Former Presidential Economist on $2T coronavirus bill: There's not much stimulus

Chicago's Booth School of Business Professor of Economics & Former Council of Economic Advisors Chairman under President Obama Austan Goolsbee joins Yahoo Finance’s Seana Smith to discuss the $2 trillion coronavirus stimulus deal facing a vote in the Senate.

Video Transcript

SEANA SMITH: Austan Goolsbee, Professor of Economics at Chicago's Booth School of Business, also former Council of Economic Advisors Chairman under President Obama. Mr. Goolsbee, thank you so much for calling in today.

We just heard about the latest hiccup from Jess Smith down on Capitol Hill, but I want to get your take, though, on what we know so far about this stimulus package. From your perspective from what's been put forward, are you happy with it?

AUSTAN GOOLSBEE: Yes and no. I'm happy with it. There's one small thing about the name. I really don't think that there's much stimulus in this bill, maybe if they do payroll-tax cut. I think of it more as a relief and let's burn money to keep ourselves warm hoping that virus plays itself out or we get control of the virus in some other way.

The normal notion of stimulus that we're going to inject government money, we're going to send out these tax cuts and people are going to take this money and they're going to go to the store and spend it, I think there's going to be only a little of that that takes place because people are afraid. I think this relief is quite necessary.

I'm not surprised to find out that something that they hastily put together that's bigger than any bill that they have ever passed would have a bunch of quibbles and things that one party or another feel is wrong and that they will have to try to fix those-- fix those things for quite a long time. That certainly happened with the tax bill too.

SEANA SMITH: Well, what do you think is missing from this package? If there was a couple of things that you would like to add if you had a say in this right now, what would you put in this package that is not included at this point?

AUSTAN GOOLSBEE: Well, I think that there's not enough focus on the fighting of the virus itself, a massive ramp-up in the number of tests, getting it into the tens of millions or hundreds of millions. I'm glad that toward the end they did put in more money to go to the hospitals and to the states, but the number-one rule of virus economics is that until you contain the virus, you can't do anything about the economics, and they're trying to jump ahead on the economics. I'm glad a lot of the provisions they did, but I feel like the national effort to ramp up the medical side ought to be first.

And then we'll have to see what the controls are, but the unlimited-- not unlimited, but the massive amounts of bailout spending to big companies without a framework for who gets the money, I'm a little nervous about that.

SEANA SMITH: Professor Goolsbee, what do you think about President Trump's comments just in terms of the fact that he wants to see the economy reopen within just a couple of weeks? He said by Easter he wants to see things starting to get back to normal. If that is the case, I mean, do you agree with that? What kind of threat do you think that could lead to?

AUSTAN GOOLSBEE: Well, I personally-- I think you have to get a handle on the spread of the virus before the economy can come back. I'm totally sympathetic that the president wants the economy to come roaring back, and there is the possibility if we had widespread, close to universal testing that we could get out of lockdown. That's happened in Korea. They've had enough testing that they aren't in lockdown because nobody feels or fears that if they go out in the street they're going to randomly catch the disease from people who are just walking around and don't know that they have it.

Until you get the testing though, it's not realistic. You can't-- you could reopen everything, even though the president doesn't control that. But let's say the president could convince all the governors to reopen everything and tell everyone to go back out. Almost all the public-health experts say that that would lead to an immediate reramping up of the infection rate from the virus, and then we'd have to go back to square one and everyone go back into lockdown. So I think there's a big problem with being too hasty at trying to get people out the door and back on their jobs and out of lockdown before you've contained the virus.

SIBILE MARCELLUS: Clearly we need to deal with the medical emergency first, but a lot of economists-- a lot of Americans want to get back to work. They're tired of sitting at home and not being able to go to the office, go outside, to go to the bar, to go to a restaurant. So in terms of efforts to restart the economy, do you think that the ban on companies doing stock buybacks with bailout money will help support workers once the economy is reopened?

AUSTAN GOOLSBEE: There are a couple of important things in that question. First on the just technical matter about should companies not be allowed to buy back their own shares or pay dividends, that's not a political thing at all. That's a if the government is going to hand you money, the purpose of that money is to try to preserve employment and to prevent the economy from spiraling further. It's not so that you can take the money and distribute it to yourself or your shareholders. So I think that that was a necessary-- that's a necessary thing no matter whether. Whether that will lead us to more quickly get back to work, I'm not-- I'm not so sure. I'm not totally convinced. We'll have to see what the conditions are of the companies getting the money.

But, you know, if you think about the cruise lines, the president keeps saying that he wants to give money to the cruise lines. No one's taking cruises right now. So we can spend billions trying to keep those companies afloat or not having to restructure. I do think that we probably want to think through whether that's the best use of the money or whether we could use the money for direct relief to tide people over until we can come back.

ZACK GUZMAN: Professor Goolsbee, it's Zack Guzman here. We spoke with one of your fellow compatriots under Obama, former chair of Council of Economic Advisors Jason Furman, just a little bit ago--

AUSTAN GOOLSBEE: Yeah.

ZACK GUZMAN: --regarding how he would have changed things based on the American Recovery and Reinvestment Act of 2009 that you guys got passed under Obama. One of the points he was making was that he's not seeing enough go back to states who are dealing with this right now on the front lines. We heard from Governor Cuomo saying that the $3.8 billion that he's slated to get from this $2 trillion bill is just a drop in the bucket. So what would you say about that in terms of maybe repositioning some of the funding to states to make sure that they can spend to create stimulus as well?

AUSTAN GOOLSBEE: I think that's important, and there is money in the stimulus bill that's supposed to go to the states. It's intentionally targeted only to their coronavirus expenses, as best I understand it. I think it's a mistake. Every state is going to face a massive shortfall in terms of tax revenue as we get millions of people losing their jobs. So I think they should put some focus on that.

The second thing that I'd say about the Obama stimulus of 2009 is that really was traditional stimulus where the government's trying to spend money or cut taxes to get people to go out and increase their economic activity. We can't get to that point until we contain the virus. So we need to, one, contain the virus; two, provide relief and the warming ourselves with the burning of money. Until we can get past that and only then will it be the time for stimulus.

And when it comes time for stimulus, I'm actually a fan of having the federal government give money to the states to get them to pass sales-tax holidays rather than income-tax cuts because at least to get the tax cut from a sales-tax holiday you have to go out and spend the money. I'm afraid that as we come out of this virus, there are going to be a lot of people who are very hesitant to spend money. They will have seen their 401(k)s plunge because of the market. They will know that there have been these risks, and so they're going to tend to go back to the precautionary savings of whatever taxes you give them. So I hope they will look at some things like that when we get to that stage.

And I do feel like that was a lesson we learned from the Obama stimulus. The direct moneys that were spent were, in many ways, the most effective. A third of that stimulus was tax cuts, and a lot of the tax cuts did not-- they got out the door quickly, but they did not get spent and increase the GDP quickly enough.

SEANA SMITH: All right, Professor Austan Goolsbee, thanks so much for calling in today.

AUSTAN GOOLSBEE: Yeah, good luck, guys.

SEANA SMITH: Thank you.