This week, the global coronavirus crisis officially became a U.S. economic crisis. Monday saw the Dow’s worst single-day drop in history — 2,013 points — and markets continued to convulse at the opening Thursday to the point trading was temporarily halted following a steep drop. It is evident a broad economic contraction, affecting everything from hospitality to shipping, is compounding rising anxiety over the COVID-19 pandemic.
The obvious touchstone for many financial experts was the 2008 crisis, when a finance sector run amok rocked the global economy and destroyed the U.S. housing market, wiping out the generational wealth of millions of Americans. Because the coronavirus looks set to have an even more enduring impact on the economy, it is important to remember how the government failed the American people in its response in 2008.
Twelve years ago, culpable banking and finance institutions that should have been reduced in size, power and wealth were given billions in taxpayer-funded black checks, while millions of innocent people lost their retirement savings and homes. Famously, only one top banker responsible for the crisis went to prison.
There are no clear villains in the current crisis, and we can’t imprison a virus to make an example of it. But we can make sure that ordinary people are the beneficiaries of government resources — which may be strained in ways not seen in recent memory — instead of privately held industries and their investors who have spent the last decade hiding profits to avoid taxes and inflating their share prices with stock buybacks.
The first conversations about who the U.S. government will help, and how much, have already begun. The most important so far is taking place in Congress, where on Wednesday night, House Democrats introduced an emergency package that establishes the right to paid sick leave (which would be a first in this country), expands unemployment benefits and establishes an emergency food stamp program with no work or work training requirements attached. The bill reflects a basic understanding of what will be required to keep people afloat when they can’t work because they are sick, unemployed or both. (In Italy, the worst-hit country in Europe, the government has gone further, suspending monthly bills on utilities and all mortgage payments.)
As in 2008, there will competitors for these funds from the federal government, as well as those seeking to exploit the crisis for financial or political gain. President Donald Trump’s proposed payroll tax break, that has been met with resistance in Congress and elsewhere, is being packaged as a coronavirus-related economic relief and stimulus tool. Then there are the industries we can expect will demand bailouts on dubious claims of being socially and economically indispensable. There are already reports the administration is discussing a bailout of the shale oil industry in response to the collapse in oil prices (caused, in part, by the steep, virus-related drop in demand for air travel.)
With the possibility that tens of millions of Americans will be unable to work in the coming months, the shale oil industry should not be in line for a single penny. Unlike 2008, this bailout must be focused on keeping Americans and their families fed, housed and — eventually, at no cost to them — vaccinated against COVID-19.Print