The Great Recession in 2008 was supposed to be a once-in-a-generation economic calamity. Just 12 years later, the United States is facing a far more daunting crisis caused by the coronavirus pandemic.
“This one is scarier to me, because we knew how to handle the other one,” former Rep. Barney Frank, a lawmaker who was central to crafting the 2010 Dodd-Frank Wall Street reform legislation, told Vox. “The other one was a result of human error and bad decisions. This is different.”
Among the central differences between the two is the unprecedented public health emergency that’s taking place now. Thus far, Congress has rushed to authorize a $2 trillion economic relief package, but interviews with several lawmakers and advisers who worked on the 2008 stimulus bills suggest the US government may have to think even bigger in the future — depending on how long the coronavirus outbreak lasts.
The size of the stimulus that’s been approved so far already dwarfs that of bills passed during the financial crisis. Taken together — the $700 billion Emergency Economic Stabilization Act of 2008 that passed under President George W. Bush (also known as bailing out the banks) and the $840 billion American Recovery and Reinvestment Act of 2009 that passed under President Barack Obama — had a combined cost of around $1.5 trillion.
“Everything this time is happening bigger and faster,” said Jason Furman, a former economic adviser to Obama, who played a key role in designing the administration’s response to the financial crisis.
For one thing, Republican lawmakers who obstructed Obama’s recovery efforts at the start of his term have shown no qualms in working with a Republican president to pass trillions in stimulus.
In 2009, “there was no Republican help,” former Chicago Mayor Rahm Emanuel, who served as Obama’s chief of staff from 2009 to 2010, told Vox. “Mitch McConnell said forget it.”
A chart comparing the number of unemployment claims filed this week to those filed during the financial crisis also underscores a stark contrast in need. In the week ending March 21, unemployment claims nationally surged to 3.28 million, nearly quadruple the 665,000 claims seen in 2009 at the height of the recession.
“The economic impact was greater in 2008 but it was concentrated on the financial area,” said Frank. This time around, the impact on workers across industries has been evident from the get-go.
And there are other roadblocks to recovery that didn’t exist in 2008. Until America’s Covid-19 outbreak is under control, there will be lingering uncertainty about how to address the resulting economic fallout. What workers, businesses, and states need most at this time is liquidity — and a lot of it — experts told Vox.
“The problems [between 2008 and now] are fundamentally different,” said Cecilia Rouse, a former member of Obama’s Council of Economic Advisers and current dean of Princeton’s Woodrow Wilson School of Public and International Affairs. “Right now, we don’t need stimulus. We need the opposite of stimulus. We want the economy to stop, in many ways. Right now, we need liquidity. We need people to be able to pay bills.”
Congress’s recent efforts are an attempt to meet these needs, and they include legislation that Senate Minority Leader Chuck Schumer has dubbed the “largest rescue package in American history.” House Speaker Nancy Pelosi has acknowledged, however, that another bill could well be required.
Multiple former Obama administration officials told Vox that thinking big is absolutely warranted. The most recent package includes a wide range of policies such as direct payments to most adults who make $75,000 or less, $367 billion in loans for small businesses, and $500 billion in aid to affected corporations. The biggest challenge, ultimately, might be getting the money out the door and into the hands of workers fast enough.
“Someone’s got to be riding hard on them, full stop,” Emanuel told Vox. “The resources don’t automatically go out, we’ve got to get them out.”
The fundamental difference between the Great Recession and the coronavirus
While the 2008 bailout was about getting money to industries and workers to encourage spending, this year’s package is all about giving people enough money to tide them over while the economy is effectively on hold.
As people stay home and social distance to combat the spread of Covid-19, nonessential businesses have been forced to shutter, resulting in mass layoffs that could affect as many as 6 million workers solely in March. The main purpose of a stimulus package is to guarantee these workers (as well as companies, hospitals, and states) the financial support they need as the US attempts to slow the spread of the coronavirus.
The public health component makes this crisis unique — and challenging.
In 2008 and 2009, the core issue that fiscal stimulus was trying to address was a dearth of consumer spending and jobs, prompted heavily by the fallout caused by banks’ handling of mortgage-backed securities. The problem at hand is much tougher to rein in because it requires more than just economic tools; the US must first get the coronavirus under control before it can reopen the economy.
“What we’re seeing is caused by something external to the economy,” Gus Faucher, chief economist of PNC Financial Services Group, told USA Today.
Because of this, the government response has had some key differences. Right now, one of its big focuses is making sure people have the money they need to weather this crisis while businesses are closed.
For example, as part of the latest stimulus package, the government is sending residents a notable influx of direct money: most adults who make $75,000 or less will receive a $1,200 one-time payment, a significant increase from the $250 checks some individuals received in the wake of the 2008 financial crisis. The allocation of these direct payments this time around is much more tangible for people than the payroll tax cut many received in the Obama years, which typically showed up in their rebates later.
In 2009, “the voters had seen a big bill passed, they didn’t see much impact right away. We didn’t have immediate rebates,” recalled John Lawrence, who then served as House Speaker Nancy Pelosi’s chief of staff.
Ensuring this immediate liquidity for all workers is key, said Rouse. “If we can get the liquidity right, so that people feel comfortable and are willing to stay home, it will mean that we can recover from this much faster,” she emphasized. “The longer that we drag on, the more that we’re going to be in this for the long haul with these different kinds of stimuli.”
