Second Great Depression or Second New Deal?

The Coronavirus economy demands swift and thorough action beyond the actions taken in the last financial crisis. Economists agree that we are heading into a coronavirus-induced recession. Optimists argue that the economy might bounce back once the health crisis is resolved. But if Covid-19’s course through the United States takes a slow trajectory—a successfully “flattened curve” from the epidemiologists’ perspective—then the economy may be effectively shut down for months. Closed borders and millions of people being forced to take unpaid leave will likely do severe, structural damage to the economy. Although the casualties might be less visible, a Second Great Depression might well take more lives than the virus itself. 

After the 2008 crisis, the government bailed out banks but neglected to assist the individuals who had mortgages.  Millions lost their homes.  If the virus continues to shut down major events and disrupt workplaces, millions of renters will be unable to work and pay their rents, and will again be in danger of eviction. Homeowners may likewise be unable to keep up with mortgages.  Many student loan burdens are nearly as expensive as apartment rentals. Eviction should be disallowed for the duration of the crisis, and payment should be deferred on all rents, mortgages, and loans.

Workers may feel they need to attend work, even if sick, to pay their bills. A bill has already passed in the House that would guarantee paid sick leave to about 20% of workers, but there are many exemptions (for example, small business exemptions). During this crisis, instead of just guaranteeing paid sick leave for some workers, the government should itself provide the funding for universal paid sick leave immediately, and work on further legislation to mandate universal paid sick leave in the future.

Firms and nonprofit institutions of all sorts (hospitals, banks, universities) will take big hits. Although this may be unpopular on the left, short-term interest-free loans should be provided to enable them to survive. Although wealth does not “trickle down” the economy well, the damage caused by failing universities, hospitals, and banks would. An even better alternative would be to purchase equity in companies to keep them afloat, and then sell this back to the company after the crisis.  But that might be a harder political compromise to achieve. In a time of crisis, the most vulnerable must be the highest priority.  But we cannot allow major institutions to fail either—because the damage will always hurt the vulnerable as well. 

It is important to layer these measures on top of each other because fixing any one step in the chain of economic consequences would miss millions of people whose needs are different (gig workers, etc). In that spirit, perhaps the most important step to take has already been proposed by Senator Mitt Romney (R-UT), as reported by NBC:

“Every American adult should immediately receive $1,000 to help ensure families and workers can meet their short-term obligations and increase spending in the economy,” his office said in a press release. “Congress took similar action during the 2001 and 2008 recessions. While expansions of paid leave, unemployment insurance, and SNAP benefits are crucial, the check will help fill the gaps for Americans that may not quickly navigate different government options.”

Of course, other Senators have proposed larger numbers and more systemic approaches. These measures run parallel to more systemic problems in the economy, as Congresswoman Alexandria Ocasio-Cortez (D-NY) is quick to point out. She is right to compare the long-term measures needed to the New Deal. A more permanent form of Universal Basic Income, a shifted tax burden toward the ultra-wealthy, and universal healthcare would all insulate society against the brunt of the economic fallout of future crises.

But the point I am making is that, even for a government with different economic priorities than democratic socialists, the time to act is now—and a government willing to intervene to mitigate the worst of the damage might be remembered with gratitude. The need for intervention is obvious to Democrats and Republicans in Congress alike.  And they should be more afraid of standing on the sidelines than in overdoing their aid to people in need. 

I call on President Trump to take these steps. I call on Senator Sanders and Vice President Biden to adopt a sharedplatform for economic response, in order to apply clearer and more immediate pressure to the President. 

The time for means testing and experimentation is past. It’s time to make a massive investment in the American people, before the suffering from a shutdown economy hits in force.

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Henry Koenig Stone served as Managing Editor of Unbound and Associate for Young Adult Social Witness from June 2017 – June 2019. Henry holds a B.A. in Economics (2015) from the University of Chicago and an MPP (2017) from UChicago’s Harris School of Public Policy.