Too Soon to Worry About the Deficit?

Plus, more trouble for small business rescue program By Yuval Rosenberg and Michael Rainey Small Biz Loan Program Swamped Again Congress has authorized an additional $321 billion in emergency funding for the Paycheck Protection Program, which aims to keep workers on the payroll by providing grants and loans to companies with fewer than 500 employees, but the program has proved so popular that it can’t keep up with overwhelming demand. The application process for the second round of the PPP opened for new applications at 10:30 Monday morning — and the Small Business Administration system crashed within just a few minutes. “It’s obvious the system is simply flooded right now,” Craig Street, the chief lending officer at United Midwest Savings Bank in Columbus, Ohio, [told]( The New York Times. “It’s been very stop and start, with no real way to know whether it is working other than to keep hitting the submit button.” The first round of the program, which kicked off on April 3, was marred by technical glitches and a lack of clear guidelines. Even so, it ran through its initial $349 billion in funding in just 13 days, leaving millions of small business owners out in the cold amid complaints of favoritism toward larger and better-connected companies. The SBA said Monday that more than $2 billion in loans to companies from the first round of funding has been returned or declined by the businesses. Is It Way Too Soon to Worry About the Deficit? Congress has authorized some [$3.6 trillion]( in federal spending and tax relief to combat the coronavirus pandemic and resulting economic destruction — programs that will add about $2.5 trillion to the federal deficit. More is likely coming, but any additional spending is already the subject of heated debate, raising fears that bailout fatigue and wariness surrounding additional deficit-funded stimulus measures might weaken the eventual recovery, inflicting prolonged economic pain on millions of American businesses and households — fears, in other words, that we may repeat mistakes some economists say were made after the financial crisis a decade ago. “The economic scarring if lots of businesses go bankrupt and households are wiped out financially in this episode would be a failure of policy,” Karen Dynan, a Harvard economist and a former Treasury Department official, told [The New York Times](. “Based on the 2008 experience, a real concern is that we will tire of fiscal stimulus before the need for that money runs out.” A political question: Democrats are looking to move quickly on the next phase of legislation and have reportedly begun writing a new multitrillion-dollar bill. Republicans, though, are grappling with some [internal divisions]( over additional spending, with some in the party calling for more aid while others seek to pull back. Some in the GOP oppose additional help for Democratic states like California and Illinois that they say dug themselves into a hole before the pandemic hit, while a number of Republicans have expressed renewed concerns over the rising deficit and record national debt. “After years of pillorying the Obama administration over spending and blocking efforts to pump more money into the economy following the 2008 financial crisis, GOP leaders now find themselves struggling with how to balance the need to prop up the struggling economy ahead of the fall’s elections with concerns that too much spending could hurt them with their base of voters,” The Washington Post’s Seung Min Kim [wrote]( over the weekend. The deficit debate is premature: Kim noted that “economists from the right and left — as well as a not-insignificant number of GOP senators — are warning of the dangers of pulling back on federal spending too quickly, alarmed that doing so will create long-lasting problems for the economy and the American worker.” Case in point: “The pandemic response got off to a really promising start, with everyone coming together with a whatever-it-takes attitude,” Jason Furman, who served as chair of the Council of Economic Advisers under President Obama, told the Times. “But we’re slipping back into the types of gridlock, over-optimism about the economy and over-pessimism on the deficit that followed the financial crisis and unnecessarily prolonged the economic pain.” Brian Riedl, a senior fellow at the conservative Manhattan Institute, told the Post that he’s been a “deficit hawk economist for 20 years” and that we’ll need significant deficit reforms as soon as the economy recovers, but now isn’t the time to pull back on spending. “You can’t begin to solve the debt crisis until they have solved the economic crisis, and that will take spending money in the short term,” he said. Vox’s Dylan Matthews [argues]( that, while there are times when deficit concerns are appropriate, it’s far too early in this crisis to even entertain discussion about an eventual pivot back to deficit reduction. “This is, to be frank, an outrageous time to give a [bleep] about the federal budget deficit, or about the debt (the accumulated total of past