Home Coronavirus PURNELL And MOORE: The Federal Government Botched Initial Coronavirus Response — Bailouts...

PURNELL And MOORE: The Federal Government Botched Initial Coronavirus Response — Bailouts Will Make It Worse

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There have been some large failures in the Trump administration’s response to the coronavirus pandemic thus far. Rather than preparing the American public and getting ahead of COVID-19, it is clear that the president aimed to downplay the threat.

“We have it totally under control,” President Trump told CNBC on Jan. 22. “It’s one person coming in from China, and we have it under control. It’s going to be just fine.”

As recently as Feb. 26, President Trump was promising the number of COVID-19 cases would soon hit zero. “Because of all we’ve done, the risk to the American people remains very low. … When you have 15 people, and the 15 within a couple of days is going to be down to close to zero. That’s a pretty good job we’ve done,” Trump said.

There are now over 10,000 coronavirus cases in the United States.

One of the Trump administration’s biggest failings was its slow, limited approach to testing, which included not tapping the private sector’s expertise and allowing them to test for the virus. While the Centers for Disease Control and Prevention’s (CDC’s) own test failed, private labs weren’t allowed to test. When the CDC and Food and Drug Administration (FDA) finally removed the red tape and freed up the private sector on Feb. 29, testing in the US was devastatingly behind.

Many have noted South Korea has largely prevented the spread of the coronavirus without shutting down business or travel. Citizens, workers and the domestic economy have largely continued with business as usual. South Korea, unlike the Trump administration, chose to focus on testing anyone who needs to be tested. They responded rapidly, worked with the private sector and rapidly implemented an extensive testing approach while the US chose to undermine that capability.  Now South Korea is applying social distancing to those who test positive and those in contact with vulnerable populations without many of the woes the US is facing.

Going forward, the primary question is about public health — how do we minimize lives lost? But there are also massive economic concerns as government-mandated shutdowns, social distancing requirements and public fear combine to tank a broad range of economic activities from airline travel to eating out to going to the gym.

Unemployment numbers are rising rapidly and are expected to skyrocket in the coming weeks. The enormous pressure politicians feel “to do something” often tramples over sober consideration, and it’s easy to focus only on the short-run. The president and Congress are putting forth $1 trillion stimulus spending proposals.

Recessions are signaled by two consecutive quarters of economic contraction. The economic downturn is likely to be devastating in the short-term, but if the testing improves and cities like Seattle and New York City are able to flatten the curve, it may very well be a slowdown of relatively short duration, perhaps about 60-90 days.

The pandemic created an unexpected economic shock, but some shock always happens. Every economic boom eventually has a downturn. Coming out of a 10-year period of continued economic and stock market growth it is reasonable to expect, per prudent financial management accounting practices, most businesses to have set aside a few months of operating cash to get them through a short-term crisis.

Whether a run of bad business comes from a pandemic or another outside event, private businesses should not be operating under the premise that in a downturn, or even a crisis, they’ll quickly be bailed out by the federal government.  But since bailouts are how the federal government responded to the last recession, naturally many industries and businesses assumed that’s the new normal. No need to save or prepare for a downturn, the taxpayers will bail you out and pay the bill.

The same Republican Party that bemoaned bailouts is now writing $1 trillion stimulus bills. President Trump should be wary of adding to his coronavirus missteps by singling out industries or businesses for massive bailouts.

Yes, the airline, restaurant and hotel industries are being hit hard. So are gig economy workers at Uber and Lyft, along with all the hourly employees at sports arenas, theme parks, concert venues, movie theaters, bowling alleys, fitness centers and so on. As a result, a direct cash payment to Americans may be the least bad “do something” choice. It would do more to help people, and perhaps even stimulate the economy, than corporate loans and bailouts.

Famous free-market economist Milton Friedman helped popularize the idea of “helicopter drops” of cash in the form of direct payment to Americans in times of emergency. There is a mountain of solid economic research showing no form of economic stimulus creates net gains. But with Trump having changed his tone on coronavirus and trying to correct course, he could at least claim direct cash payments might help Americans who are being economically harmed through little fault of their own, rather than bailing out big companies that had, and squandered, every opportunity to prepare for this eventuality.

Spence Purnell is a policy analyst at Reason Foundation and Dr. Adrian Moore, Ph.D., is vice president of policy at Reason Foundation.

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