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The “Glaring Holes” in Congress’s Plan to Stabilize the Economy


The CARES Act, which was signed into law in March, was designed to ameliorate the economic devastation caused by the coronavirus pandemic. One of the key features of CARES is a half-trillion dollar fund, overseen by the Treasury Department and the Federal Reserve, to loan money to businesses, states, and local governments in hopes of stabilizing the economy.

On Monday, the COVID-19 Congressional Oversight Commission, a panel supervising the disbursement of the money, released a report claiming that almost none of it has yet been spent. The release of this report is one of a few stumbles in the rollout of the CARES Act—the law’s Paycheck Protection Program (P.P.P.), especially, has garnered criticism for aiding large businesses and providing conflicting information about how small businesses should apply for loans. In Senate testimony on Tuesday, the Fed chairman, Jay Powell, and the Treasury Secretary, Steven Mnuchin, defended their work to senators who demanded answers on why more money has not yet been spent.

I recently spoke by phone with Bharat Ramamurti, a lawyer and political adviser serving on the COVID-19 Congressional Oversight Commission, which still does not have a chairperson, because Nancy Pelosi and Mitch McConnell have not agreed on whom to appoint to the role. Ramamurti is also the managing director of the Corporate Power program at the Roosevelt Institute and a former economic adviser to Elizabeth Warren. During our conversation, which has been edited for length and clarity, we discussed why our economic system is best equipped to save bigger businesses, the real reasons that so little money has reached its intended recipients, and the next steps that Congress should be taking to help struggling workers.

How would this five-hundred-billion-dollar fund function in an ideal world?

Congress gave the Treasury Department this five-hundred-billion-dollar fund, and really all it said was, Use this to help stabilize the economy by providing support to businesses and state and local governments that are having liquidity concerns because of the coronavirus crisis. So that gives the Treasury and the Fed quite a bit of discretion on how to deploy that money.

But I think that there are different schools of thought on this. What does stabilizing the economy mean? Does it mean making sure that we minimize job losses and get workers rehired if they’ve already been fired? Does it mean stabilizing the stock market? Does it mean stabilizing corporate bond rates so that companies can borrow money more cheaply without the Fed’s support? The first question that we asked in the oversight-commission report is: How are the Treasury and the Fed defining success in this area? And I think, to date, they haven’t defined what success means with this five-hundred-billion-dollar pot of money.

What would it mean to you?

I think that, in the middle of a crisis with heading toward twenty per cent unemployment, you can’t stabilize the economy without bringing down the unemployment rate and keeping people in their jobs or getting them rehired. [The unemployment rate rose to 14.7 per cent in April. Unemployment numbers for May have not yet been released.] That keeps them connected to their health insurance, allows them to participate in the economy, it gives them money to spend, and it allows us to “restart” the economy more quickly once this crisis has dissipated, because then there isn’t an extended period of time where people are having to be rehired.

What concerns me is that the Congressional Budget Office is projecting that, as things stand, the unemployment rate at the end of 2021 is going to be north of ten per cent. And I think the Fed, in the comments that Chair Powell has made over the last few days, is echoing that sentiment. So it’s setting up a long and painful recovery for working people at the moment, even if capital is recovering very quickly. The stock market is already back to where it was in early March. And I think that capital is going to recover much more quickly than workers will. And that’s my fundamental concern about the shape of their recovery so far.

One of the things you’ve said about capital recovering more quickly is that bigger companies are on firmer footing because they know that the federal government is willing to step in. But, for smaller companies, or state and local governments, they actually need the money in the bill. Am I summarizing that fairly?

I would say it slightly differently. The fact that the Fed is willing to backstop certain markets allows big companies that operate in those markets to secure private financing, where they otherwise wouldn’t have been able to secure private financing. So, just in the hearing this morning, Secretary Mnuchin was asked, essentially, Some people are concerned that this program is only working for big companies. Can you explain to them why they’re wrong?. And he said, Well, as an example, look at the fact that Boeing was able to secure a twenty-five-billion-dollar bond after we announced this program. So, obviously, that’s not an example of a small company benefitting, but it gets to my point, which is that the tools that the Fed has are much more effective at benefitting and supporting capital markets. And relatively few companies in the United States operate in the capital markets. Boeing does, other big Fortune 500 companies do. They can issue bonds that are traded, and the Fed can help those companies.

But the pizza place that’s around the corner that announced yesterday that it’s going out of business for good? There’s not very much that the Fed can do for those companies directly. And so we’ve created this system where the tools that we have available to help big companies, including the Fed, are very robust, and they’re swift and they’re generous, but the tools that we have available to help smaller companies, medium-sized companies, and individuals are rickety and uneven, and it takes them a while to get up and running. And so you have this uneven recovery, which is going to be, I think, relatively fast and painless for the wealthy, but it’s going to be long and painful for everybody else.

O.K., so then why hasn’t more money gone out? Are you concerned about malfeasance in some way, or incompetence? Or is it just that our system isn’t set up to do this as expeditiously as it should?

I think it’s the latter. It’s that the Fed has experience creating lending facilities that look a certain way. And what they’ve done so far is set up facilities that are either identical to the things that happened in 2008 or that closely resemble facilities that were created in 2008. The ones that aren’t up and running yet are ones that are basically unprecedented in the Fed’s history. And so I think that the Fed is taking time to try and figure out how to do them in a way that’s consistent with the restrictions that the Fed is operating under. And, as a result, that’s taking more time. At the moment, I don’t blame the Fed for that.

I do think it’s reasonable to ask whether it was appropriate for Congress to rely on the Fed to provide this level of support to medium-sized businesses and to state and local governments, rather than choosing other approaches. The alternative to the Fed supporting lending to medium-sized companies is Congress directly providing lending to those companies, or providing grants to those companies the way that they provide money to small businesses. The alternative to the Fed setting up a lending facility for state and local governments is Congress giving federal funds directly to state and local governments.

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