Coronavirus aid package a start, but more will be needed

A Knowledge@Wharton report suggests there's plenty the federal government got right in its $2.2 trillion relief package, but it may not be enough in the long-term.

Times Square empty in March of 2020 due to the coronavirus stay at home order.
The streets of Times Square on March 21, found empty during a shelter-in-place order.

The CARES Act, a $2.2 trillion effort to support the U.S. economy during the COVID-19 pandemic, was signed into law March 27 by President Donald Trump. It's the fourth relief bill signed into law since March and includes cash for loans, tax breaks, and incentives for individuals and families, small and big businesses, state and local governments, and health and education services, among others.

“This will dramatically cushion the economic blow from the shutdowns,” says Jeremy Siegel, a professor of finance in the Wharton School. “Combined with the Federal Reserve’s program, the U.S. government has come out with all guns blasting to blunt the economic impact. We now need to speed medical relief and develop effective therapeutics.”

Wharton professors have commended the quickness of the relief, the bipartisan nature of Congress' vote on the law, the effort to get liquidity in the hands of individuals and businesses, oversight for big-business relief, and the delay of collecting payroll taxes from businesses. All the while acknowledging the limits of adding liquidity to the economy when consumers are unable to spend cash due to social distancing constraints and, ultimately, the limited effect the package will have if it's a one-time stimulus. 

There will be a positive effect on the economy, they conclude, but it will be temporary and an oncoming recession will demand more action.

“This is a disaster situation so we do need relief, but it will certainly not stimulate the economy back to life,” says Richard Marston, a professor of finance in the Wharton School. “About half of the package is in the form of loans. There are extended unemployment benefits, surely needed but again for temporary relief. There are small cash checks for individuals. Surely they are also needed, but small compared with the cash needed by many households. There is money for hospitals, but that is a stopgap. Businesses and the people they employ will suffer lasting effects from the shutdown of the economy. To jump-start the economy back to life, Congress will have to pass additional spending bills. The recession is going to be that deep.”

Read more at Knowledge@Wharton.