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A $2 Trillion Lifeline Will Help, but More May Be Needed

If you want to shut down an economy to fight a pandemic without driving millions of people and businesses into bankruptcy, you need the government to cut some checks. The coronavirus response deal that the Senate passed late Wednesday will get a lot of checks into the mail, but it will soothe only a few months of financial pain.

If the outbreak and the disruptions continue through summer, lawmakers will need to spend even more.

The bill, a compromise between the Trump administration and Republican and Democratic leaders in Congress, includes loans and grants for corporations and small businesses, increased unemployment benefits for workers laid off or working fewer hours amid the outbreak, and direct payments to low- and middle-income individuals and families. Negotiators estimate its cost at $2 trillion.

Taken together, those measures form a novel, temporary expansion of the federal government's role in the economy: It will be essentially paying millions of Americans not to work, and thousands of businesses not to shut down even if they have no customers, in order to slow the spread of the pandemic. Its cost is more than double the roughly $800 billion stimulus package that Congress passed in 2009 to ease the Great Recession. Yet it still may not be large enough, given the enormous economic challenge the United States faces today.

The economy, which has been shuttered to control the spread of the virus, does not need a jolt to get moving again. The government is just trying to tide people and firms over until it is safe to start back up.

Viewed through that particular set of circumstances, the deal was not economic stimulus at all. It was a series of survival payments. And those payments will only last a few months.

How quickly those payments find their way to households and businesses will be critical. Prospects for swift passage dimmed on Wednesday afternoon, when three Republican senators raised concerns over the generosity of the enhanced unemployment benefits. In a best-case scenario where Mr. Trump signed the law on Thursday, people close to the negotiations said, dollars could flow to small businesses as soon as next week. Many business have little time to spare: The typical small business carries only enough cash to last for 12 days without new revenues, according to research from the JPMorgan Chase Institute.

"Already balance sheets are running red," a group of nearly 900 economists, including several Nobel Prize winners, wrote this week in a letter urging quick congressional action. "Businesses that fail during this necessary stoppage time will see the jobs that they provided disappear. With them, much of the productive capacity of the economy will be destroyed."

The speed of payments to households will also depend in large part on whether individuals have bank accounts: The Treasury Department is expected to begin directly depositing checks within a few weeks of the bill's passing, but mailed payments will take one or two weeks longer, Republican Senate aides said Wednesday.

Mr. Trump said Tuesday that he hoped the economy will be "reopened" by Easter, in two and a half weeks. Public health experts and a wide range of economists say that is both unlikely and inadvisable. The country still lacks widespread testing for the virus, and confirmed infections and deaths continue to climb rapidly.

The extraordinary measures that mayors and governors have taken to restrict economic activity, which at their most extreme include shutting down all nonessential businesses and ordering people to shelter in the homes, are unlikely to show success in "bending the curve" of the virus for at least another week. If they prove effective, and the infection rate slows dramatically, activity could be back to normal -- or at least something that reasonably resembles it -- within a few months for many businesses and workers.

If the measures do not prove effective, or if they are relaxed under orders from Mr. Trump or defied en masse, experts warn the crisis could stretch much longer, under the growing cloud of a recession. That's why it's hard to say if the congressional deal will be enough to keep families from going hungry and businesses from going under.

On Wednesday, Treasury Secretary Steven Mnuchin suggested that the package Congress was expected to pass would be more than enough money to get the economy over the hump.

"I would say we've anticipated three months," Mr. Mnuchin said, referring to the amount of time the economy might need extra support. "Hopefully we won't need this for three months. Hopefully this war will be won quicker, but we expect that this is a significant amount of money if needed to cover the economy."

Still, economists hailed the emerging agreement as a good start -- one that works on multiple fronts to keep money flowing through the parts of the economy that have been suddenly rendered inactive.

"The response looks to be proportionate to the extent of the problem," said Justin Wolfers, a University of Michigan economist who has pushed for a large fiscal response to sustain the economy through the virus shutdown. But, he said, "we have no idea what the extent of the problem is."

The bill includes $350 billion in loans for small businesses to help bridge their expenses for up to 10 weeks. Firms would not need to repay up to eight weeks of the loans if they refrain from laying off employees, or move by June to rehire employees they have already laid off. Supporters of the measure say those loans, if rapidly deployed, could help thousands of firms survive, at least temporarily.

"It is incredibly important that policymakers credibly convince business owners that these conditional loans will indeed be forgiven and that firms' owners will be treated equitably," said Stan Veuger, an economist at the conservative American Enterprise Institute. But, he said, "I am skeptical that the size of the package is large enough to cover the entire shutdown-slowdown period."

The bill also includes $500 billion in aid to airlines and other large corporations that have been hurt by a cratering of consumer demand amid the crisis. Much of the money would be used to backstop loans and other assistance that the Federal Reserve said it plans to extend to companies.

Those programs are in part meant to encourage companies to keep workers on their payrolls. Even if workers are furloughed without pay, the government will essentially step in and assume paying their salaries while the workers continue to be covered by any health insurance provided by their employers.

For workers who lose their jobs, the bill supplies expanded unemployment benefits for up to four months. For many, those payments will match or even exceed the wages they were earning before the outbreak.

The bill also includes a $1,200 payment for each adult -- and $500 per child -- in households that earn up to $75,000 per year for individuals or $150,000 for couples. The assistance phases out for people who earn more.

Neither Republicans nor Democrats love the bill, which was the product of frenzied negotiations punctuated by often bitter partisan anger. Some liberal groups denounced it as a slush fund for corporations. Some conservatives warned that the large amount of borrowed money it would plow into the economy could stoke rampant inflation.

Business groups celebrated it as a late but necessary intervention, and so did many lawmakers and policy advocates.

"Nothing is perfect around here," Senator Rob Portman, Republican of Ohio, said in a Tuesday speech on the Senate floor. "But if you make perfect the enemy of the good, you're going to hurt more people, more small businesses will shut, more people will be out on their own and there will be more and more people who will be infected with this virus who otherwise could have been saved."

Jacob Leibenluft, a senior fellow at the liberal Center for American Progress, said Congress "will need much more over the coming months, but the crucial thing the bill appears to do is begin providing relief to families and communities through channels that can get it out quickly, like expanded unemployment insurance, direct payments and state aid."

Policy experts and business lobbyists have been warning for days that congressional failure to reach a deal was causing more companies to shutter and workers to lose their jobs. Some said on Tuesday that lawmakers needed to be ready to start work on another plan to avoid any additional losses if the outbreak effects stretch into summer and fall.

"Much of the small business community is facing an extinction-level event," said John Lettieri, the chief of the Economic Innovation Group think tank in Washington, who pushed heavily for a package of small business loans in the agreement. "Will this bill help? Absolutely. But the lending capacity needed to prevent mass closures and layoffs could be four or five times larger than what is being provided."

"Congress," Mr. Lettieri said, "needs to be prepared now for how quickly these resources are going to evaporate."

[Source: By Jim Tankersley, The New York Times, Washington, 25Mar20]

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