The U.S. Senate unanimously passed a massive stimulus bill Wednesday to keep the economy afloat during COVID-19. The bill includes about $2 trillion in aid to citizens and businesses, the largest federal assistance package in the country’s history. The House will vote Friday on the proposal, and it is expected to pass.
The package includes $350 billion in loans for small businesses; $500 billion in aid to airlines and other large corporations particularly impacted by the new coronavirus; $1,200 for each adult, and $500 per child, in households that earn up to $75,000 per year for individuals or $150,000 for couples. Payments should arrive to most people within a few weeks after the bill is signed.
To help make sense of the stimulus, the Leader-Telegram spoke with Thomas Kemp, chairman of the UW-Eau Claire economics department.
Kemp discussed details of the bill, why people should treat the near future like hibernation and important economic indicators going forward. The interview has been edited and condensed.
What were your overall thoughts on the $2 trillion stimulus bill?
The first thing is I’m happy to see some movement taken on this. There’s little question that there would need to be significant federal stimulus in order to avoid a significant recession at this point … It’s way better than nothing. Let’s just hope that this is relatively short-lived and we can get through this and this (stimulus) ends up being enough.
Were there certain aspects you were hoping to see included that weren’t?
It’s difficult to know. Right now, I don’t see any kind of debt moratorium in (the bill) … That’s something that’s really important, and what I mean is a 60- or 90-day moratorium on all debts, whether they be personal like credit cards or mortgages, and also the business side … Even if someone loses their job, they don’t have to pay their credit card bill, they don’t have to pay their power bill, they don’t have to pay their mortgage, and they get some money in the mail so they can buy groceries. In two or three months, the chances of them getting hired back on are pretty darn good.
Are there other questions or clarifications you hope to see answered in the coming days?
Unemployment benefits were boosted, which makes a lot of sense, because that’s an insurance pool that they need to really shore up … That was done during the Great Recession with the stimulus package and proved to be one of the more critical aspects, so that’s good to see, but at the same time, it would be better yet for people to not be unemployed. If there were some incentives to maintain employment through this, that would be far, far better still. I’m hoping that that’s what’s getting kicked around.
I would like to see exactly how small businesses will get their hands on these loans … Will the money get out quick? Because timeliness is going to be of essence for a lot of small businesses out there that I’m sure are already facing real cash flow problems.
Is the economy in a recession? What terminology would you use?
There is no formal definition of when an economy’s in a recession. However, it is certain that we are now in a contractionary period, which is normally how we think of recessions. By contractionary, I mean that incomes and expenditures are falling. So it may not be a recession, but it walks like one, talks like one and acts like one.
Is the closest analogue the recession (of 2008)?
It’s hard to say, because we haven’t reached the bottom, but the rate at which the economy is contracting in terms of employment is actually much quicker than that recession. In other words, we are losing jobs faster than we did in the fall of 2008. That’s concerning; there’s a lot of folks out there whose lives are being significantly disrupted, and not just staying at home, but losing jobs, and that’s why it’s so important that we got some of this aid out there.
It seems like now it’s kind of unique in that there wasn’t a real estate bubble, there’s no underlying issue in the economy. Are there any past similarities?
We don’t have data on what happened (to the economy) during the 1918 (influenza) pandemic; all the data is kind of speculative … With my students, I’m actually using the analogy of hibernation. It’s kind of a hokey analogy, but animals shut down for three months because it’s winter (and) they can’t do their thing. Well, that’s what it is; we can’t do our thing right now. There’s no underlying economic effect, it’s a purely natural environment.
For local people and businesses, what can be done to fit that hibernation mindset?
I’ve seen a lot of folks in finance on a local level trying to reach out to assist folks in their short-run financial crises. This morning I got an email from my bank asking if I needed assistance with my mortgage, and I think that that is extremely helpful, and I hope that there’s a lot of that going on in our community. I expect that that’s probably the case.
What type of impact do you think this might have on the global economy?
A lot of global capital is likely to come into countries like the United States. Countries that have relatively stable (financial) institutions that have the ability to mitigate this crisis in a meaningful way are likely to see increases in foreign investments, and the reverse is also true.
Going forward, what are some important indicators you’ll be looking at?
I’m looking at new unemployment claims. (The Labor Department released information Thursday showing more than 3 million people filed unemployment last week, the largest weekly number ever). If I see that fall off, I’m going to start to feel better about things. That’s at the local and state level. On the broader level, I’m looking at the value of the dollar vis a vis the other currencies.
Is unemployment the most concerning aspect?
I’m equally concerned about small and medium-size businesses that can’t weather this; they just don’t have the liquidity to weather two, three, four, five weeks of shutdown … My biggest concern is general stagnation, whether it be the general stagnation of individual workers or the stagnation of small and medium-sized firms. That’s my biggest concern: How do we ensure that a period of slowdown doesn’t become full-blown stagnation?