The $2.2 trillion stimulus package is both good and bad.
From a philosophical standpoint, what separates conservatives and liberals is essentially the role of government, particularly when dealing with economic problems and perceived social injustices. Just how much involvement the government should have in resolving these issues has long been debated.
Because the coronavirus pandemic has shut down most of the economy, nearly all Americans would agree that some government action is needed to prevent this problem from becoming so severe that a potential disaster could occur.
With hundreds of thousands of Americans becoming infected and thousands of Americans dying, the problem is very serious, although not as serious as the flu during an average year when 36,000 die. If however this pandemic and the resulting actions to minimize its effects, lead to a depression the problem would be disastrous.
Free market economists and other conservatives believe the government’s role in the economy is to provide public goods, like the defense of the country and a legal system. Beyond that government should only act to prevent disaster. That means the economic policy is usually geared to making sure all Americans at least survive and have the opportunity to earn more.
Minimum survival and opportunity are the basis for conservative income transfer beliefs. Those beliefs lead to individual freedom and individual responsibility, which conservatives view as essential for a free market economy.
Liberal economists believe that the government’s role should be much greater. They believe that the government has the responsibility to ensure that the social injustices they perceive, are eliminated or at least minimized. Simply providing survival and opportunity are not nearly enough.
The liberals constantly attempt to expand the social safety net and reduce problems like income inequality and lack of health insurance for the entire population. Those issues, among others, are where liberals perceive the greatest social injustice.
They believe it is an injustice that all Americans do not have access to adequate health care. They believe it is an injustice that CEO’s of large corporations often earn more than 300 times what the average worker in the corporation earns. And they believe that big business is constantly taking advantage of consumers, so they need to be regulated.
Liberals believe that regardless of the contribution an employee provides, every worker should earn a minimum of $15 per hour. Many liberals believe that all adult Americans should be guaranteed a minimum income. These programs would reduce income inequality.
Conservatives dismiss these perceived social injustices and simply say that the government should ensure that all Americans at least survive and have the opportunity to achieve more. Conservatives believe in individual responsibility rather than social responsibility.
So how are free-market economists reacting to the federal government’s response to the coronavirus pandemic?
Right now, most would likely agree with the federal government’s economic policy actions, at least up to a point. If the economy fell into a depression, the economic hardship would be so great that it would be a disaster. Since the government’s role is to prevent disaster, the actions make sense. But there is a caveat.
Because the government mandated that virtually all non-essential businesses close, a deep, although not necessarily long, a recession will follow. That means millions of workers become unemployed and perhaps hundreds of thousands of small businesses close. Without new revenue, even in the short term, many small businesses will simply not survive.
Depending on the duration of the shutdown, many Americans would not be able to purchase the necessities to sustain life. This would lead to a disastrous depression. So the government, wanting to prevent a disaster, took the correct action.
The government has extended unemployment benefits both by increasing the weekly amount and by extending the time for which benefits can be received. Some economists believe this was too generous since workers can often earn more being unemployed than they can once they return to work, thereby discouraging them to return to work.
The government also gave thousands of dollars to every American household, so there is enough money to buy at least the necessities. Many free-market economists believe this may be too much since Americans who were not harmed will receive free money from the government.
The government, through the Federal Reserve, has vastly increased the money supply and dropped interest rates to historic lows.
In addition, through the Small Business Administration, loans are available to virtually all businesses, big and small, to provide liquidity to get through the crisis. As long as the business retains all employees, the loan does not have to be repaid.
Once the pandemic is resolved, American consumers will have money to spend. American businesses will remain open and the economy should recover quickly, thereby averting a disaster. Free market economists will generally approve of this, but……
The government’s actions so far will lead to a nearly $4 trillion deficit this year. That will get added to the more than $23 trillion that the federal government is already in debt. That cannot continue. Indeed after this pandemic, the country will have to figure out a way to permanently reduce large deficits, hopefully by moving toward at least a cyclically balanced budget.
That also means that a second stimulus package is not needed. Any further spending will explode the deficit, cause inflation to increase and lead to lower long term growth rates.
So far conservatives are mostly on board with government policy. They do not, however, favor any additional government spending. Free market economists hope elected officials see it that way.
Michael Busler, Ph.D. is a public policy analyst and a Professor of Finance at Stockton University where he teaches undergraduate and graduate courses in Finance and Economics. He has written op-ed columns in major newspapers and web sites for more than 35 years. www.facebook.com/fundingdemocracy @mbusler