03.25.20 / THE ECONOMY
[INTRO]
SEAN RAMESWARAM (host): It’s Wednesday, March 25, and the country’s gearing up to make it rain two trillion dollars. I’m Sean Rameswaram and this is your coronavirus update from Today, Explained.
SCORING <IN THE BASEMENT>
SEAN: The biggest stimulus package in the history of modern American politics hasn’t yet passed, but Congress has reached a deal on the legislation. Much more on that in today’s episode.
Meanwhile, the crisis continues to worsen in New York City, where Governor Cuomo says cases are doubling every three days and as many as 140,000 people might need medical care in the next few weeks. People leaving New York City have been told to self-quarantine for 14 days.
In England, Prince Charles has tested positive for Covid-19. For those of you who haven’t watched The Crown, he’s the heir to the throne. The Queen herself is in self-isolation and turns 94 next month.
In Spain, the Covid-19 death toll has now surpassed China’s. It’s around 3,400, second only to Italy. Spain has asked NATO to step in and help with the epidemic.
And today is Day 1 of India’s full lockdown. 1.3 billion people or 1/5th of the world’s population.
Lastly, Washington DC’s National Cathedral said one of its stonemasons recently discovered boxes containing more than 5,000 respirator masks in the Cathedral’s crypt.
The Washington Post reports the masks had been purchased in 2006 during an earlier health scare and will be donated to two local hospitals.
So check your crypts, people. Your healthcare workers need those masks.
Get in touch with Today, Explained. We’re on twitter @today_explained. I’m @rameswaram. Email us: todayexplained@vox.com. And you can call and leave a message at (202) 688-5944.
[THEME]
<CLIP> SENATE MINORITY LEADER CHUCK SCHUMER (D-NY): Madam President, after five days of arduous negotiations, after sleep deprived nights and marathon negotiating sessions, we have a bipartisan agreement on the largest rescue package in American history.
SEAN RAMESWARAM (Host): Ella Nilsen. Vox. Congress has agreed on a $2 trillion stimulus package. It's historic. Nothing like it has happened ever before in American politics, at least in the modern era. And it makes the 2008 stimulus, which is something like $800 billion, look like small potatoes. How did we get here?
ELLA NILSEN (Reporter, Vox): So it's important to remember that the deal that Congress reached on this $2 trillion stimulus package very early this morning, this is Phase 3 of the Coronavirus bills. So a couple of weeks ago, we had Phase 1, which was a relatively small $8 billion for research and development for coronavirus vaccine research. Then last week, we had a $104 billion bill that went for free testing, coronavirus testing for every American, including those who are uninsured and expanded paid sick leave and other things, even though there were some loopholes in that bill. But this, as you say, this was the big one. This is a $2 trillion package that kind of has something for everyone. It has $500 billion for big businesses. It has direct payments to Americans that are struggling and an expanded unemployment insurance. And it has money for hospitals.
SEAN: OK, well, let's talk about each of the sort of buckets. One by one, starting with the aid to businesses. This was the sort of contentious element that held this thing up a few extra days, right?
ELLA: Yeah. So this is a $500 billion loan program for big businesses, including, you know, airline companies, you know, people who, like companies, that have seen through no fault of their own, their business just drop off entirely because people aren't flying, economic activity is really ground to a halt. So compared to 2008 and 2009, when we were bailing out banks that had kind of arguably caused the financial crisis that we found ourselves in. You know, the government is now, quote unquote, bailing out these big businesses that are seeing a huge loss of revenue due to coronavirus that they obviously did not cause. So the reason that this was so controversial was initially in the first draft that Senate Republicans put out late last week, the Trump administration and the treasury secretary, Steve Mnuchin, had very large discretion over this $500 billion loan program.
<CLIP> SEN. SCHUMER (D-NY): The bill still includes something that most Americans don't want to see. Large corporate bailouts with no almost no strings attached. Maybe the majority leader thinks it's unfair to ask protections for workers and labor to companies that are getting hundreds of billions of dollars. We think it's very fair to ask for those. Those are not extraneous issues. That is a wish list for workers. Nobody else. And so we are looking for protection. We're looking for oversight.
SEAN: So if you're worried that, you know, Steve Mnuchin was just gonna hand out billions of dollars to companies that were favorable to the president. That ain't gonna happen anymore?
ELLA: Yeah. It's going to have oversight attached to it. There is going to be an inspector general within the Treasury Department and potentially a congressional oversight panel. So, you know, there are going to be outside people other than Steven Mnuchin, and now looking to see, you know, how the money will be spent, having input on on how these loans will be doled out to businesses.
SEAN: And it's $500 billion that are going to go to, like, big corporations. How much money was set aside for small businesses?
