Analysis: With massive White House stimulus, Trump rolls the dice for re-election

United States President Donald Trump at a White House briefing. Photo / AP

The novel coronavirus is redefining Donald Trump's presidency eight months before he stands for re-election.

The United States President is wagering that the potentially largest rescue package in US history could protect the American people from the economic carnage brought by the pandemic.

Trump will be tested at the ballot box not only by his management of the public health crisis but also by his ability to navigate what the President says will likely be a recession - a challenge that is reviving the decade-long debate over the use of public money to prop up private businesses.

The Administration today outlined a US$1 trillion ($1.7t) plan, which includes US$500 billion in cash payments to individual Americans and US$300b towards helping small businesses, as well as US$50b for airlines and US$150b for other affected sectors.

Trump's hastily crafted stimulus, which has won early support from most Republican lawmakers, marks a sea change on the political right.

The President and many of his conservative allies rose to power on the strength of a grass roots movement forged in opposition to the bank bailouts during the 2008 financial crisis and President Barack Obama's subsequent economic stimulus package.

Scrutiny of Trump's plan continues to grow as some Republicans express unease about its scope and leading Democrats warn against federal giveaways to corporations without accountability measures that would ensure taxpayer money does not fund stock buybacks or executive pay.

And there is some trepidation within the Administration about the political risks associated with the perception that industries spend money as they wish - as well as uncertainty about how, exactly, all of the money would be spread around, according to officials involved in the discussions.

Trump's ability to enact his plan and weather the turbulence could have an enormous impact on his political fate and determine whether he is remembered as this era's Herbert Hoover, who was president at the onset of the Great Depression, or its Franklin Roosevelt, his successor who guided the nation out of economic and geopolitical turmoil.

"American adults of all ages — not just those in their 70s, 80s and 90s — are being seriously sickened by the coronavirus, according to a report on nearly 2,500 of the first recorded cases in the United States." https://t.co/CDIW6ORO8l

— Brian Stelter (@brianstelter) March 18, 2020

"This is Trump's World War II," said Stephen Moore, a Heritage Foundation fellow and an informal Trump economic adviser. "It's really critical to not only whether he is re-elected but how he will be judged by history."

Trump, keenly aware that the state of the economy could determine whether he gets re-elected, has been fixated in recent weeks on stock market declines and sees the plan shepherded by Treasury Secretary Steven Mnuchin as crucial to providing confidence to investors and ensuring an eventual recovery.

"Everybody seems to want to go big and they want to get to the recovery, the big day," Trump said today. He added, "There's going to be a comeback very, very quickly, as soon as this is solved."

For now, Trump is benefiting from quick support from even some of the staunchest spending hawks inside the Republican Party, many of whom are hearing desperation from anxious business leaders and constituents as vast sectors of the economy are shutting down.

Senator Patrick Toomey, R, - who built a national profile years ago as the head of a hard-line, small-government advocacy group - said this crisis "is not like an ordinary recession or even a severe recession. This more like an act of God or war footing."

Scientists say mass tests in Italian town have halted Covid-19 there https://t.co/zaBsODdf38

— Guardian news (@guardiannews) March 18, 2020

Toomey said comparing current proposed legislation to the financial industry bailout of 2008, which he opposed, is misguided since "those were caused by a bubble in real estate and financial institutions being overleveraged, all kinds of human error."

"It's a different thing when a lethal pathogen affects large numbers of Americans," said Toomey.

Senate Majority Leader Mitch McConnell, R, has vowed that the Senate would not recess before reaching bipartisan agreement on the stimulus legislation. And his advice to his conservative colleagues: rally together even if bills are fiscally problematic.

"My counsel to them is to gag and vote for it anyway, even if they think it has some shortcomings, and to address those shortcomings in the bill that we're in the process of crafting," McConnell said yesterday.

When Mnuchin visited Republican senators at their lunch yesterday, the secretary pleaded with them not to use the politically-charged word "bailout" in describing the proposed relief for Boeing, one of many large corporations that stands to benefit from the Administration's plan. One senator raised a hand and asked if they should instead call them "freedom payments," which prompted laughter, according to a person briefed on the closed-door meeting.

Airline executives spent billions on stock buybacks and are now asking taxpayers for billions. We need to help airline workers, but that money should come with serious long-term change to the companies—no more buybacks, a $15 minimum wage, and more. https://t.co/CkXjGVXzRS

— Elizabeth Warren (@ewarren) March 17, 2020

Trump, who has been fielding calls from business executives for days, has been focused on stopping the stock market from cratering and preventing the unemployment rate from spiking into the double digits.

He has advocated for an sweeping stimulus plan - so much so that he when aides presented him with a US$850b proposal, he encouraged a US$1t price tag, according to several people familiar with his thinking.

Trump "doesn't give a [expletive]" about how his rescue plan affects the federal debt, according to a White House official. "It's all about the markets and the economy for him. It's all about the jobs numbers."

Trump's mind-set aligns with a broader GOP move away from the alarmism about federal deficits towards a more blasé view about government red ink, a shift that predates the coronavirus.

Trump claimed during the 2016 campaign that he could eliminate the debt in eight years, but during his first three years in office the debt has surged from US$20t to US$23t. One adviser who has discussed the matter with Trump said the President does not believe voters will be concerned about adding to the debt.

As the death toll from #coronavirus cases continues to grow, we take a look at where and at what rate the virus is spreading - and the stories behind some of those who have lost their lives https://t.co/UybenTrcsT

— SkyNews (@SkyNews) March 18, 2020

Outgoing acting White House chief of staff Mick Mulvaney last month told an audience at Oxford University, "My party is very interested in deficits when there is a Democrat in the White House. The worst thing in the whole world is deficits when Barack Obama was the president. Then Donald Trump became president, and we're a lot less interested as a party."

In late 2008, Congress passed the Troubled Asset Relief Programme, which allowed the Treasury Department to buy toxic assets from financial institutions as a means to keeping big banks from going under during the subprime mortgage crisis. A few months later, after Obama took office, Congress passed a bailout of the automotive industry.

Both measures became controversial, leading to a populist backlash against government initiatives that appeared to pick winners and losers during a crisis.

On the right, the Tea Party movement formed preaching austerity and prioritising the ballooning federal debt. The Tea Party powered the Republican wave election in 2010.

A similar movement formed on the left, as Occupy Wall Street took shape among progressives and powered a decade-long leftward shift in Democratic politics, which found expression in the presidential candidacies of senators Bernie Sanders, I, and Elizabeth Warren, D.

WSJ: “While the virus was quietly spreading within the U.S., the CDC had told state and local officials its ‘testing capacity is more than adequate to meet current testing demands,’ according to a Feb. 26 agency email viewed by The Wall Street Journal ..” https://t.co/PYzIhLhyFm

— Carl Quintanilla (@carlquintanilla) March 18, 2020

Former labour secretary Robert Reich, a leading voice among liberals on domestic policy, said, "Politically it's fine and good to bail out individuals, to provide direct subsidies, extended unemployment insurance, paid sick leave, expanded Medicaid - all of that make a great deal of sense. It is less acceptable to bail out particular industries."

Even some of Trump's top supporters are concerned that the rush for stimulus is mistaken and does not guarantee an economic turnaround.

Supply-side economist Arthur Laffer, whom Trump awarded the Presidential Medal of Freedom last year, warned that pumping federal dollars into the economy "sounds compassionate" but would not necessarily spark the market back into action.

"I'm very worried that this government - or any government - in a panic does stupid things," Laffer said. "They need to breathe into a brown paper bag a bit, think it through clearly. This is no time to abandon the free market with government interference."