The ghost of sabotage future
By Paul Krugman
The not-a-stimulus deal Congress reached over the weekend — seriously, this is about disaster relief, not boosting the economy — didn’t come a moment too soon. Actually, it came much too late: Crucial aid to many unemployed Americans and businesses expired months ago. But now some of that aid is back, for a while.
True, the aid will be less generous than it was in the spring and summer: $300 a week in enhanced unemployment benefits, rather than $600. But because the workers still out of a job as a result of the pandemic tended to have low earnings even before the coronavirus struck, they will, on average, be receiving something like 85% of their pre-COVID-19 income.
By the way, although the one-time $600 checks to a much wider group of Americans are getting much of the media coverage, they account for only a small percentage of the overall expense and are far less crucial than the unemployment benefits to keeping families afloat.
So what’s not to like about this relief package? There’s some dumb stuff, like a tax break for corporate meal expenses — fighting a deadly pandemic with three-martini lunches. But the serious problem with this deal is that economic aid will end far too soon: Enhanced unemployment benefits will last just 11 weeks. And the process by which the deal was reached has ominous implications for the future.
Why isn’t 11 weeks of aid enough? Because we won’t be able to begin a vigorous economic recovery until a large fraction of the population is vaccinated, which might not happen until the summer or even the early fall. And we’re still down around 10 million jobs from pre-COVID levels; even if we can regain jobs as quickly as we did during the false dawn of May and June (when the Trump administration insisted that the pandemic was ending), it will take months more before we’re anywhere close to full employment.
So while the new legislation provides a sort of bridge to the post-COVID future, it’s a bridge that spans only part of the chasm ahead. And the way the bill was passed offers few reasons to be optimistic about Republican willingness to let the Biden administration finish the project.
Remember, until recently Mitch McConnell showed little interest in passing any kind of relief package. And there’s no mystery about what changed his mind: It was all about the Senate runoffs in Georgia. “Kelly (Loeffler) and David (Perdue) are getting hammered” over the failure to provide aid, he told his political allies.
Once those races end on Jan. 5, McConnell’s sure to lose interest all over again. And unless Democrats win both elections, he’ll still be Senate majority leader, in a position to stand in the way of any further economic relief.
Beyond that, the final hurdles to reaching an agreement were a reminder of something we should have learned during the Obama years: When a Democrat is in the White House, Republicans try to sabotage the economy. And the sabotage doesn’t stop with using phony deficit concerns to block necessary spending; it also involves deliberately increasing the risk of financial crisis.
Remember, GOP flimflam when Barack Obama was president went beyond posing as deficit hawks to block needed fiscal stimulus. It also involved constant criticism and harassment of the Fed over its efforts to rescue the economy. And now it’s happening again.
Some background: Although the pandemic recession was deep and ugly, it could easily have been even uglier. For a few weeks in March, America teetered on the edge of a financial crisis approaching the meltdown following the fall of Lehman Bros. in 2008. Fortunately, however, this incipient crisis was quickly contained by the Federal Reserve, which stabilized markets both by purchasing trillions of dollars’ worth of financial assets and by making it clear that it would do even more if necessary.
That was a job well done. But the risk of financial crisis hasn’t gone away, so we want to make sure that the Fed has the tools to meet future challenges.
Yet last month Steven Mnuchin, the blessedly departing Treasury secretary, gratuitously clawed back hundreds of billions of dollars in budget backing for Fed emergency lending programs, making those funds unavailable to his successor. And talks over economic relief almost fell apart over a last-minute demand by Sen. Pat Toomey, backed by the Republican leadership, that the legislation bar the Fed from restarting some of these programs or anything like them.
In the end, this poison pill appears to have been rendered mostly harmless, with face-saving language that prevents exact copycat programs but seems to leave room for slightly different programs that would achieve the same results.
But the episode was a preview of things to come. If another crisis develops, expect Republicans to do all they can to prevent an effective response.
So how should we feel about this relief deal? The glass is half full: For millions of American families, the next few months will be less hellish than they would have been otherwise. The glass is half empty: Unless Democrats win those Georgia seats, expect an ugly spring and years of economic sabotage ahead.