deficits, plus interest). The US in the very early stages of the worst economic downturn since the Great Depression, and [the] true unemployment rate is likely [around 15 to 20 percent]( he writes. “[Congress’s stimulus measures to date]( have been helpful, but clearly inadequate in the face of the crisis before us. The US needs [investment on the scale of the New Deal or greater]( to meet this challenge, and worrying about deficits promises to strangle the recovery in the crib.” A debate about the future of the GOP: The current deficit talk presages, or is part of, a broader GOP debate about the future of the party, Politico’s Ryan Lizza [reports]( “In 2020, the economic libertarians who once defined conservatism have disappeared. Instead, the most interesting debate is among Republican policymakers crafting large-scale programs to get government checks into the hands of economically disenfranchised people as quickly as possible.” Lizza points to Republican Sens. Marco Rubio of Florida and Josh Hawley of Missouri, who have pushed for a more populist approach to policy, one that is more accepting of government intervention. “Now the question is whether they represent the future of the GOP — the rising stars who will define the party after Trump — or whether they are simply like firefighters called in for an emergency before the party defaults back to its traditional small-government worldview,” Lizza writes. The answer may be determined by the 2020 presidential election: Liberal Washington Post columnist Paul Waldman [argues]( that most Republicans haven’t had their views changed by the pandemic. “And,” he writes, “they’ll be more than happy to begin deficit fearmongering as an excuse for austerity at the earliest opportunity — i.e., if there’s a Democrat in the White House to suffer the consequences. … Should Trump be reelected, all those who claim to be deeply concerned about the debt will say that we really should do something about it — but not quite yet, not when cutting spending or raising taxes might be too damaging to a Republican president.” Goldman Sachs Expects Another $550 Billion in Coronavirus Relief This Year Goldman Sachs economists said in a note to clients Sunday that they now expect Congress will approve an additional $550 billion in fiscal support this calendar year, with about $400 billion coming before the fiscal year ends on September 30. Goldman also expects another $1 trillion in additional measures over the next two fiscal years. Goldman had previously projected that Congress would approve another $500 billion in coronavirus relief this fiscal year. That was before lawmakers passed another [$484 billion package]( last week. “Since we still expect Congress to provide fiscal aid to states, extend unemployment benefits, and potentially do a number of other things, we are increasing the amount of fiscal support we assume in our forecast,” Goldman economist Alec Phillips wrote. Phillips noted that he and the Goldman team expect the enhanced unemployment benefits Congress provided through July will be extended through the end of the year but cut in half, from $600 a week to $300. “The average regular benefit payment of $370/week is around 50% of an average unemployed workers’ prior earnings, so this would take the total benefit payment from greater than 100% of average earnings to a bit less than 100% of average earnings, which might be necessary to ensure passage in light of last-minute opposition raised by some congressional Republicans shortly before the CARES Act passed in March,” Phillips wrote. Goldman also expects another round of direct stimulus payments to individuals, a modest boost of about $100 billion to infrastructure spending and about $200 billion in additional aid to fiscally strapped states, far lower than the $500 billion governors have requested. If you're a nerd like us, you will [love this move]( by Microsoft. Send your tips and feedback to yrosenberg@thefiscaltimes.com. Follow us on Twitter: [@yuvalrosenberg]( [@mdrainey]( and [@TheFiscalTimes](. And please tell your friends they can [sign up here]( for their own copy of this newsletter. Supreme Court Rules That US Must Pay Insurers $12 Billion for Obamacare Losses The Supreme Court ruled 8-1 Monday that a group of insurance companies are owed $12 billion under provisions of the Affordable Care Act. The decision requires the government to make payments that were promised to insurers in the first years of the ACA but were held up by Congress amidst the political battle over Obamacare. Writing for majority, Associate Justice Sonia Sotomayor said that the decision is based on the basic idea that the “Government should honor its obligations.” The sole dissenting vote came from conservative Justice Samuel Alito, who said that the ruling “has the effect of providing a massive bailout for insurance companies that took a calculated risk and lost.” The background: To encourage private insurers to participate in Obamacare as it got off the ground in 2014, the ACA established a “risk corridor” program designed to smooth out profits and losses for