The coronavirus relief bill passed by the House Friday would provide aid to infected Americans, hourly workers and those who lose jobs because of the outbreak but it likely wouldn’t keep the broader economy from slipping into recession, economists say.
“If we all do social distancing, that’s going to hurt everybody,” says Jay Shambaugh, director of the Brookings Institution’s Hamilton Project, which seeks to promote prosperity for Americans. “At a certain point, things spill into the economy.”
Eventually, he says, “I think they’re going to need to do a broad stimulus” that provides spending money to millions of Americans.
Mark Zandi, chief economist of Moody’s Analytics agrees. “I don’t think this comes close to forestalling a recession,” he says
The legislation passed Friday expands paid sick leave and medical leave, bolsters food stamps and unemployment insurance, and provides more federal funding for Medicaid. It also requires free coronavirus testing.
Such support for the social safety net and the most vulnerable represents a “really important first step,” Shambaugh says. “The broad brush is fantastic.”
Currently, about a quarter of U.S. workers, mostly hourly employees at lower income levels, don’t earn a paycheck if they miss work because of sickness, according to Pew Research. Under the bill, employers must provide 14 days of paid sick leave if workers are ill or quarantined because of the virus or have to care for an infected family member. They would be paid at not less than two-thirds of their normal rate.
The bill also would provide more federal funding to states for unemployment insurance if there’s a big increase in the number of jobless people in the state. After the Great Recession, many states made it harder for the unemployed to get benefits for extended periods because the downturn depleted their insurance trust funds.
“This is going to take the financial pressure off,” Shambaugh says.
In addition, work requirements for food stamp recipients would be waived.
And the government, which funds slightly more than 60% of states’ Medicaid costs on average, would increase that share by 6%. Shambaugh prefers a 10% increase but says the aid is vital so states can continue to pay other coronavirus-related health costs without busting their budgets.
Yet those measures would not address the broader risk to the economy as more consumers avoid public places such as malls, restaurants and movie theaters. The NBA and NHL have suspended their seasons. Disney World and Broadway have shuttered.
Nor would the legislation help workers whose hours are reduced because of the economic slowdown.
A White House proposal to cut the Social Security payroll tax for workers was rejected by many Democratic and Republican lawmakers. The cut would not help Americans who aren’t working and would aid higher-income more than lower-income workers., Shambaugh says. Instead, he advises simply sending each household a $600 or so check, as the government did during the Great Recession and after the 9/11 terrorist attacks. That would jolt spending across the economy, he says.
Shambaugh lauded President Trump’s statement this week that the government is providing $50 billion to the Small Business Administration to aid small firms struggling because of supply disruptions or lower sales as a result of the virus.
But Zandi called Trump’s announcement Friday that the government is waiving interest on all federal student loans “largely a symbolic step. It will have little impact on the broader economy.“