Trump’s Economic Advisors Are Wrong

The economy can’t fully recover without longer-term help from Washington.

Originally published in the New York Times

Like dutiful soldiers, President Trump’s top economic advisers have been ardently echoing their boss’s optimism about the likelihood of a quick economic snapback, while downplaying the need for another rescue package.

Regrettably, that’s dead wrong on both counts, as even Mr. Trump’s pick to head the Federal Reserve, Jerome Powell, has countered repeatedly.

Forget a V-shaped recovery, or even a U. Think instead about a backward check mark: an economy that begins to spring upward as Americans return to work but loses momentum well before reaching past levels.

That’s why we urgently require more help from Washington, and particularly, an effort to rebuild America, not just rescue America.

The prospect of large numbers of Americans returning to their workplaces seems to recede like a mirage; a full reopening remains invisibly far in the distance. Equally important, many pre-Covid-19 jobs won’t be around. They are gone, indefinitely if not for good.

Just a few examples:

Factories in states from Oregon to North Carolina are closing permanently. Many shuttered restaurants will never reopen. A growing number of bankruptcies, in industries ranging from retailing to entertainment, will mean more jobs lost forever. And chief executives tell me regularly that they are cutting capital expenditures, another drag on economic recovery and employment.

The rescue packages to date have shoveled trillions of dollars into the economy to, among other things, keep consumers and small businesses afloat, provide much needed liquidity to lending markets and bail out special pleaders like the airlines.

That will help, but more will be needed, particularly for state and local governments and unemployed workers, as House Democrats tried to emphasize in the bill passed 12 days ago.

But now we also must focus urgently on longer-term initiatives that will have deeper and more lasting positive effects on jobs and growth.

Infrastructure should top the list of priorities. During his campaign, President Trump promised us a $1 trillion initiative but then never made a serious effort to achieve passage in Congress.

Moving forward on modernizing the nation’s physical plant — from roads to buildings — makes particular sense now and not just because of weak economic conditions. At the moment, the government can borrow money for 30 years at record low rates of about 1.4 percent.

Meanwhile, China has just announced a five-year, $1.4 trillion infrastructure plan heavily focused on technology in a bid to become the global leader in this critical sector; why can’t we even get started on rebuilding America?

In designing a good plan, Congress must first and foremost eschew the logrolling/favor-trading/call-it-what-you-want process of allocating funds that is too often a part of the congressional appropriations process. Among the effective ways of accomplishing that would be to create an “infrastructure bank” that would be staffed and overseen by private-sector individuals chosen on a bipartisan basis. Its mandate would be to fund the projects that would add the most to economic growth and productivity.

That doesn’t mean the projects need to generate profits or even revenues; improving roads, for example, increases the efficiency of our economy and that in turn increases the attractiveness to companies of locating new jobs here.

Accordingly, Congress would need to increase the bank’s funding from time to time, which is fine with me.

We also face a human capital challenge. As recent economic reports have made clear, Americans near the bottom of the income scale, who are disproportionately members of minorities, are suffering most from the downturn. And women have been losing their jobs faster than men.

Similarly, we’re learning that technology-enabled businesses (like Zoom) are going to be winners from this pandemic.

We should also be funding retraining and relocation costs for workers whose jobs have been lost to the pandemic. And with college applications already falling, we should be providing more financial support to jobless Americans who have chosen to return to school to raise their skill set.

Some experts have suggested trying to restore a vibrant economy via more robust intervention by government in the private sector. I’ve not been a fan of industrial policy, and I’m still leery of Washington trying to pick winners.

However, at this unique moment in our history, we should think big and think creatively. To get us started and guide us, we should create a blue-ribbon panel of individuals with strong economic credentials and task them with developing good ideas for how government can support a recovery in a post-Covid-19 world.

These priorities stand in stark contrast to the thin gruel from Republicans. White House economic advisers have been teasing the idea of still more tax cuts for business and the rich that wouldn’t help the broader economy.

For their part, Treasury Secretary Steven Mnuchin swiftly pushed back on Mr. Powell’s warning, then called for a 30-day pause on new efforts. After endorsing a pause, Mitch McConnell, the Senate majority leader, has begun edging toward a modest package. That could not be more wrong. Drafting thoughtful legislation takes time; we are already late in starting to rebuild America.