The expansion of unemployment insurance, too, is also unprecedented. While the Recovery Act in 2009 included more generous unemployment insurance, it only expanded support by $25 per week for recipients. In the latest legislation, Congress is expanding the benefit by $600 per week for up to four months.
The current deal captures, in part, the magnitude of the crisis so far, but uncertainty around how long this outbreak could last means more aid could well be needed. At this point, experts aren’t sure just how much support the economy will require in the long term. The emphasis on stopping the spread of disease is ultimately central to preventing even more economic fallout in the months to come.
“If you did too little on health today, you would have to do much more down the line, and that will hurt the economy even more,” Furman said.
The politics of these stimulus measures are different this time around, too.
The negotiations in the 2008 bank bailout were much more contentious as the optics of a bank bailout were politically unpopular with both parties. House Democrats didn’t want to be seen giving a handout to misbehaving banks, and Republicans didn’t like the massive increase in government spending. It took multiple rounds of votes and Bush’s treasury secretary literally getting down on one knee in front of Pelosi before the bailout was passed in 2008.
“I don’t think people blame the airlines or blame restaurants for having caused the problem,” Lawrence told Vox. “That relieves the political problems we faced; there was a great hesitation to do that.”
What’s similar about the two crises
The biggest challenge, once again, could be getting this money directly to the people, businesses, and municipalities grappling with the fallout from coronavirus.
Former Obama chief of staff Emanuel spearheaded the administration’s 2008 stimulus negotiations with lawmakers. Once Congress passed billions in stimulus money, Emanuel remembered talking to officials in the White House about the need to move the money as fast as possible.
“I said look, all the departments are going to treat it like appropriations, and you can’t move it at an appropriations pace,” he said. “This cannot work at normal government speed.”
As Furman explained, one of the difficulties Obama administration officials encountered in 2009 was how to get money to small businesses that needed it during the Great Recession.
“This time, that’s going to be needed in a huge way,” Furman added.
Additionally, questions have already emerged about how eligible adults are able to access the direct payments that are part of the stimulus. As Vox’s Dylan Matthews has written, because these payments are based on past tax returns, if the government doesn’t have an individual’s direct deposit information, that person could see delays in receiving this money.
“One lesson we learned in the last crisis was that things that sound great on paper aren’t always easy to actually put in place,” said former Obama economic adviser Karen Dynan. “In this case, the challenges are going to be with getting the checks out and — especially — changing and massively scaling up the way we do small business loans.”
Making sure that the necessary support gets to states — many of which have “balanced budget” laws that strictly limit spending — is also as vital this time as it was in 2008.
“If states do have to recover by cutting back, then that will induce its own bit of headwind and it might induce its own kind of recession,” said Rouse.
The $500 billion that’s been allocated for corporations also prompts some echoes of the past. While one of the main critiques of the previous 2008 bailout was that not enough strings were attached to the funds banks received, the relief offered in 2020 includes slightly more limitations on stock buybacks and worker layoffs.
The politics of the two deals, briefly explained
Many Democrats who were involved in the 2008/2009 stimulus negotiations said it could have been much larger if not for frequent Republican protests about adding to the national deficit.
“In 2009, the response was too little and that was because the Republicans were being obstructive,” said Frank. Indeed, some former Obama cabinet officials noted the February 2009 stimulus program should have been more bipartisan; it was something Bush realized was inevitable and tried to get Republican lawmakers to support in his last few weeks in office.
As a candidate for president, Obama had worked with Bush to convince Democratic lawmakers to support the bank bailout. Once he was inaugurated in 2009, Obama made an effort to work with congressional Republicans — to no avail, his former director of legislative affairs Phil Schiliro told Vox. On one of the president’s early trips to the Capitol to meet with Republicans, the tone was set.
“On his way there — to the Capitol — the House Republican leadership sent out a message to their members telling them to vote against the bill,” Schiliro remembered, adding, “I don’t think President Trump has ever met with the House and Senate Democratic caucus.”
Majority Leader Mitch McConnell, a vocal opponent of the Recovery Act in 2009, has not shied away from the steep price tag of the 2020 stimulus legislation. “This is not an ordinary situation and so it requires extraordinary measures,” McConnell said in response to recent questions about the cost of the bill. McConnell was among 38 Senate Republicans who voted against the 2009 stimulus.
With Trump as president, GOP opposition to excessive government spending and raising the deficit has largely disappeared. Well before the coronavirus pandemic, Republicans raised the national deficit with their 2017 tax cut bill.
“As someone who was right in the middle of this last time around, it’s amazing to watch Republican senators not care about the deficit or increased spending,” said Jim Manley, a former longtime spokesman for then-Senate Majority Leader Harry Reid. “We had to fight tooth and nail to get the stimulus bill done.”
Democrats involved in the 2009 effort see a pretty clear explanation for the turnaround.
“There’s a Republican president, so the Republicans cooperate,” Frank said plainly.
Still, the $2 trillion package is a rare show of bipartisanship from two bitterly polarized parties.
“More important in some ways was not that they did it, but how they did it,” former Sen. Chris Dodd, a co-author of the 2010 Dodd-Frank Wall Street reform bill, told Vox.
For now, experts aren’t sure just how much money could still be needed to combat the effects of the pandemic, and Pelosi and other lawmakers have left the door open for more stimulus packages.
“We need to recognize that this is not a one-time effort,” Rouse said. “We’re going to need to be thinking about the immediate term, the medium term, and the longer run.”