Is Fiscal Stimulus the Answer to Preventing a Coronavirus Recession?
It would probably take some more solid evidence that the virus was causing deteriorating business conditions for Congress and the Trump administration to conclude that action was needed. But that time shouldn’t be wasted, said Jason Furman, former chief White House economist in the Obama administration, who is now at the Harvard Kennedy School.
“I think people should be preparing a fiscal expansion,” Mr. Furman said. “It may very well be needed. But even like two or three weeks of additional information might be useful.”
He draws a distinction between spending needed to address the public health risks from coronavirus — most likely several billion dollars on things like medical equipment and aid to states dealing with the crisis — and the kind of spending that might be warranted to prop up overall demand in the economy. The latter would probably run in the hundreds of billions of dollars.
In that stimulus scenario, the goal would be to put more money into Americans’ pockets, such as with payroll tax reductions or more generous unemployment insurance benefits, to ensure that disruptions because of coronavirus do not spill out into an economywide recession.
Douglas Holtz-Eakin, a former director of the Congressional Budget Office and president of the American Action Forum, said that the new coronavirus would be likely to have a short but substantial effect on the economy — a “V” shape — and that it would be difficult to create a stimulus that matched the timing and severity of the economic disruption.
“Do we know enough about the V shape to merit a policy response?” Mr. Holtz-Eakin said. “It makes me skeptical. It’s really hard.”
At a minimum, he says, if Congress considers a stimulus, it ought to look at policies that are desirable on their own terms, not merely for what they might do to aggregate demand in the economy for a quarter or two.
Article source: https://www.nytimes.com/2020/03/03/upshot/coronavirus-fiscal-stimulus-recession.html