Separating Good Bailouts From Bad Bailouts

The pandemic shutdown is about to enter its third month, and economic repercussions have just begun. Too much has been shut down for too long. In California, the initial reopen is not going to include huge business sectors – theaters, concerts, conventions, sports, travel, hotels – and other sectors such as restaurants and retail establishments are going to be at half-capacity. Business revenue and profits have crashed, with proportional hits to tax receipts. The cascading economic damage is likely to far outlast the spread of the virus.

The federal response so far has been the COVID-19 CARES Act Relief Bill, which allocates $1.8 trillion in emergency spending to stimulate the shut down economy. This dwarfs the $831 stimulus package passed in 2009, and is equal to more than half of 2019 federal revenue which was $3.5 trillion. In terms of spending, it represents a 40 percent increase to the 2019 federal spending of $4.4 trillion. Using these numbers, a reasonable estimate of the federal deficit in 2020 would be $2.7 trillion, before any additional relief bills are passed, which is likely.

California’s economy, huge and diverse, may confound its critics and weather the coming deep recession better than other states. The tech sector benefits by providing enabling technologies for distance learning and telecommuting, and it will also benefit from likely new infusions of cash into defense R&D as tensions with China deepen. California’s agricultural sector may slow down but it won’t crash, because people have to eat. And […] Read More