Today, Explained - The two trillion dollar question

Episode Date: March 25, 2020

Congress has settled on an historic stimulus package, but Ezra Klein is worried it might not be enough. (Transcript here.) Learn more about your ad choices. Visit podcastchoices.com/adchoices

It's Wednesday, March 25th, and the country's gearing up to make it rain $2 trillion. I'm Sean Ramos for him, and this is your coronavirus update from Today Explained. The biggest stimulus package in the history of modern American politics hasn't yet passed, but Congress has reached a deal on the legislation. Much more on that in today's episode. Meanwhile, the crisis continues to worsen in New York City, where Governor Cuomo says cases are doubling every three days and as many as 140,000 people might need medical care in the next few weeks.

People leaving New York City have been told to self-quarantine for 14 days. In England, Prince Charles has tested positive for COVID-19. For those of you who haven't watched The Crown, he's the heir to the throne. The queen herself is in self-isolation and turns 94 next month. In Spain, the COVID-19 death toll has now surpassed China's. It's around 3,400 second only to Italy. Spain has asked NATO to step in and help with the epidemic. And today is day one of India's full lockdown, 1.3 billion people, or one-fifth of the world's population. Lastly, Washington, D.C.'s National Cathedral said one of its stonemasons recently discovered boxes containing more than 5,000 respirator masks in the cathedral's crypt.

The Washington Post reports that the masks had been purchased in 2006 during an earlier health scare and will be donated to two local hospitals. So check your crypts, people. Your health care workers need those masks. Get in touch with Today Explained. We're on Twitter at today underscore explained. I'm at ramasferum. Email us todayexplained at vox.com. And you can call and leave a message at 202-688-5944. BetMGM, authorized gaming partner of the NBA, has your back all season long. From tip-off to the final buzzer, you're always taken care of with a sportsbook born in Vegas.

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Ontario only. Please play responsibly. If you have any questions or concerns about your gambling or someone close to you, please contact Connex Ontario at 1-866-531-2600 to speak to an advisor free of charge. BetMGM operates pursuant to an operating agreement with iGaming Ontario. Madam President, after five days of arduous negotiations, after sleep-deprived nights and marathon negotiating sessions, we have a bipartisan agreement on the largest rescue package in American history. Ellen Olson, Vox Congress has agreed on a $2 trillion stimulus package. It's historic.

Nothing like it has happened ever before in American politics, at least in the modern era. And it makes the 2008 stimulus, which is something like $800 billion, look like small potatoes. How did we get here? So it's important to remember that the deal that Congress reached on this $2 trillion stimulus package very early this morning. This is phase three of the coronavirus bills. So a couple weeks ago, we had phase one, which was a relatively small $8 billion for research and development for coronavirus vaccine research. Then last week, we had a $104 billion bill that went for free testing, coronavirus testing for every American, including those who are uninsured, and expanded paid sick leave and other things, even though there were some loopholes in that bill. But this, as you say, this was the big one.

This is a $2 trillion package that kind of has something for everyone. It has $500 billion for big businesses. It has direct payments to Americans that are struggling and expanded unemployment insurance. And it has money for hospitals. Okay, well, let's talk about each of the sort of buckets one by one, starting with the aid to businesses. This was the sort of contentious element that held this thing up a few extra days, right? Yeah. So this is a $500 billion loan program for big businesses, including, you know, airline

companies, you know, people like companies that have seen through no fault of their own, their business just drop off entirely because people aren't flying. Economic activity is really ground to a halt. So compared to 2008 and 2009, when we were bailing out banks that had kind of arguably caused the financial crisis that we found ourselves in, you know, the government is now quote unquote bailing out these big businesses that are seeing a huge loss of revenue due to coronavirus that they obviously did not cause. So the reason that this was so controversial was initially in the first draft that Senate Republicans put out late last week, the Trump administration and the

