Yesterday, at the Senate Banking Committee hearing on “Implementation of Title IV of the CARES Act,” Heidi Schierholz, senior economist and director of policy for the nonpartisan Economic Policy Institute, offered a dire warning to Congress as members in both chambers consider additional COVID-19 relief legislation.
“If policymakers and the public are convinced that the Federal Reserve can handle the emergency response and, as a result, a further, massive fiscal response is not forthcoming, we are virtually guaranteed to face an extended depression.”
She expressed concern over the myriad facets of the relief efforts thus far, including highlighting that minority- and women-owned businesses have been effectively shut out of many fiscal support programs.
Furthermore, Shierholz highlighted a key flaw in programs currently being deployed by the CARES Act: their reliance on loans, not grants.
“In my view, the biggest problem with these lending programs is that they are loans, not grants. In an economy where non-essential activity has been largely shut down for an extended period—by a widespread, justifiable fear of contracting a potentially lethal virus and by official lockdown measures—it is not illiquidity that is often the primary problem. Many businesses, states, and municipalities are seeing their revenues drop to such an extent that the real threat they face is not illiquidity, it is bankruptcy. Further, households are facing huge challenges just meeting basic needs in the wake of the shutdown, and having a large tranche of aid that does nothing to directly alleviate their suffering—or to keep them from needing to slash their spending, making the recession worse and the recovery weaker—is a huge missed opportunity.”
This is precisely why America’s Recovery Fund is a grant-based program: it offers the liquidity businesses need to avoid bankruptcy by replacing lost revenue (not profits) without the risk of being saddled with additional debt at a time when current debt obligations and operating expenses are already posing existential threats to American enterprise.