The Only Stimulus We Need Is to Defeat the Coronavirus

Are we all Paul Krugman now?
March 28, 2020
Featured Image
TOPSHOT - A temporary hospital is set up at the Jacob K. Javits Center on March 27, 2020 in New York. - The New York National Guard, the US Army Corps of Engineers, and Javits employees are constructing a 1,000-bed facility at the center, as the state tries to contain the rising coronavirus cases. (Photo by Bryan R. Smith / AFP) (Photo by BRYAN R. SMITH/AFP via Getty Images)

Cast your mind back to the heady days of the giant Obama-era “stimulus package” following the financial crisis of 2008. New York Times columnist Paul Krugman—the great advocate of ultra-Keynesian big-government spending—assured us that the only problem with the nearly trillion dollars of pork-barrel spending was that it wasn’t big enough. What we really needed to get the job done was $2 trillion in stimulus. It seemed like madness.

Now this madness is the conventional wisdom embraced by both parties, because a $2 trillion stimulus is exactly what they just joined together to vote for, and their only disagreement was over the details of who and what should get stimulated.

We should remember that all of that stimulus back in 2009 didn’t really stimulate anything. For years, we kept hearing predictions about a “recovery summer,” a sharp rebound that never really happened. The recovery came, but only slowly and tortuously as banks and other big financial institutions rebuilt the capital they had lost in the real-estate crash.

This current stimulus looks like another attempt to throw cash around in random directions rather than solving the underlying problem. That’s why the debate on it got bogged down in partisan bickering.

The Democrats wanted to load it up with every item on their wishlist, using hastily written, must-pass legislation that no one has time to read as a hiding place for all sorts of favorite causes. For example, they’ve been trying to rewrite the bailout provisions for schools in a way that shovels money into public schools—but leaves private schools to fail. Gotta reward the teachers’ unions somehow.

On the Republican side, the bill creates a giant “corporate welfare” slush fund to be distributed pretty much at the sole discretion of the secretary of the Treasury—which is to say: President Trump. Special emphasis will go to bailing out hotels, airlines, and cruise ships. We won’t know the full scope of this for some time, because everyone has taken a page from Nancy Pelosi and decided that we have to pass the bill to find out what’s in it.

The fundamental problem isn’t so much that money is being doled out in biased ways or to undeserving recipients. The problem is the basic premise. The goal of the bailout is to preserve the economy in amber as it was at the beginning of March, with everyone at the same jobs and in the same houses and all industries frozen in place.

But that’s not going to happen. The economy that unfolds two months to a year from now will be different. People will have different priorities and needs. And more than that: The process of recovery will be the process by which we shift around our capital and our labor to meet those new needs.

A lot of wealth will have been destroyed—by the virus and by government missteps, but mostly by the virus—so we will have to rebuild from a lower base. It’s going to be unpleasant and even infuriating. But the sooner we accept that reality and make the adjustments, the sooner we recover. This bill seems designed to delay that process of adjusting to reality. It contains loans specifically designed to encourage all employers to keep the same number of employees six months from now, as if nothing had happened in the intervening time. Similarly, it contains augmented unemployment benefits that will pay some laid-off workers more for staying out of the workforce than for shifting to new jobs.

This is a giant act of denial, intended to keep capital, spending, and employment where it was so we can magically reset to our economy to the BC world—Before Coronavirus. But this is never going to happen. All this bill does is spend $2 trillion to stave off for as long as possible the moment when we accept the new reality and move on.


The greatest delusion behind this bill is that $2 trillion of wealth can just be summoned into existence out of thin air. In reality, government cannot wish new wealth into existence, it can only move it around. So whatever we appear to gain from this bill has to be taken from somewhere else. It will be all be given back, and then some, in the form of new taxes, new debt, and most of all inflation. Because if we can’t summon wealth into existence by government fiat, we can certainly summon a lot of cash into existence—but there won’t be any more goods for all that new money to buy.

Trying to conjure up an immediate short-term benefit at the expense of long-term pain might make more sense if we hadn’t already been doing this as a normal matter of course for the last two decades (and, with brief respites, much longer).

Since 9/11—the last time we had a balanced federal budget—we have treated every crisis as a reason to immediately borrow and spend vast sums of money. But for some reason we have never decided that this is something we can stop doing in between crises.

For example, during the past three years—a time of relative peace and prosperity—the federal government has been spending about a trillion dollars a year more than it takes in. The only “emergencies” that forced us to do this were our unwillingness to make the slightest reforms to middle-class entitlements, combined with the president’s pathological fear that the stock market might go down. Which it did anyway.

That leaves us facing a real, actual emergency—a vast, global, unpredictable calamity—with no surplus, no reserves, and an enormous existing burden of spending and debt.

In a very real sense, our past stimulus created the conditions for our coming depression.


What would actually stimulate the economy? Solving the underlying problem.

For all of President Trump’s fantasies about a grand re-opening of the country by Easter, there is not going to be any kind of economic revival—with or without a stimulus—until people stop dying. Bill Gates is right: “It’s very tough to say to people, ‘Hey, keep going to restaurants, go buy new houses, ignore that pile of bodies over in the corner.'”

Nothing is going to convince people to go back to work, or investors to get back into the market, short of rescuing us from the prospect of mass death.

If Congress wanted a real stimulus, they would put money toward ramping up testing and treatments for COVID-19, building up capacity in hospitals and the production of masks and other protective equipment, and maybe retraining some of the laid-off workers and employing them as part of the recovery effort. It might take months to train someone to take a new job in the healthcare field—but we will need extra workers for many months to come, and those who are working round-the-clock now can’t keep doing so for forever.

The closest previous model of recovery I can think of is the end of World War II. The great myth is that it was wartime spending that revived American prosperity. But the war was a time of shortages and rationing, when young men were sent to battlefields, not factories.

The real recovery came after the war, as government spending and employment was being rapidly wound down and the economy was being re-privatized and freed from government controls. As that all happened, the Keynesian “stimulus” experts were predicting economic collapse. But the exact opposite happened and no government stimulus was required.

The “stimulus” was beating the Nazis and letting people return to their normal lives—which they were very glad to do.

The coronavirus is bad, but we would have to run into a string of worst-case outcomes in order for it to be anywhere near as destructive as World War II. If we could recover from that while the government was decreasing its spending, then we can recover from this, too.

The only stimulus we need is to defeat the virus. When the shadow of mass death is lifted—not to mention the prospect of government spending more trillions we don’t have—then people will be confident enough and free enough to revive the economy on their own.

As the old World War II jingle put it: We did it before, and we can do it again.