Treasury Secretary Steve Mnuchin had very large discretion over this $500 billion loan program. The bill still includes something that most Americans don't want to see. Large corporate bailouts with no strings attached. Maybe the majority leader thinks it's unfair to ask protections for workers and labor to companies that are getting hundreds of billions of dollars. We think it's very fair to ask for those. Those are not extraneous issues. That is a wish list for workers, nobody else. And so we are looking for protection. We're looking for oversight. So if you're worried that, you know, Steven Mnuchin was just going to hand out billions of dollars to companies that were favorable to the president. That ain't going to happen anymore. Yeah, it's going to have

oversight attached to it. There's going to be an inspector general within the Treasury Department and potentially a congressional oversight panel. So, you know, there are going to be outside people other than Steven Mnuchin now looking to see, the money will be spent, having input on how these loans will be doled out to businesses. And it's $500 billion that are going to go to big corporations. How much money was set aside for small businesses? $367 billion for a small business loan program. Huh. It's just interesting. Like $367 billion can certainly shore up companies that are losing

money right now, but it can't bring them back the business that they need to thrive, right? Well, I mean, ultimately, the only thing that can bring these small businesses back is consumer spending, right? We just can't do that right now. And this was sort of the argument that Democrats were making throughout negotiations was, you know, this trickle down stuff and bailing out these big companies isn't necessarily going to get to the root of the problem. Because the root of the problem is just that people are trapped in their homes right now and they're not going out and, you know, spending money at their local restaurants and spending money at stores. I think that what Democrats were arguing is, you know, and Republicans, to be fair, came around to this idea pretty quickly, too, of direct cash payments to people, because ultimately what you're trying to do is get people spending again. Well, let's talk about what individuals are getting. What kind of or however it's going to be

delivered to the American people. And it's important to note this is a one-time check thus far, unless Congress comes back and approves additional money to get people additional checks. So if you make more than $75,000, you are not going to receive that full amount. It kind of depends on your income. And basically, the idea is that people who are pretty comfortable right now and are making a lot of money don't necessarily need as much government assistance. There will also be a $500 payment if you have kids. So a $500 payment to cover every child in qualifying households. What else can individuals expect out of this $2 trillion? Another big thing that Democrats were talking about that they got out of negotiations was what Chuck Schumer likes to call, quote, unemployment insurance on steroids.

Nice. And this is increasing unemployment insurance by $600 per week for four months. So if you are laid off and you are getting unemployment insurance due to coronavirus, you are eligible for an additional $600 per week to, again, you know, help you cover your basic expenses like rent and food, medical costs, etc. So this money is in addition to what states pay as a base unemployment salary. And it's important to note that this benefit extends to people who work in the gig economy. So, you know, Uber and Lyft drivers, you know, Postmates delivery people, people who are freelancers, and then also furloughed workers. And these are workers who are no longer getting a paycheck but are still getting health insurance from their employers. And then the third bucket of this is medical aid.

It's hospital aid, aid to healthcare workers. Is that right? This is, you know, right now, especially in hard-hit places like New York, you know, hospitals are struggling to meet. I mean, they don't have enough capacity for the patients that they're seeing. A lot of them are complaining that they don't have enough basic medical equipment like ventilators and masks. There are big shortages in that. So what Congress has done here for hospitals is add an additional $150 billion to hospitals who are treating coronavirus patients. Is this going to be enough?

Especially when we talk about aid to hospitals and healthcare professionals, it just sounds like it might be too late. I mean, New York has already had to suffer as a result of lack of supplies and lack of hospital beds. I mean, and then more broadly speaking, is this enough to shore up Americans and American businesses and the economy? I mean, that is the $2 trillion question. And I don't think we know at this point. We're already seeing more headlines of more people getting sick. Death rates are also going up as well. So we haven't yet seen the worst of this.

I think that there is a good chance that if Congress sees the need that they can come back and pass more money, there's always a way for them to do that. But despite President Trump saying yesterday that, you know, he wants this all wrapped up by Easter $2 trillion is enough to save us from the damage that coronavirus is wreaking not only to public health, but also to the economy. After the break, I ask Ezra Klein the $2 trillion question. It's Today Explained. Support for Today Explained comes from Ramp. Ramp is the corporate card and spend management software designed to help you save time and put money back in your pocket. Ramp says they give finance teams unprecedented control and insight into company spend. With Ramp, you're able to issue cards to every employee with limits and restrictions

and automate expense reporting so you can stop wasting time at the end of every month. And now you can get $250 when you join Ramp. You can go to Ramp.com slash explained. Ramp.com slash explained. R-A-M-P dot com slash explained. Cards issued by Sutton Bank. Member FDIC. Terms and conditions apply. Ezra Klein, even with this $2 trillion stimulus, there's a recession coming, if not already here.

