If America’s small businesses begin to fail en masse, the damage will spread quickly throughout the economy. Just imagine the closed wine bars in Manhattan. Without money from thirsty New Yorkers, they can’t afford to buy more bottles from family wineries. Without commercial buyers, those wineries can’t buy new fruit from local grape growers, who can’t pay tractor manufacturers for new equipment. One sector’s problem quickly becomes every sector’s problem.
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Financial markets may experience a parallel domino effect. If thousands of restaurants suddenly can’t make rent, their property owners might default on mortgage payments. When their banks suffer catastrophic losses, the financial system will seize up because nobody wants to lend anybody money. This is how a pandemic recession could become the Great Depression of the 21st century.
How do we begin to solve this impossible problem? The Federal Reserve has said it will pull all available levers to keep the financial system alive, by buying up government debt, corporate debt, and a variety of asset-backed securities. But something more will be needed to save America’s businesses.
“We have to build companies a time machine,” Justin Wolfers, an economist at the University of Michigan, told me. He isn’t talking about the H. G. Wells contraption. He’s referring to anything—including grants, cheap loans, and debt relief—that would allow companies to shift their expenses to the future.
“My local burrito shop, which used to be a thriving business, could go belly-up any day now,” Wolfers said. “But in the post-coronavirus world, it should be a thriving business again. What that burrito business needs is what every business needs right now—a time machine to go from the present pandemic to the future.”
In the U.S. economic-rescue package, that time machine looks like $370 billion in low-interest loans backed by the government. Many businesses won’t have to pay back a cent if they use the cash to make basic expenses, like payroll or rent, and don’t lay off workers. As Slate’s Jordan Weissmann explains, private banks will make the loans to local companies with whom they already have a relationship, and the Small Business Administration will guarantee those loans—at least, until they run out of the roughly $370 billion.
Most economists I spoke with had the same reaction to the economic-rescue plan: Nice idea, too late, and too small. “This should have been passed three weeks ago, and it should have been much larger,” said John Lettieri, CEO of the Economic Innovation Group, a think tank and an advocacy group. Steven Hamilton, an economist at George Washington University, wrote that if the bill is intended to cover 11 weeks of payroll for all companies with fewer than 500 employees, the right figure should be closer to $600 billion. When the U.S. Senate returns to draft follow-up legislation, small-business relief will have to be at the top of the list.