The Best Practices On Bailouts, As Congress Debates Coronavirus Stimulus

Congress is working on a coronavirus stimulus package of over $1 trillion. Karen Dynan, former chief economist for the Department of the Treasury, talks with NPR's Ailsa Chang on how to get it right.

AILSA CHANG, HOST:

Congress is promising help for those affected by the coronavirus - help for small businesses, help for big businesses and help for individuals. But first, lawmakers have to work together to pass a stimulus package worth nearly $2 trillion. And so far, working together has meant failed procedural votes and bitter partisan debate in the Senate. Meanwhile, hundreds of thousands have been laid off, and many small-business owners don't know if they'll be able to open again when the crisis abates.

So how can Congress get this right? Well, to help us answer that question, I'm joined now by Karen Dynan. She's a professor of economics at Harvard. She was the chief economist at the Treasury from 2014 to 2017, and she served as a senior economist on George W. Bush's Council of Economic Advisers.

Welcome.

KAREN DYNAN: Thanks. It's a pleasure to be here.

CHANG: So Karen, if you could just pick one thing to tell Congress about a stimulus package as they're trying to negotiate a deal, what would that one thing be right now?

DYNAN: Well, I think it's really important to get a lot of money out and to get it out fast. In that regard, I think it's important that we don't try to overengineer this aid. In an ideal world, you only want money to go to people and businesses that truly need the money and will make good use of it. So we do want broad provisions, for example, with businesses to make sure that they're minimizing job loss and supporting employees more generally. But we don't want to fine-tune the programs in ways that are going to slow getting the money out or risk reducing the amount of help we're providing.

CHANG: I'm intrigued by a phrase that you used - overengineering this aid. I mean, there are a lot of industries asking for help right now - individuals, too. There's only so much funding to go around. How should Congress prioritize?

DYNAN: Well, we need to prioritize the areas where the immediate hardship is going to be the greatest and also the areas where the scars could really be lasting. So for example, many restaurants have seen a huge reduction in their businesses and revenues. That's not only threatening their ability to stay afloat, but also forcing them to lay off lower-income workers who are already pressed financially. So we - so if businesses end up going bankrupt and families are wiped out financially, that's going to make it all the much harder for the economy to recover once the health care crisis is behind us.

CHANG: Right. There's also been a lot of talk about what big companies should be able to do with bailout money. I mean, a lot of people don't want to see this money go into, say, appeasing shareholders or going into executive compensation. There's a sentiment out there that this money should help people keep their jobs. So I'm wondering - is this the right conversation to be having right now as Senate Democrats again today rejected the Republican proposal?

DYNAN: Well, I think it's really, really important that the money is used well. And in that regard, it's important that the money comes with restrictions to - so that employers don't - so that it ends up in - benefiting employees and not the top executives and the shareholders of big businesses. So what we've got to do is ignore the special interests, keep the program simple and transparent, make sure there's good oversight, including reporting requirements and other measures that would promote accountability.

CHANG: But do you see this as a conversation that can be resolved quickly, promptly? As aid is urgently needed, can Democrats and Republicans solve this question of how much money to pour into job security at this moment?

DYNAN: I think they absolutely need to. And I think as it becomes clearer and clearer that our economy is really shutting down and we could see massive amounts of job loss and also reduced economic output - I think it will become more imperative to - for lawmakers to work together to try to compromise on this.

CHANG: Now, there are lobbyists working overtime right now trying to get their industries recognized in this rescue package. Some of these lobbyists are from hard-hit industries like the restaurant and airline industries. But there are other lobbyists out there trying to slip in special provisions for their special interests that have nothing to do with the coronavirus. What kind of advice would you give lawmakers right now wading through all of this?

DYNAN: I think they need to really ignore the special interests and focus on what sectors are being hit hard and what sectors are critical to still be functioning once the economy is healthy again. So I think they just need to kind of move ahead, not listen to those special interests and, you know, make sure that the package has provisions in it to make sure the money is ultimately going to benefit employees.

CHANG: As we mentioned, you know, this package is going to be about - where it's - it's right now heading towards $2 trillion. Should lawmakers be looking to design it in a way that ensures they can get their money back?

DYNAN: No. This is - we absolutely should not be worried about getting paid back right now. The economy is in crisis, and we need to accept that some types of businesses will need subsidies and not just loans to stay afloat and retain employees. It is going to make our deficit picture darker if the money doesn't get paid back. But we should keep in mind that interest rates are low now, and the cost of inaction could be just enormous.

CHANG: And in the brief moments we have left, I'm curious - should lawmakers be thinking about marketing all of this right now? I mean, should they try to avoid using a word like bailout, which has obviously negative connotations since the financial crisis? Should they be using some other word?

DYNAN: Sure. I prefer the word rescue relative to bailout because I think in many cases, that's what we're doing - is we are rescuing businesses that really need the help - think that it's super important that we both design the programs such that they are actually providing help but also explain that to the public.

CHANG: That is Karen Dynan, a professor of economics at Harvard.

Thank you very much.

DYNAN: Thank you.

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