Do we know how bad it's going to be? How will it compare to the last one in 2008? Right now, the early economic data suggests it will be much worse, at least at its peak, than what we had in 2008, which is not something I thought I would be saying anytime soon. 2008 was supposed to be a once-in-a-generation economic flood, and now we're looking at something that is not even generationally supposed to be possible. So if you look at early unemployment filings, they potentially went up to 3 million over the past week. We've just never seen a number like that. If you look at what Goldman Sachs and some other economic forecasters are forecasting for the GDP drop in the second quarter of the year, they're now up to a 24 percentage point drop. That would be the single worst quarter in the history

of GDP statistics. Treasury Secretary Steve Mnuchin said that unemployment could go up to 20% before he walked that back. But then over the weekend, the president of the Federal Reserve Bank of St. Louis said he thought 30% was possible, at least for a minute. So we're looking at something that at the very least, at its worst, could be unbelievably bad. And one reason it could be unbelievably bad is that this is really different in its dynamics and not just 2008, but really any recession we can think of in memory. It's almost not correct to think about this as a recession. This is a combination of a recession, a financial crisis potentially, a war, and a natural disaster.

Great, great. And this is just the opening salvo of this recession, crisis, war, natural disaster? to know where the economy is going just about before anyone else. And I've spoken to Zandi a lot over the years, and he was sounding almost apocalyptic here. But to be more specific, what he said is we're going to see four waves of economic pain. The first wave is the sudden stop of the economy. That's what we're in right now, right? I can't go into work the way I normally would. The restaurants in my town are closed and non-essential businesses are closed. People are sheltering in place. Wave two, which is already here as well, is unemployment. People are laying off their workers because they have no sales coming in. People are cutting back hours among their workers. Marriott furloughed a huge amount of their staff. So mass unemployment is just beginning, but already we're seeing numbers like nothing we've ever seen before. Then the third wave is what he called the wealth effect. So there are all these people

who have 401ks, they have money saved in the market for their retirement. This is true for everybody, but it's particularly true for older people who are towards the end or past the end of their earning years. And now they're seeing those savings wiped out. And so there's a lot of spending from this group that is going to disappear. And then the fourth wave is business investment. So you think of corporations or even small businesses that were thinking of opening up a second location, upgrading to better office space. The media organization is going to start a new publication, whatever it might be. That's all going to go on hold. So all that spending that was going to upgrade machines, create new capital, create new products, a lot of that is going to

disappear from the economy for a while. So of Zandi's four waves, we're living at least the first two already. The economy stops, unemployment soars. The next two are imminent, if not already here. People can't retire and realize their dreams and industry has to scale back. Is there a way out? So those four waves, Zandi said, they're definitely going to happen. Like, they are already happening. But there's a question now. Is the kind of recession we have, what's called a V-shaped recession, where the economy plummets in, let's call it, quarter two, maybe quarter three, and then rebounds super powerfully in potentially quarter three, but quarter four, and then into 2021. In that case, this will be bad, but not that bad. What Zandi said, and this is, I think,

clearly true, is two things could happen that could disrupt that. And this is particularly going to happen if we don't get the disease under control quickly. The first thing that could happen is we set off a financial crisis, a financial panic somewhere. So we're already seeing very scary things happening in debt markets, in bond markets, in currency markets. There are a lot of both countries and companies that need a lot of US dollars and they're having trouble getting them. The Fed is out with a huge amount of new programs right now to try to deal with this. But it's pretty scary. So if we have 2008 in reverse, a problem in the real economy that creates a contagion in the financial economy, that's going to be very, very hard to fix. That's going to be years to dig out of. The second, which is also I think very, very present as a danger, is a mass wave

of business failures. More than 50% of small businesses cannot survive more than a couple of months without sales. They just don't have a big nest egg. Small businesses tend to be reasonably low margin, et cetera. Even a lot of big businesses can't survive for very long in a very down economy if their receipts have gone down 50%, 75%. And so if you have mass closures, then not only when the economy does come back, do you have to rebuild those businesses or something like them? And that's hard, right? You need to figure out leases, places need to rebuild, they need to hire new people. But also, it's not like their workers can then just come right back on. They have to find new jobs,

there's matching costs, it's hard to search. There's a lot of uncertainty in that. And so if you have a huge wave of business failures, it's very hard to come back because you've lost a lot of the structure in which the economic growth could have happened once you got back on your feet. So preventing those two things, a financial crisis and a mass wave of business failures, that's really, really important. And Congress is hoping that's what this stimulus will do. But what if it doesn't? If that's the best case scenario, what's the worst? Ooh, I don't even think the worst case scenario right now is primarily economic. I mean, the worst case scenario is an unchecked pandemic with millions of deaths, hugely overwhelmed health systems, creating behind it a total economic catastrophe. In some ways, the worst case scenario to me is one that we are beginning to flirt with

because the worst case scenario is that we lose our nerve here at the front end. There is an enormous return to acting quickly. You prevent many more cases if you are able to stop one person from passing on the disease to after that person has passed it on to 10 people if you're trying to stop 10 people from passing it on. We are already seeing at the highest levels of our political leadership a blink.