the first three years. Health insurance providers that earned higher-than-expected profits would pay some of their gains to the government, while insurers that lost money because they set premiums too low would be compensated, thereby eliminating the risk of large unforeseen losses. But Republicans in Congress successfully undermined the risk corridor program by attaching riders to appropriations bills from 2014 through 2016 that prevented the federal government from making payments to insurance companies. Health insurers sued to recover the funds they said there were owed, resulting in the case, “Maine Community Health Options v. United States,” that was decided Monday. What it means: The ruling is “a vindication of the ACA's original structure,” [says]( Larry Levitt of the Kaiser Family Foundation. Even so, the funds will be paid too late to achieve one of their primary purposes. “It’s compensating insurers for money that they were supposed to get several years ago,” Levitt [told]( The New York Times. “If the money had been paid out when it was supposed to, it would have stabilized the A.C.A. financially and politically.” The ruling may also shed light on how the court will approach a separate case that represents a major threat to the Affordable Care Act, [says]( Vox’s Ian Milhiser. In the fall, the court will take up California v. Texas, a lawsuit backed by the Trump administration that seeks to invalidate the health care law in its entirety. “If the justices approach the California case with the same wholly legal approach they took in the Maine Community case,” says Milhiser, “this latest attack on Obamacare will also be rejected by a lopsided vote. News - [Trump Asks Why Taxpayers Should Help Bail Out Blue States]( – The Hill - [House and Senate on Collision Course Over Coronavirus Response as Leaders Map Out Conflicting Agendas]( – Washington Post - [Biden Wants a New Stimulus 'a Hell of a Lot Bigger' Than $2 Trillion]( – Politico - [McConnell: Senate Will Return on May 4 to Start Next Coronavirus Relief Bill]( – The Hill - [Backlash Grows as Pandemic Relief Stumbles]( – Politico - [Federal Reserve Expands Emergency Coronavirus Aid Program to More Cities and Counties]( – Washington Post - [White House Document Says Federal Government Is a Test 'Supplier of Last Resort']( – CNN - [Federal Watchdogs Name Top Staffer to Oversee Pandemic Response]( – Politico - [Pelosi Says Universal Basic Income Could Be ‘Worthy of Attention Now’ as Coronavirus Stifles Economy]( – CNBC - [White House Weighing Plan to Replace HHS Secretary Azar]( – Politico - [Tensions Emerge Among Republicans Over Coronavirus Spending and How to Rescue the Economy]( – Washington Post - [Coronavirus Has Created a Crisis for Primary Care Doctors and Their Patients]( – Vox - [Investment Firms Spent Millions Lobbying Trump Administration and Congress on Coronavirus Relief Bill]( – CNBC - [USDA Let Millions of Pounds of Food Rot While Food-Bank Demand Soared]( – Politico - [Schumer to Introduce Legislation Preventing Trump From Signing Stimulus Checks]( – Politico Views and Analysis - [Did America Learn Anything From the Last Economic Crisis?]( – Neil Irwin, New York Times - [Despite Rising Pandemic Costs, Republicans Are Already Talking About Cutting Off Aid]( – Michael Hiltzik, Los Angeles Times - [What the Next Coronavirus Relief Package Must Include]( – Celine McNicholas, Josh Bivens, and Heidi Shierholz, Economic Policy Institute - [Great Depression Comparisons Are Depressing but This Time Is Different]( – Christine Romans, CNN Business - [Who Deserves a Relief Check? It Doesn't Matter]( – Jonathan Bernstein, Bloomberg - [Stimulus Checks Need to Arrive Faster so Americans Can Get All the Coronavirus Money Washington Has Promised]( – Francis X. Suarez, Bibi Hidalgo and Aaron Klein, MarketWatch - [Mitch McConnell’s Rediscovery of the Deficit Is a Recipe for a Depression]( – Dylan Matthews, Vox - [Fed Would Be Foolish to Take Rates Below Zero]( – Brian Chappatta, Bloomberg - [Big-Government Conservatives Mount Takeover of GOP]( – Ryan Lizza, Politico - [What Donald Trump Could Learn from Herbert Hoover]( – Todd Tucker, Politico - [Trump Holds Postal Service Hostage to Settle Amazon Score]( – Timothy L. O’Brien, Bloomberg - [Trump Called the Postal Service a ‘Joke.’ I’m Trying to Save It]( – Sen. Kristen Gillibrand (D-NY), New York Times - [The Pandemic Could Put Your Doctor Out of Business]( – Daniel Horn, Washington Post - [The Coronavirus Pandemic Could Push Telemedicine Into the Mainstream]( – Rishi Iyengar, CNN Business - [The Fed's Low Rates Will Punish People Who Save]( – Paul R. La Monica, CNN Business [Like Us on Facebook]( [Like Us on Facebook]( [Read Us On the Web]( [Read Us On the Web]( Copyright © 2020 The Fiscal Times, All rights reserved. You are receiving this newsletter because you subscribed at our website, thefiscaltimes.com, or through Facebook. Our mailing address is: The Fiscal Times 399 Park AvenueNew York, NY 10022 [Add us to your address book]( Want to change how you receive these emails? [Update your preferences]( or [unsubscribe](.