Originally published here by the Wall Street Journal on July 23, 2020.
A near-record 158.8 million Americans were employed in February, according to the Bureau of Labor Statistics. Then the novel coronavirus brought parts of the economy to a screeching halt. As of June, 142.2 million people were employed, a reduction of 16.6 million, or about 10.5%. Recent economic forecasts have predicted a decline in gross domestic product of between 4.6% and 8% for 2020. The damage from Covid-19 has been significant, but not catastrophic.
Congress authorized $2.9 trillion of Covid-19 relief, which represents 13.5% of 2019’s U.S. GDP. No one knows exactly how much of the Covid relief has been spent or obligated, but 60% ($1.75 trillion) seems to be a consensus figure in Congress. Let that sink in. We’ve authorized enough spending to replace 13.5% of annual economic output, and more than $1 trillion of it hasn’t yet been spent or obligated.
So why is Congress rushing to pass at least $1 trillion more? For Speaker Nancy Pelosi and her fellow Democrats, $1 trillion isn’t enough. The House has passed an additional $3 trillion in Covid-19 relief, which would bring the total to $5.9 trillion, 27.5% of GDP. Again, employment has declined 10.5%, and respected estimates of GDP decline are 8% or less. Why should Congress provide financial support greater than the reduction in GDP?
When President Obama entered office, the total national debt was $10.6 trillion. I was elected as part of the tea-party movement, which was concerned that debt had grown to $14 trillion during his first two years as president. Nine years later, the debt stands at $26.5 trillion and will be close to $28 trillion by the end of this fiscal year. Is no one concerned about how much of our children’s future is mortgaged?
When Congress passed the $2.9 trillion in March, there was a great deal of uncertainty and a danger of economic collapse. Congress had to act quickly and demonstrate that sufficient financial support would be provided. But we’ve weathered that storm and now have much more information.
For example, a recent study in JAMA Internal Medicine based on serological testing showed that the number of Covid-19 cases could be six to 24 times the number reported. Applying these estimates to the most recent U.S. case fatality rate (CFR) of 3.6% yields an infection fatality rate (IFR) between 0.15% and 0.6%. Oxford’s Center for Evidence-Based Medicine has been predicting an IFR for Covid-19 between 0.1% and 0.41%.
The nine-year average IFR for seasonal flu in the U.S. is 0.13%, according to Centers for Disease Control and Prevention data. The IFR in a bad flu season (2010-11) was 0.176%. I am not playing down the tragedy of the coronavirus. But there is no need to continue broad economic shutdowns with fatality rates in these ranges.
Treatment is improving, as evidenced by the reduction in case fatality rates. With a growing list of better therapeutics and the development of a possible vaccine, one can imagine a more optimistic economic future that doesn’t require another $1 trillion in debt-financed spending.
And just because Congress has waited until the end of July doesn’t mean the new proposed relief package has been properly deliberated. Possible elements of the package are only now being discussed publicly.
Since the Small Business Administration has disclosed recipients of Paycheck Protection Program loans greater than $150,000, news reports have revealed that the PPP lacked basic controls that any future program and expenditures must contain. Loan forgiveness shouldn’t be granted to organizations that have the ability to repay. A simple fix would require repayment of PPP loans to the extent a taxpaying entity has taxable income for 2020, or a tax-exempt organization has increased net assets.
There is no doubt the PPP was a lifeline to many organizations and their employees. But there’s also no doubt many groups that received loans—and will almost certainly have those loans forgiven—didn’t need them. As the largest single expenditure of the Cares Act, the PPP deserves more scrutiny. The Main Street Lending Program should also be reviewed carefully.
Remember, we don’t know how much of the $2.9 trillion allocated for economic relief has been spent. Congress hasn’t conducted sufficient oversight of its previous handiwork. Doesn’t it make more sense for Congress to evaluate what has been spent, determine what worked and what didn’t, and then redirect the balance based on what Congress finds? We shouldn’t authorize another dime until we do so.