WASHINGTON — An unexpected crisis has sent the stock market into free fall, Congress is divided on how to respond, and experts across the political spectrum are demanding unprecedented action to stave off catastrophe.
It’s a situation that’s all too familiar for Jason Furman, who advised President Barack Obama’s campaign during the 2008 financial crisis and went on to serve as chair of the Council of Economic Advisers.
Now a professor at Harvard University, Furman has been pushing Congress to go big with a rescue package that includes sending one-time checks of $1,000 for every American adult and $500 for every child to help cope with the fallout from the coronavirus.
NBC News talked to Furman about what to expect from the ongoing situation and how the federal government might prevent a worst-case scenario when it comes to the economy. Here's what he had to say in the interview, edited for length and clarity:
NBC News: A lot of Americans are seeing the stock market plummet this week and trying to figure out what it means, beyond just the immediate health crisis. How worried should they be?
Furman: I think the economic side is very serious, potentially more serious than the financial crisis.
In the financial crisis, millions of people lost their jobs, but most people kept their jobs, and many people maintained their consumption. In this case, everyone is cutting their spending and lots of people, even if they don’t lose their jobs, will lose time at work, hours, tips, potentially a large blow to their income.
NBC News: Some are making the opposite argument, including the president. The financial crisis occurred because the underpinning of the economy was bad, they say, but this is a temporary situation and eventually things will go back to normal.
Furman: If the virus goes away in two months, I wouldn't be that worried. My expectation based on the medical professionals is that it is not realistic to expect it to go away in two months, and that if it did, it could come back even more virulently again in the flu season next year.
The problem with the economic side is that if it lasts more than a few months, it then takes on its own momentum. If you look across the United States and across other countries, the unemployment rate can go up very quickly, but it can’t come back down very quickly. It never has. A business whose balance sheet is in tatters after nine months without revenues might go bankrupt, it might go out of business, or it won’t be in position to hire people back immediately even if demand returns.
NBC News: You have proposed a one-time payment of $1,000 to every adult and $500 to every child in the country. Why do you think that’s the best approach?
In part, because I exhausted all other alternatives. You should spend as much as you can on health, on testing, on hospital infrastructure. You should spend as much as you can in a targeted way on things like unemployment insurance, nutritional assistance, paid leave, and help for states.
Once you've gone through all of that, you’ve maxed out on health and maxed out on targeted assistance, you have two problems: One is millions, or tens of millions, of households are going to be hurting from lower incomes, lost jobs, or time off work. Second, just from a macroeconomic perspective, the amount of stimulus you want for the economy under that scenario is still smaller than what you need. The only way to reach everyone you need and get to the size you need is with some broad-based tax transfer.
NBC News: What level of spending do you think we need to avert the worst consequences?
Furman: A week ago, I called for $350 billion. Today, I would say $700 billion.
NBC News: The president hasn’t put out details, but he’s said his preferred approach is a payroll tax cut. What do you make of that idea?
Furman: I don't think a payroll tax cut is a terrible idea. I think it's an imperfect idea, but I think it’s moving in some respects in the right direction. The problems it has is it gives a lot more money to high income than to middle income, it gives nothing to people who aren't getting a paycheck, and in the current circumstances it dribbles out slowly.
NBC News: Democrats in Congress want to boost federal aid to states to help pay for Medicaid while Republicans are skeptical of the idea. You’ve argued this is an essential part of any rescue package. Why?
Furman: In a normal recession, state revenues go down a lot and that can lead them to cut back. That is going to happen. In addition, state spending is going to go up a lot to take all the public health measures and treatment measures we’re going to need to do right now.
We need to make sure states can afford public health, that they can afford to treat people, and from a macroeconomic perspective, aren’t cutting back spending in some areas to meet their balanced budget requirement.
NBC News: You say that any bill should renew automatically if the economy continues to suffer. A number of Democrats have said they’re worried the next Democratic president could take office in a crisis and find Republicans suddenly very concerned with deficits and unwilling to fund more help.
Furman: You can obviate that concern, and I strongly think you should, by passing something today and including with it triggers that continue based on economic circumstances. So, you can write people checks this year and if the unemployment rate is above 5.5 percent, they get the checks next year, or raise the Medicaid match rate, then make a formula that links it to the unemployment rate by state.
I've been a longtime fan of automatic stabilizers. In the current political environment it's especially important, because it’s always hard for Congress to pass anything.
NBC News: What do you think of the White House’s economic response so far and is there anything more they can do at the executive level?
Furman: The White House response has been pathetic, inconsistent, at times too small, and sometimes flailing in different directions. I've been really disappointed. As recently as Friday of last week, their top economic advisers were talking about how very little needed to be done, just little targeted measures. They keep floating a payroll tax cut, but they haven’t proposed it.
My experience also is Congress has a lot of great people, but even on legislation at a time like this, really the administration needs to take a big lead. Congress just doesn't have the resources and capabilities to figure all of this out on their own, they need technical guidance from the administration and political leadership from the administration and that's been absent.
NBC News: You were tasked with helping craft the response to the 2008 financial crash. Obviously, the coronavirus is a different challenge, but are there any lessons from then that apply now?
Furman: Just mentally, stay ahead, don’t get behind. What feels big one day might feel small the next, so try to stay ahead of that. Keep things simple and use existing mechanisms as much as you possibly can and don't be too squeamish about getting the targeting exactly right when attempting to do that will mean leaving out a lot of people and leaving out a lot of what the economy needs.