Will Trump’s economic stimulus work? It hasn’t so far.

by | Mar 20, 2020 | Economy, Policy

With economists warning that the U.S. is already in a recession, the Trump administration is scrambling to find a way to stimulate the economy. 

During a recession, the federal government has two ways to boost the economy. The first is monetary policy, which involves the Federal Reserve adjusting interest rates and the money supply. Fiscal policy, determined by Congress and the executive branch, consists of taxes and expenditures.

The Federal Reserve has already done what it can on the monetary side, cutting interest rates to close to zero on Sunday. However, interest rates were already extremely low before the crisis began (something Trump repeatedly demanded) so cutting rates further is unlikely to have a major effect. The Fed has also announced an injection of $1.5 trillion in short-term loans, also this did little to calm the markets.  

Getting the economy back up again will require massive fiscal stimulus. With the first two rounds of emergency coronavirus relief signed into law, the federal government is preparing a much larger $1 trillion package.

Trump has pledged a corporate bailout for businesses hard-hit by the effects of the pandemic, with airlines as his top priority. However, the airlines, which the Trump administration is proposing $50 billion for, have used 96 percent of their available cash on stock buybacks over the past decades. Any corporate bailout would likely require strict conditions to prevent it from simply being a handout to those at the top. 

But what about money for the average American worker? A payroll tax cut is another major plank of Trump’s proposed stimulus plan, although experts say it would be an ineffective way to boost the economy as it would not provide immediate relief nor would it help those who lose their jobs from the recession. 

Far more effective would be simply putting money directly into the hands of most Americans (most plans to do so have an income threshold). Trump has expressed support for a direct payment of $1000 per adult ($500 for children), although many say that this is not enough and more than one direct payment might be needed. House Democrats have proposed as much as $6000 for workers who make less than $65,000.

Overall, the level of fiscal stimulus needed may be as high as $3 trillion sustained over multiple years, according to the Roosevelt Institute. This is about three times the amount the Trump administration is currently proposing 

Whatever the Trump administration decides to do, it will come at a time when deficits are already enormous thanks in large part to tax cuts pushed through by Republicans. After years of the GOP decrying the Obama administration’s deficit spending, Republicans seem to be taking deficits to the next level. Stimulating the economy will be expensive, even more so thanks to the Trump administration’s fiscal policies over the past few years, but letting the recession get worse would be an even more unbearable price to pay. 

Photo: Spencer Platt/Getty Images

Washington Correspondent | + posts

William serves as the Washington Correspondent for the Texas Signal, where he primarily writes about Congress and other federal issues that affect Texas. A graduate of Colorado College, William has worked on Democratic campaigns in Texas, Colorado, and North Carolina. He is an internet meme expert.

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