House Passes CARES Act

Update: The U.S. House of Representatives passed the ~$2 trillion CARES Act to help ameliorate the public health and economic fallout of the coronavirus. President Trump is expected to sign the bill into law shortly.

One of the usual knocks against fiscal policy is timeliness: Policymakers’ awareness of economic downturns comes with a lag (data lags are very real), policymakers often take too long to enact related legislation (often true), and enacted legislation then takes effect with further policy lags (true of infrastructure spending, less true of transfer payments). Many provisions of the CARES Act will have near-term stimulative effects—notably the lump-sum tax cuts, safety net spending, and state fiscal relief—and there is zero risk that the bill will inadvertently overheat the economy because of policy lags. Relatedly, there is zero risk that the Federal Reserve will tighten interest rates to counteract the stimulative effect of this bill. I’ll have more say more about the “usual knocks against fiscal policy” in a future post…

Congress should have been preparing for the coronavirus much earlier, in January and February, but they moved surprisingly quickly for a (usually deliberative) legislative body after the gravity of the situation became… er, indisputable in the U.S. in March. The CARES bill was introduced in the Senate on March 19—just eight days ago.

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