Economic Stimulus to Offset Coronavirus Impacts

March 11, 2020

WASHINGTON – President Donald Trump is considering an economic stimulus designed to help businesses hurt by the coronavirus, a senior White House economic aide said Friday, though aides tamped down expectations about the scope of any plan.

“Some of the sectors might need some temporary assistance,” Trump senior economic adviser Larry Kudlow told Fox Business on Friday. “I look at it as targeted and timely and I think that would be the most effective response, but we don’t want to act prematurely because today’s numbers show that the U.S. economy is in very good shape.”

Talk of a stimulus plan, however ambiguous, represents a departure from the standard line the White House has used in recent days: That the fundamentals of the U.S. economy are so strong that the coronavirus will only cause a short-term blip in growth.

Widening concerns over the virus has prompted tech companies, musicians, sports teams and international institutions to cancel dozens of events being held around the globe. Other companies are weighing whether to allow their employees to work from home. The University of Washington announced Friday on Twitter it would cancel in-person classes through the end of the winter quarter.

Kudlow’s remarks came amid another raucous day on Wall Street, where the Dow Jones Industrial Index was off nearly 500 points in midday trading.

Kudlow did not offer specifics about the plan, but said any stimulus would be targeted at industries such as travel and hospitality companies most impacted.

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White House officials said they are kicking around ways to help businesses that may been most affected by the coronavirus scare, including possible tax relief for the airline, cruise, and travel industries. They spoke on condition of anonymity because, they stressed, no decisions have been made and lots of options are being discussed.

But Kudlow and other White House officials signaled that talks were preliminary and no plans were set.

Kudlow spoke shortly after Trump signed an $8.3 billion package to help combat coronavirus, including assistance to federal, state, and local health agencies, plus money to help develop a vaccine and respond to the spread of the virus. Initially, Trump had asked for far less money.

Larry Kudlow
Kudlow signaled they may ultimately need tap Congress for money again.

“We may have to go back to Congress for additional appropriation requests – that’s ‘may;’ we don’t know yet,” he said.

If needed, a new plan would be designed to help businesses that have been hurt by efforts to contain the spread of the virus. It would be “timely and targeted micro-forms of assistance, not gargantuan across-the-board throw money at the problem,” Kudlow said.

Big and unfocused programs have “never worked in the past,” he said, and he added that the U.S. economy remains in good shape and “we think we will get out of this within months.”

While the spread of the virus has helped tank stock markets, Kudlow cited positive jobs numbers announced Friday.

“We think the economy is fundamentally sound,” he said.

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Trump mirrored those remarks earlier Friday.

“The consumer is generating so much because of the tax cuts, the regulation cuts and the things we’ve done,” he said .”So I think we’re in great shape. I think we’re in great shape.”

Jared Bernstein, an economic adviser to then-Vice President Joe Biden said it would be “political malpractice” not to prepare for some kind of fiscal stimulus, given the economic threats of coronavirus.

“They’re going to have to be responsive to a very likely economic slowdown at best and recession at worst,” said Bernstein, a senior fellow with the Center on Budget and Policy Priorities. “The question is whether it will contain useful bang-for-buck ideas, or if they’ll just use this as an excuse for more wasteful tax cuts.”

Some economists are recommending broader steps Congress can take in the short term to aid those immediately affected by the virus. Americans who are quarantined or can’t work because of supply disruptions can receive unemployment insurance that waives work requirements, says Jay Shambaugh, director of the Hamilton Project.

The government also could defray the health care costs of those infected, says Mark Zandi chief economist of Moody’s Analytics.

If the outbreak takes a more damaging toll on the economy, with unemployment rising, the government could reduce the Social Security payroll tax for all workers from 6.2% to 4.2% — similar to the decrease during the Obama administration, says Michael Gapen, chief U.S. economist of Barclays. That, he says, would boost household income by a total $150 billion, generating more consumer spending and increasing gross domestic product by 0.4% 0.6%.

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