My message is that let's get back to work. Let's get back to living. Let's be smart about it. And those of us who are 70 plus, we'll take care of ourselves. But don't sacrifice the country. Don't do that. Our country wants to go back to work. And again, the cure, it's like this cure is worse than the problem. Again, people, many people, in my opinion, more people are going to die if we allow this to continue. There is this fantasy of an economy out there that you could somehow just have the economy operating at full potential, even as a disease is killing and hospitalizing millions of people

all at once, right? 9-11s every day in this country. And I think they're wrong. Right now, the curve of new cases in America is vertical. We are rising faster than Italy day in this country. And I think they're wrong. Right now, the curve of new cases in America is vertical. We are rising faster than Italy was at this point. That's very scary because this is an exponential curve. As you rise faster, you then rise even faster. And so if what happens is we let off the pressure when it is currently completely uncontrolled, what I think is going to happen is that three months from now, or even two months from now, maybe even just three weeks from now, when our health system is overwhelmed, there's going to be an enormous demand for a quarantine, an enormous demand to get this under

control. And that will happen when the economy has now gotten much worse. So Jason Furman, who was Obama's former chief economist, but has been writing about this a lot on Twitter and elsewhere, has made this good point that he thinks that the correct way to understand the choice here is between social distancing right now and a quite bad economy six months from now. Or two months of nothing and then two months of even more extreme social distancing, followed by a much worse economy after that. And so the nightmare scenario for me is one where we've let the disease get completely out of control, and that also spins the economy out of control. And I don't know, I honestly cannot believe that after five days of acting like a real president, or trying to acting like a real president or trying to act like a real president that Donald Trump seems to have lost his taste for this and is now telling

people we're going to be back at work in two weeks. We just need better than that right now. We just do. What is he missing? What are all the people who are looking at these unprecedented economic consequences, over 2 million people filing for unemployment who weren't two weeks ago, who are looking at something much worse than a recession and saying, is this really worth it? What are they missing? The hardest thing in politics is to force pain now to prevent more pain later. And it's not that they're missing something exactly. It's that they're living in the present and not in the future. What Donald Trump, what any political leader,

what any leader needs to do in an organization is live somewhat in the future, is see where things are going and work backwards from there so the organization is prepared, be that organization a country or a company. That is what we are doing even at Vox Media. Right now, we are trying to think about what all this is going to mean for our business and trying to work backwards to how we need to prepare. Donald Trump is a very present-focused person, and he runs a very present-focused administration. And what is happening right now

is that they are feeling the pain of social distancing. And it is real pain, the unemployment filings, the GDP projections. It is real pain, suffering. It is a horror. What he is not able to feel yet, and so he's not truly responding to, is the kind of economic, social, political,

and human pain of this disease flying out of control. Of what it will mean if you can't go deliver a baby or get treated for a heart condition because you're stepping over bodies in the hospital, infectious bodies. Of what it will mean if we have a national shortage of nurses, doctors, respiratory therapists, etc., that he is responding to the political pressure on him now and the things that he can feel now, the pain we are causing now, as opposed to the pain we are trying to prevent. And if every epidemiologist and public health expert and frankly even just what we're seeing

in other countries is right the pain we are trying to prevent is a lot worse now we can't ignore the pain we would cause on the way we need more than stimulus we need economic support we need to have the political imagination and will and ambition to make this possible we are not going to get out of this without real economic damage. Either way, that is built in. But we could get out of it with a lot of humanity, a lot of social support. We could also, if we had anywhere near the kind of imagination required for a crisis like this, we could get out of it with a better structure for our economy altogether, right? It could be that out of this people get guaranteed paid leave, as every other industrialized country has. Guaranteed healthcare. I mean, you could imagine using this as a moment to say, oh, we are so interdependent that we can't

just have solidarity in the moments of crisis. We need to have it all the time. It's not that it would stop people from losing their jobs. It's not that stimulus or basic income payments are going to stop them from hurting. We're not going to stop the hurt here, but we can do a lot to build better structures to protect people from it now and in the future. Ezra, thank you, and we'll be in touch. Thank you.