ELLA: $367 billion for a small business loan program.
SEAN: Huh. It’s just interesting. Like, $367 billion can certainly shore up companies that are losing money right now, but it can't bring them back the business that they need to thrive, right?
ELLA: Well, I mean, ultimately, the only thing that can bring these small businesses back is, is consumer spending, right?
SEAN: Right.
ELLA: We just can't do that right now. So...and, and this was sort of the argument that Democrats were making throughout negotiations was, you know, this this trickle down stuff and bailing out these these big companies isn't necessarily going to get to the root of the problem, because the root of the problem is just that people are trapped in their homes right now and they're not going out and, you know, spending money at their local restaurants and spending money at stores. I think that what Democrats were arguing is, you know, and Republicans, to be fair, came around to this idea pretty quickly, too, of direct cash payments to people, because ultimately what you're trying to do is is get people spending again.
SEAN: Well, let’s talk about what individuals are getting. What kind of cash are regular people gonna get out of this two trillion dollar stimulus that regular people will pay for?
ELLA: If you are an American adult who is making $75,000 or less annually, you will probably be seeing a $1,200 check or a direct deposit show up in your mailbox or your bank account or however it's going to be delivered to the American people. And it's important to note this is a one time check thus far. Unless Congress comes back and approves additional money to get people additional checks. So if you make more than $75,000, you are not going to receive that full amount. It kind of depends on your income. And basically the idea is that people who are pretty comfortable right now and are making a lot of money don't necessarily need as much government assistance. There will also be a $500 payment if you have kids. So a five hundred dollar payment to cover every child in qualifying households.
SEAN: What else can individuals expect out of this $2 trillion?
ELLA: Another big thing that Democrats were talking about that they got out of negotiations was what Chuck Schumer likes to call, quote, “unemployment insurance on steroids.”
SEAN: Nice.
ELLA: <laughs> And this is increasing unemployment insurance by six hundred dollars per week for four months. So if you are laid off and you are getting unemployment insurance due to coronavirus, you are eligible for an additional $600 per week to, again, you know, help you cover your basic expenses like rent and food, medical costs, et cetera. So as money is in addition to what states pay as a base unemployment salary. And it's important to note that this benefit extends to people who work in the gig economy. So, you know, Uber and Lyft drivers, you know, Postmates delivery people, people who are freelancers and then also furloughed workers. And these are workers who are not...no longer getting a paycheck, but are still getting health insurance from their employers.
SEAN: And then the third bucket of this is, is medical aid. It's hospital aid. Aid to health care workers. Is that right?
ELLA: This is, you know, right now, especially in hard-hit places like New York, you know, hospitals are struggling to meet -- I mean, they don't have enough capacity for the patients that they're seeing that a lot of them are complaining that they don't have enough basic medical equipment like ventilators and masks. There are big shortages in that. So what Congress has done here for hospitals is add an additional one hundred and fifty billion dollars to hospitals who are treating coronavirus patients.
SEAN: Is this going to be enough? I mean, especially when we talk about aid to hospitals and health care professionals, it just sounds like it might be too late. I mean, New York has already had to suffer as a result of lack of supplies and lack of hospital beds. I mean, and then more broadly speaking, is this enough to shore up Americans and American businesses and the economy?
ELLA: I mean, that is the $2 trillion question. And I don't think we know at this point.
SCORING IN - VECTOR MODE
ELLA: We're already seeing, you know, more headlines of more people getting sick. Death rates are also going up as well. So we haven't yet seen the worst of this.
SCORING BUMP
ELLA: I think that there is a good chance that if Congress sees the need, that they can come back and pass more money. There is always a way for them to do that. But despite President Trump saying yesterday that he wants this all wrapped up by Easter, there is no immediate light at the end of the tunnel. And I...you know...I don't think we know yet if $2 trillion is enough to save us from the damage that coronavirus is wreaking not only to public health, but also to the economy.
SEAN: After the break, I ask Ezra Klein the $2 trillion question. It’s Today, Explained.
SCORING OUT - VECTOR MODE
[MIDROLL]
SEAN: Ezra Klein, even with this two trillion dollar stimulus, there’s a recession coming if not already here. Do we know how bad it’s going to be? How will it compare to the last one in 2008?
