[Politico] We’re economists, and our analysis suggests Congress is seriously underfunding efforts to combat Covid-19.America is trapped in a health crisis. We are, once again, facing rapidly rising coronavirus infection rates, reading headlines decrying shortages of tests and personal protective equipment and witnessing government experts call for state shutdowns.
Unfortunately, Congress and the administration seem poised to return to a tired playbook which isn’t working: ramping up government spending as if we are stuck in a pure financial crisis. Financial aid, while vitally important for reducing the economic pain caused by Covid-19, will not hasten the end of the pandemic.
The only way to end our financial crisis and restore the economy is to address the pandemic itself.
By our calculations, less than 8 percent of the trillions in funding that Congress has allocated so far in response to the virus has been for solutions that would shorten or mitigate the virus itself: measures like increasing the supply of PPE, expanding testing, developing treatments, standing up contact tracing, or developing a vaccine. A case in point is the most recent House Covid-19 package. It calls for $3 trillion in spending; less than 3 percent of that total is allocated toward Covid testing. As Congress considers next steps, it’s imperative to shift priorities and direct more funding and effort toward actually ending the pandemic.
Along the same lines, it is vital that elected officials realize that stay-at-home orders, social distancing, masks and school closures are not the primary cause of our economic dislocation. Americans decreased their economic activity before those orders went into effect and will restrict their activity as long as the threat of catching Covid-19 persists. No matter how much cheerleading is done, a phased reopening of the economy is not going to lead to anything approximating full economic activity until we credibly address the pandemic.
MIT economist Ivan Werning has a useful analogy. Imagine we found out that in four months, an asteroid was going to hit the Earth. While news about the asteroid would set off financial calamity, nobody would think that the solution to the impending doom should be exclusively composed of unemployment insurance, small-business loans and other forms of stimulus. To fully address a crisis, you need to address the cause of the crisis, not just its economic fallout.