[PJ] - At 3 p.m. Tuesday US equity market indices were up nearly 4%, a modest improvement after yesterday's 7% crash, but still a significant stabilization. The market responded to President Trump's proposed economic stimulus to counteract the impact of coronavirus, centering on a payroll tax moratorium through to the election.
I'm taking a victory lap here: That is precisely what I proposed in a Feb. 27 column in this space:
To be effective, emergency measures must be big, dramatic, and immediate. Emergency tax reductions, including a temporary suspension of social insurance payments by individuals and businesses, are the ideal measure. Forty-four percent of Americans pay no income tax, but Social Security contributions comprise 12.4% of income, split between workers and employers. The US Congress should authorize emergency borrowing authority to make up the difference in the Social Security Fund.
And that's exactly what the president now proposes. Quoting CBS:
President Donald Trump on Monday said he will be meeting with Senate and House Republicans on Tuesday to discuss "a possible tax relief measure" to provide "a timely and effective response to the coronavirus."
"We are to be meeting with House Republicans, Mitch McConnell, and discussing a possible payroll tax cut or relief, substantial relief, very substantial relief," Trump said at a press briefing with coronavirus task force members.
The stock market's nearly 20% fall from its February peak (24% for the small-capitalization Russell 2000 Index, which reflects the domestic economy) warned of a mild recession in 2020. That's "mild" by economists' yardsticks. It's not a mild recession if it gets a Democrat elected in November.
Consumer spending was the only significant source of US growth during 2019, as investment and manufacturing shrank in response to the incipient trade war. The danger is that consumers will shun the shopping malls (foot traffic is down by almost 10% during the past week) and save rather than spend as a precaution. Until late February, all was going well. Strong economic data for the first two months of 2020, including an exceptionally large increase in February employment, indicated that the US economy was improving after the conclusion of a "Phase One" trade deal with China ‐ before the coronavirus problem emerged. But the economy is at serious risk.
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