In response to the chaotic outcry of Americans over the Coronavirus, President Trump has made moves to inject additional funds into the economy. Veering away from the term “stimulus,” the proposal resembles that of the auto and bank bailouts. But do these bailouts help or do they hurt? Is this what we need to counteract the panic over the coronavirus?
Economic stimulus is the idea that the government must intervene in order to keep the economy from taking a deeper downturn. Stimulus packages are a combination of incentives, tax rebates, quantitative easing, fiscal policy, monetary policy and more. The end goal is to soften the hit and therefore ease the overall pain of a recession or depression. Stimulus packages target the areas of the economy that need financial support and allocate cash and resources to keep these industries afloat. The reasoning is that a loss of these industries will cause more damage than doing nothing would.
President George W. Bush used economic stimulus in 2008 when he signed into effect the Emergency Economic Stabilization Act of 2008. This was a $700 billion package that was aimed at saving banks and lenders from sub-prime mortgages and mortgage backed securities. The Emergency Economic Stabilization Act was achieved by paying off the bad investments of these banks and lenders through the Troubled Assets Relief Program, TARP.
TARP was a mismanaged program that led to the allocated funds being used for more than the asset auction program. TARP contributed $67.8 billion to bail out American International Group, $80.7 billion to bailout The Big Three auto companies, loaned $20 billion to the Federal Reserve for the Term Asset-Backed Securities Loan Facility, and set aside $75 billion for homeowners to restructure and refinance their home loans. The Bush economic stimulus ended in 2010 but the economic downturn did not, and President Barak Obama had already implemented his own stimulus package.
The American Recovery and Reinvestment Act of 2009, the ARRA, was another $787 billion stimulus package aimed at curbing the effects of the Great Recession that were beginning to ripple through the economy. The ARRA was a three-point package that cut taxes by $288 Billion, spent $224 billion on unemployment, education, and healthcare, then finally allocating $275 billion to federal contracts, grants, and loans. However, this second stimulus program still hadn’t fixed the mess like they had projected, and in 2012 Obama allocated another $26 billion to wipe away lawsuits over the lending practices of banks and help bailout Wall Street.
The government spent over five years attempting to curb a recession, which was less time that we spent in the economic down turn of the Great Depression. In that time, we still had one of the worst economic times of modern history. We were left in massive debt and with zombie industries that left us behind the curve. Americans are poorer by today’s standards than they were prior to the Emergency Economic Stabilization Act.
The causes of stimulus in these cases varies drastically from the call for stimulus today. Today we see a panic surrounding a virus that has killed less than a hundred people in the United States. We are witnessing a self-induced panic. This is the true definition of a self-fulfilling prophecy. The very nature of the media reporting on a small select group of people panicking as a result of the coronavirus directly relates to the causing of others to react in the same fashion. This, in turn, causes others to think that they have to go stock up. Even though they are not always in a panic, people are stocking up more then they should, which is depleting goods. This problem is further exacerbated by President Trump declaring a national emergency, followed by schools and businesses shutting down. The panic is centered more around the actions of people rather than there being a real epidemic.
Still there is an economic decline, and in an effort to save the economy that President Trump has touted as being solely his doing before the election this year, he is proposing another stimulus package. The coronavirus stimulus package is projected to carry an $850 billion price tag. While all the numbers are not being released, this package is looking to spend $50 billion on payroll tax cuts and $100 billion for paid sick leave for those infected with coronavirus. Meanwhile, the Democrats have their own $750 billion stimulus package that they are proposing, and universal basic income policies are gaining traction in both parties.
Stimulus packages are said to pay for themselves by reducing the amount of damage that could have been caused by the economic downturn. However, the projections by government are never accurate and there is no way to tell if this is true. Furthermore, the ones who pay this debt off are taxpayers, and not the ones who receive more benefits back than they put in. There are not enough taxpayers to cover the types of programs and stimulus packages that the government wants to continue supporting. These create longlasting issues that the government doesn’t have to deal with. Instead, they just fight over who gets to spend the money that we don’t have.
While none of the stimulus packages were the right choice, this is certainly a hyperbolic reaction to a non-issue. We are talking about spending nearly a trillion dollars of money that does not exist, after already injecting over $1.5 trillion, to counteract a self-created panic over a strain of virus that has killed just over a hundred people. If people would act as if this virus was exactly what it was, a non-starter, we wouldn’t have a President talking about damaging the economy further in an attempt to save his reelection campaign, and the Democrats trying to save face.