faith in their ability to engage in even limited amounts of shopping, dining or other commerce.

“It’s important not to lift too early,” said Emil Verner, a Massachusetts Institute of Technology economist who is a co-author of a new study that found that cities that took more aggressive steps to curb the 1918 flu pandemic in the United States emerged with stronger economies than cities that did less. “Because if we lift too early, the pandemic can take hold again. And that itself is very bad for the economy.”

Finally, policymakers will need to level with Americans — and themselves — and concede the possibility that the shutdown and its effects could drag well beyond the end of the month.

Aggressive suppression measures could lead to a gradual resumption of activity that begins in some places as soon as May, several experts said. But business as usual might not come back until a vaccine is developed, which could take more than a year.

“We should certainly be prepared for a meaningful level of deliberate suppression of economic activity for the rest of the year,” said Jason Furman of Harvard University, who was a top economist under Mr. Obama.

The Congressional Budget Office wrote on Thursday that it expected at least a quarter of the current suppression measures to last through year’s end, and that the unemployment rate could still be 9 percent at the end of 2021. Lawmakers need to be ready to keep filling the void, with support to businesses and workers, said Karl Smith, the vice president for federal policy at the Tax Foundation in Washington.

“The possibility of an unofficial quarantine for weeks or months after the official one is lifted is real,” Mr. Smith said. “After that, my guess is that the economy is in major trouble.”

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Coronavirus support packages will reshape the future economy, and that presents an opportunity – The Conversation AU



Governments across the world have rolled out extensive financial packages to support individuals, businesses and large corporations affected by the COVID-19 pandemic.

Equally, central banks have decreased their lending rates to almost zero, and have announced extensive and previously untested direct lending to private corporations and financial companies.

In many wealthy countries, the support packages are record-breaking in their size and scope, such as the US$2.2 trillion stimulus package for the US economy.

The US and Australian stimulus packages each represent about 10% of GDP. New Zealand’s program is about 5% of GDP, but each country is experiencing the economic shock differently, has different existing safety nets and priorities, and different mechanisms to deliver this assistance.

These support packages will play a significant role in shaping our world for many years, and we should not allow the clear emergency of the situation to stop us questioning their design.

Read more:
New Zealand outstrips Australia, UK and US with $12 billion coronavirus package for business and people in isolation

Goals for financial support

Our work on economic recovery following natural hazards and disasters defines a set of build-back-better goals, and how they should be assessed.

This kind of thinking applies equally to our current predicament. We argue that globally, the purpose of COVID-19 stimulus packages should be threefold, and we should assess them against these three goals:

  1. make sure people’s basic needs are satisfied

  2. make it possible for the economy to spring back into action once the necessary social distancing measures are relaxed

  3. use these funds to create positive change, and rebuild areas we previously neglected (in many countries, this will mean investing in public health systems).

Read more:
Five principles to follow if your job is to lead your staff through the coronavirus crisis

To achieve the first goal of making sure people can meet their basic needs, many high-income countries – including the US, Greece, the UK and France – are either providing direct payments to all citizens (as in the US) or targeted support to those who lost income or jobs.

These payments are sometimes a fixed proportion of each recipient’s previous income, up to a cap (as in the UK), or are identical for everyone who has lost income (as in New Zealand).

From an economic perspective, it is clearly more efficient to provide support only to the people who really need it – those who have lost income and would not be able to support themselves and their dependants.

But these programs are also shaped by politics and ethics, and different countries chose different ways to distribute this assistance, not always based on need.

Restarting economies

Even better are programs that provide the wage subsidies through existing employers, such as Germany’s famed Kurzarbeit program (which translates to “work with shorter hours”) which was implemented during the 2008 global financial crisis.

New Zealand’s wage subsidy package is a similar program. It supports businesses to continue paying their staff even if they are unable to work.

Details of payments to businesses are posted online, to make sure employers comply and transfer these funds to their employees. This initiative was trialled after the 2011 Christchurch earthquake.

Read more:
Three reasons why Jacinda Ardern’s coronavirus response has been a masterclass in crisis leadership

A similar support was also implemented in Australia.

Generally, wage subsidies allow for continued employment of individuals who would otherwise be let go, and they will also assist in achieving the second goal of resuming economic activity once restrictions are relaxed.

Such programs have been shown to be effective in Germany and New Zealand in ameliorating unexpected shocks.

While employees need support, directly or indirectly, it is also important that small and medium-sized businesses are propped up so they are ready to forge ahead once it is possible to do so. They should receive grants and subsidised loans to pay their costs, other than wages. Otherwise many businesses will fail, and the recovery will be slow and hard.

Global impacts

Whether large corporations need to receive support depends partly on the longer-term importance of their sector. It is easier to justify support for national airlines, which are an important linchpin in many countries’ global ties, than to support fossil fuel producers, for example.

Nor are there many reasons why taxpayers (present and future) should bail out wealthy individual owners of large businesses, when these businesses could be restructured in bankruptcy proceedings that should not lead to their shutdown.

But the COVID-19 pandemic has impacts well beyond individual countries and their economies and may require global support mechanisms.

Most low- and middle-income countries have either not yet announced any assistance or their packages are less than 1% of GDP. They typically cannot afford more with their existing debt levels.

It is therefore incumbent on high-income countries that can afford larger fiscal support packages to help countries that cannot. But so far only a handful of high-income countries, including Finland and Norway, have provided such support.

The international institutions supported by the rich world, such as the International Monetary Fund (IMF) and the World Bank, should pull out all the stops and lend enough, and at concessionary rates, to low-income countries so they can, at the very least, provide for their people’s basic needs.

Without that support, the virus will continue to spread in low-income countries and defeat the draconian social distancing measures that almost every country is implementing now.

Finally, it is important that we scrutinise these programs carefully now, rather than only once the public health emergency has passed and they have been entrenched. The sums involved are incredibly large and we will be remiss if we mis-spend what we are now borrowing from our children and grandchildren.

* Stay in touch with The Conversation’s coverage from New Zealand experts by signing up for our weekly newsletter – delivered to you each Wednesday morning.

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