Another day, another crash in the stock market.
When Trump went on TV to reassure the American public feeling panicky over the coronavirus pandemic, stock futures dropped precipitously. Today, Trump proposed a trillion dollar plus stimulus package, potentially including two one thousand dollar checks to American households. Again the stock market’s reaction: freefall.
In fact, the stock market has now fallen to a low it has not seen since Trump’s inauguration. So much for the Trump stock bounce. You’d almost think investors don’t have faith in Trump’s leadership.
The fact is that they would be stupid to have any faith in him. First, he doesn’t deliver what he promises. The stock market did rally when he proposed a payroll tax cut. It collapsed again when it became clear he didn’t have the votes to pass one, even in the Republican-controlled Senate.
Trump’s legislative ineffectiveness is only compounded by the fact that Wall Street, or anybody else for that matter, can’t trust anything Trump says anyway. As if his credibility weren’t already in tatters, today he asserted that he was taking the coronavirus pandemic seriously right from the start. That claim is laughable considering the fact that everyone saw him dismissing it as a “hoax” just a few days ago.
So even when he does say something that does not require legislative action, investors would be stupid to believe him. Fool me once, shame on you. Fool me 15,000 times, shame on you. Of course now Trump’s number of lies far exceeds 15,000 since he’s been in office.
Finally, when he does actually propose policy that has a snowball’s chance in Congress, it turns out to be bad policy. Take for instance the stimulus bill that recently passed Congress. The Democratic House passed a bill that includes paid sick leave to be made available by all private employers. The sentiment behind this policy is good, but it certainly places a heavy burden on small businesses, many of whom operate on a hand-to-mouth basis. To address this concern, the bill included tax credits to offset sick leave costs. But even that provision might be too late to help hurting small businesses.
The bill passed on a bipartisan basis by the House met resistance from the White House. The demand from Trump and Treasury Secretary Mnuchin? That the paid sick leave requirement be capped to employers with 500 or fewer employees. Thus, rather than looking out for the small businesses who have legitimate concerns about their ability to survive this crisis, Trump and Mnuchin were shilling for big businesses who have resources and access to credit unavailable to small businesses. In other words, they were again looking out for the rich and powerful to the detriment of the little guys, whether those little guys be small business-people or employees.
The latest proposal is similarly misguided. I’m just as excited as the next guy at getting $2000 in the mail. But the economist in me knows that this is just bad policy. Economists have known for some time that people don’t spend one-time increases in income. Knowing that this is a one-time thing, and they have no expectation for this income to continue, they save the money, or more likely in modern-day America use it to pay down credit card debt. And that’s exactly what happened in 2008 when the George W. Bush administration sent out $600 checks to everyone. The same thing happened in 2001 with Bush’s first round of rebate checks. Trump apparently wants to make the same mistake again.
You can see why Trump likes this idea, by the way. He wants to be Santa Claus during this election year. It’s not surprising that his first idea was to give Americans a payroll tax holiday… until the election. I’m not making this up. To Trump, everything is political.
This is not to suggest that economic stimulus is not needed. The economy’s humdrum response to aggressive interest rate cuts by the Federal Reserve Board shows that Congress needs to step in. A fiscal response is needed, not just a monetary one. Indeed, the Fed just doesn’t have the tools available right now to address this crisis, something many of us have been warning about for years. Due to the Fed’s kowtowing to Trump’s demands when times were good, now it has no powder dry to address the real crisis.
Mnuchin today suggested that the coronovirus crisis could lead to unemployment as high as 20 percent — that’s Great Depression levels. As is typical with the Trump administration, he’s now claiming he never said that. Too late, though. Too many people saw him make the statement.
Nevertheless, Mnuchin does have a point. This is a historic crisis, both from a societal standpoint and from an economic one. The big risk is massive layoffs. How the government can help is by increasing unemployment insurance and providing economic assistance in the form of grants — not loans or tax credits — for companies that keep paying their employees.
Economists know well what stimulates spending: a secure, regular paycheck. The government can and should step in to provide that to Americans uncertain about our future. Unfortunately, Trump doesn’t have the humility to listen to anyone who actually knows what they’re talking about. If he did, he might actually do something useful for a change.