EZRA: Right now, the early economic data suggests it will be much worse, at least at its peak, than what we had in 2008, which is not something I thought I would be saying anytime soon. 2008 was supposed to be a once in a generation economic flood. And now we're looking at something that is not even generationally supposed to be possible. So if you look at early unemployment filings, they potentially went up to 3 million over the past week. We've just never seen a number like that. If you look at what Goldman Sachs and some other economic forecasters are forecasting for the GDP drop in the second quarter of the year, they're now up to a 24 percentage point drop. That would be the single worst quarter in the history of GDP statistics. Treasury Secretary Steve Mnuchin said that unemployment would go up to 20 percent before he walked that back. But then over the weekend, the president of the Federal Reserve Bank of St. Louis said he thought 30 percent was possible, at least for a minute. So we're looking at something that at the very least, at its worst, could be unbelievably bad. And one reason it could be unbelievably bad is that this is really different in its dynamics and not just 2008, but really any recession we can think of in memory. We it's almost not correct to think about this as a recession. This is a combination of a recession, a financial crisis, potentially, a war and a natural disaster.
SEAN: Great. And this is just the opening salvo of this recession-crisis-war-natural disaster?
EZRA: Yeah, I spoke to Mark Zandi, who is the chief economist at Moody's Analytics. So he's a very well respected economic forecaster, and as part of Moody's, they get a lot of incoming economic data, survey data, actual data all the time. So they tend to know where the economy is going just about before anyone else. And I've spoken Zandi a lot over the years and he was sounding almost apocalyptic here. But to be more specific, what he said is we're going to see four waves of economic pain.
SCORING <TURTLES>
EZRA: The first wave is the sudden stop of the economy. That's what we're in right now. Right. I can't go into work the way I normally would. The restaurants in my town are closed and nonessential businesses are closed. People are sheltering in place. Wave 2, which is already here as well, is unemployment. People are laying off their workers because they have no sales coming in. People are cutting back hours among their workers. Marriott furloughed a huge amount of their staff. So mass unemployment is just beginning, but already we're seeing numbers like nothing we've ever seen before. Then the third wave is what he called the wealth effect. So there are all these people who have 401Ks. They have money saved in the market for the retirement. This is true for everybody was particularly true for older people who are towards the end or past end of their earning years. And now they're seeing those savings wiped out. And so there's a lot of spending from this group that is going to disappear. And then the fourth wave is business investment. So you think of corporations or even small businesses that were thinking of opening up a second location, upgrading to better office space there. A media organization is going to start a new publication, whatever it might be. That's all going to go on hold. So all that spending that was going to upgrade machines, create new capital, create new products. A lot of that is going to disappear from the economy for a while.
SCORING OUT
SEAN: So of Zandi’s four waves, we’re living the first two already: the economy stops, unemployment soars. The next two are imminent if not already here: people can’t retire and realize their dreams, and industry has to scale back. Is there a way out?
EZRA: So those four waves, Zandi said they're definitely going to happen like they're already happening. But there's a question now: is the kind of recession we have, what's called a V-shaped recession, where the economy plummets in, let's call it, quarter two, maybe quarter three and then rebound super powerfully and potentially quarter three, but quarter four and then into 2021. In that case, this will be bad, but not that bad. What Zandi said, and this is I think clearly true, is two things could happen that could disrupt that. And this is particularly going to happen if we don't get the disease under control quickly. The first thing that could happen is we set up a financial crisis, a financial panic somewhere. So we are already seeing very scary things happening in debt markets, in bond markets, in currency markets. There are a lot of both countries and companies that need a lot of U.S. dollars and they're having trouble getting them. The Fed is out with a huge amount of new programs right now to try to deal with this, but it's pretty scary. So if we have 2008 in reverse: a problem in the real economy that creates a contagion in the financial economy, that's going to be very, very hard to fix. That's going to be years to dig out of. The second, which is also I think very, very present as a danger, is a mass wave of business failures. More than 50 percent of small businesses cannot survive more than a couple of months without sales. They just don't have a big nest egg. Small businesses tend to be reasonably low margin and such—even a lot of big businesses can survive very long in a very down economy if their receipts have gone down 50 percent, 75 percent. And so if you have mass closures, then not only when the economy does come back. Do you have to rebuild those businesses or something like them? You know, and that's hard, right? You need to figure out leases. Places need to rebuild. They need to hire new people. But also, it's not like their workers can then just come right back on. They have to find new jobs. There's matching costs. It's hard to search. There's a lot of uncertainty in that. And so if you have a huge wave of business failures, it's very hard to come back because you've lost a lot of a structure in which the economic growth could have happened once you got back on your feet. So preventing those two things, a financial crisis and a mass wave of business failures, that's really, really important.
SEAN: And Congress is hoping that’s what this stimulus will do. But what if it doesn't? If that’s the best case scenario, what’s the worst?
