May 18, 2020 at 5:00 am ET
Speaker Nancy Pelosi dropped a $3 trillion relief package on Tuesday afternoon. The next morning, Federal Reserve Chair Jerome Powell called on Congress to spend more. People want the money too; “$3 trillion” is a top search on Google this week. All the while, Senate Majority Leader Mitch McConnell has said that the Senate will “wait and see.”
COVID-19 will not wait for our elected officials to step up. Too many in Congress are looking away as we plunge into an economic depression, our first since the 1930s. Their negligence is appalling.
Food prices are rising, and meat counters at the grocery are bare. At the same time, consumer prices, excluding food and energy, fell more in April than any time since the data began in the 1950s. Those prices tell us what is coming: months of deflation.
What’s the problem with lower prices? If people know they will pay less tomorrow, they will wait to spend. Businesses make even less money — they will lay off more workers and slash prices. A deflationary spiral will make our economy worse.
In addition, the unemployment rate hit 14.7 percent, well above its highest the peak since the Great Depression. Millions more have lost their jobs since April. Our unemployment rate is at least 20 percent now, an incomprehensible number. Yes, we need workers to stay home to stay safe and jobless benefits are helping them. Even so, after two months, businesses are failing and millions on furlough will have no jobs to return to. High unemployment that lasts for months is dangerous. We are teetering on the edge of depression.
But how can that be? Congress already spent $3 trillion, and then the Federal Reserve is lending trillions more. Why do more? Because we need more money. Only Congress can do it. What is another $3 trillion? Not much. Not enough.
It is less than 1.5 percent of U.S. economic output over 10 years. Our economy is the largest in world, but there is no guarantee that we will remain at the top of the leader board. We are besieged by a killer virus and Republicans are not fighting back. Dr. Anthony Fauci and thousands of scientists, health care workers and state officials are working night and day to save our lives, to save everyone from our oldest loved ones to our children. They need supplies. They need equipment. They need money. Congress must get them money immediately.
Again, what is $3 trillion dollars? It is a lifeline. It would save lives; it would feed children; and it would keep a roof over everyone’s heads. Time is running out. In April, 10 percent of moderate-income borrowers from the Federal Housing Authority were 30 days late on their mortgage payments, double the number in March. Those families may avoid foreclosures today, but those payments will come due someday. People cannot stay at home if they have no home.
The economic strain on families is more than the ability to pay a mortgage. Over one-third of Americans say their family income had fallen due to the coronavirus crisis, according to a survey from Google and University of Michigan. Nearly one in five adults in that same survey have now fallen behind in paying their bills, again, because of this crisis. We know from a Federal Reserve report last spring that many families, a decade into the expansion, did not expect to pay all their bills.
Policymakers must apply every lesson from the Great Recession and repeat none of their mistakes. They must go big. And they must act fast. The American Recovery and Reinvestment Act pumped $800 billion in the economy. It did not pass until early 2009. That support arrived more than a year after that recession began and six months after markets melted down. It took almost 10 years for the unemployment rate to return to its pre-recession level We now know support from Congress was too little, too late. Finally, Congress walked away a handful of years into our rebuilding. They wrote off millions of long-term unemployed. Congress absolutely must commit to do whatever it takes, as long as it takes. This is not a drill.
Former Federal Reserve Chairman Ben Bernanke assures us no depression is coming. I worked for Ben, from the summer of 2007 until his tenure as chair ended in 2013. He was right about many things. He is wrong about the threat today. A fast recovery is not guaranteed. I see no reason, after 20 percent unemployment and businesses going under, to expect a recovery any faster than the last decade-long one after the Great Recession.
People, businesses, and communities have lost income and revenues in the past two months that they will not get back on their own. The Federal Reserve got financial markets under control in March and helped us avoid a financial crisis. The Fed showed it learned its lesson from the Great Depression and the Great Recession. It is Congress’ turn. It must get money out and make up what was lost in recent months. Members of the House and the Senate must show us that they have learned too.
We need trillions more. At least $1 trillion must go to state and local governments to staunch their budget crisis and before they lay off tens of thousands more workers and cut essential services. Another $500 billion to continue the higher federal share of Medicaid. Commit $2 trillion to enhance jobless benefits. Extend extra money in weekly checks, keep more people eligible, and extend the benefits up to 65 extra weeks. And keep doing it until workers can finally go back to work, when the unemployment is back to 5.5 percent. So many more programs need money from Congress, including for child care, sick leave and worker protections.
Complacency in Washington will push us into a depression. It is avoidable if Congress has the courage to act.
Claudia Sahm is the director of macroeconomic policy for the Washington Center for Equitable Growth and a former Federal Reserve section chief.
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