EZRA: Oooh, I don't even think the worst case scenario right now is primarily economic. I mean, the worst case scenario is an unchecked pandemic with millions of deaths, hugely overwhelmed health systems creating behind it a total economic catastrophe. In some ways, the worst case scenario to me is one that we are beginning to flirt with, because the worst case scenario is that we lose our nerve here at the front end. There is an enormous return to acting quickly. You prevent many more cases if you are able to stop one person from passing on the disease to after that person has passed it on to ten people. If you're trying to stop ten people from passing it on. We are already seeing at the highest levels of our political leadership. A blink.
SCORING <WALLS TO HOLD US>
<CLIP> LT. GOV DAN PATRICK (TX-R): My message is that. Let's get back to work. Let's get back to living. Let's be smart about it. And those of us who are 70 plus, we'll take care of ourselves. But don't sacrifice the country. Don't do that.
PRESIDENT DONALD TRUMP: Our country wants to go back to work. And and again, the cure, it’s, It's like this cures is worse than the problem. Again, people many people, in my opinion, more people are going to die if we allow this to continue.
EZRA: There is this fantasy of an economy out there that you could somehow just have the economy operating at full potential, even as a disease is killing and hospitalizing millions of people all at once. Right. 9/11s every day in this country. And I think they're wrong. Right now, the curve of new cases in America is vertical. We are rising faster than Italy was at this point. That's very scary because this is an exponential curve. As you rise faster, you then rise even faster. And so if what happens is we let off the pressure when it is currently completely uncontrolled. What I think is gonna happen is in three months from now or even two months from now, maybe even just three weeks from now when our health systems are overwhelmed. There is going to be an enormous demand for quarantine, an enormous demand to get this under control. And that will happen when the economy has now gotten much worse. So Jason Furman, who was Obama's former chief economist but has been writing about this a lot on Twitter and elsewhere, has made this good point, that he thinks that the correct way to understand the choice here is between social distancing right now and a quite bad economy six months from now or two months of nothing, and then two months of even more extreme social distancing, followed by a much worse economy after that. And so the nightmare scenario for me is one where we've let the disease get completely out of control. And that also spins the economy out of control.
SCORING OUT
EZRA: And I don't know, I can't I honestly cannot believe that after five days of acting like a real president or trying to act like a real president, that Donald Trump seems to have lost his taste for this and is now telling people we're gonna be back at work in two weeks. We we just need better than that right now, We just do.
SEAN: What is he missing? What are all the people who are looking at these unprecedented economic consequences? Over 2 million people filing for unemployment who weren't two weeks ago, who are looking at something much worse than a recession and saying, is this really worth it? What are they missing?
EZRA: The hardest thing in politics is to force pain now to prevent more pain later. And it's not that they're missing something exactly. It's that they're living in the present and not in the future. What Donald Trump, what any political leader, what any leader needs to do in an organization is live somewhat in the future, is see where things are going and work backwards from there. So the organization is prepared by that organization, a country or a company. That is what we are doing even at Vox Media. Right now, we are trying to think about what all this is going to mean for our business and trying to work backwards to how we need to prepare. Donald Trump is a very present-focused person and he runs a very present-focused administration. And what is happening right now is that they are feeling the pain of social distancing and it is real pain. The unemployment filings, the GDP projections. It is real pain, suffering. It is a horror. What he is not able to feel yet, and so he's not truly responding to, is the kind of economic, social, political and human pain of this disease flying out of control. Of what it will mean if you can't go deliver a baby or get treated for a heart condition because you're stepping over bodies in the hospital, infectious bodies; of what it will mean if we have a national shortage of nurses, doctors, respiratory therapists, etc.; that he is responding to the political pressure on him now and the things that he can feel now, the pain we are causing now as opposed to the pain we are trying to prevent. And if every epidemiologist and public health expert and frankly, even just what we're seeing in other countries is right, the pain we are trying to prevent is a lot worse. Now, we can't ignore the pain we would cause on the way. We need more than stimulus. We need economic support. We need to have the political imagination and will and ambition to make this possible. We are not going to get out of this without real economic damage. Either way, that is built in. But we could get out of it with a lot of humanity, a lot of social support. We could also, if we had anywhere near the kind of imagination required for crisis like this, we could get out of it with a better structure for our economy altogether, right? It could be that out of this, people get guaranteed paid leave as every other industrialized country has guaranteed health care. I mean, you could imagine using this as a moment to say, “Oh, we are so interdependent that we can't just have solidarity in the moments of crisis. We need to have it all the time.” It's not that it would stop people from losing their jobs. It's not that stimulus or basic income payments are going to stop them from hurting. We're not going to stop the hurt here, but we can do a lot to build better structures to protect people from it now and in the future.
SCORING <IN THE BASEMENT>
SEAN: Ezra, thank you, and we’ll be in touch.
EZRA: Thank you.