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The outbreak has closed businesses, made workers stay home and kept passengers off airplanes. That has lawmakers considering the biggest bailout in modern history.
WASHINGTON — Entire sectors of the American economy are shutting down, threatening to crush businesses, put millions of people out of work and forcing lawmakers to consider a vast financial bailout that would dwarf the federal government’s response to the 2008 crisis.
The scale of the problem is unlike anything Washington has faced before: The financial crisis, which sent unemployment skyrocketing to 10 percent, centered on foreclosures and the banking sector while this crisis is springing from dozens of places at once, as restaurants and movie theaters shut down, factories close and airplanes, public trains and buses run nearly empty of passengers.
Economists fear that by the time the coronavirus pandemic subsides and economic activity resumes, entire industries could be wiped out, proprietors across the country could lose their businesses and millions of workers could find themselves jobless.
To blunt the fallout, Washington is weighing proposals that could easily top $2 trillion, a staggering jump from the initial $8.3 billion virus response bill lawmakers approved this month. That includes a $1 trillion request President Trump floated with Congress on Wednesday, which would provide direct payments to individuals and small businesses, along with aid for airlines and other affected industries.
Mr. Trump and Republicans are also weighing a separate proposal that would potentially extend $1 trillion in assistance to small businesses, to keep them afloat during the outbreak and keep workers on their payrolls.
The scope of the business crisis could be seen on Wednesday. Detroit automakers said they would temporarily shutter production to try to contain the spread of virus, a decision that will ripple through hundreds of suppliers and millions of workers who depend on a vibrant auto industry.
Norwegian Cruise Line said it would cut the salaries of its employees by 20 percent and move most of its staff to a four-day workweek. JPMorgan Chase announced branch closings and reduced customer hours. New York, Pennsylvania, New Jersey and Connecticut said they would temporarily close all indoor shopping malls, amusement parks and bowling alleys.
Yet the need to rescue large parts of the economy is running into the painful legacy of the 2008 bailout, which was criticized for putting banks and other companies that helped cause the financial crisis before struggling homeowners and workers ravaged by the Great Recession. The $700 billion bank bailout elicited a voter backlash, which means any aid this time is likely to have large strings attached. Those could include limits on executive compensation, prohibitions on stock buybacks and, most prominent, measures to force bailed out companies to keep workers on their payrolls.
“It’s critical that D.C. does something fast” for companies, said Chuck Robbins, the chief executive of Cisco, the large networking company. “If you get it 80 percent right today, it’s better than waiting a week and getting it 90 percent right.”
Mr. Robbins said he supported measures to limit bailout money for executive compensation and buybacks. “Generally I would think that’s appropriate,” he said. “Those aren’t the problems we are solving for.”
Many economists say that the federal government risks catastrophe if it does not respond to the dimming economic activity by showering individuals and businesses with significant financial support. Lawmakers have already approved some expansions in unemployment benefits and mandated paid leave for many workers affected by the virus, and this week, they began to coalesce around plans to send direct payments to individuals across the country.
Agreement appears more elusive over the best way to help businesses, including how much to spend and what conditions to attach. But most parties agree there is little time to dicker over the details.
The crisis is hitting many low-margin, service-industry companies particularly hard, taking a bite out of small businesses that power much of the economy. Half of all workers are employed by companies with fewer than 500 staff members and small businesses exist in every congressional district around the country.
One proposal circulating on Wednesday among White House officials, including the conservative economists R. Glenn Hubbard and Michael R. Strain, called for banks to lend an estimated $1 trillion to small companies to help cover 12 weeks of missed revenue — and for the government to pay off the loans, provided the companies do not lay off workers.
Senators Marco Rubio, Republican of Florida, the chairman of the committee on small businesses, and Susan Collins, Republican of Maine, proposed a similar plan on Wednesday, which would cover six weeks of revenue and cost an estimated $300 billion.
“There is broad general agreement that small businesses in this country will not be able to survive unless there is extraordinary assistance,” Mr. Rubio said. “The goal is to keep employees connected to their employers, so that people aren’t just having to stay home and aren’t just feeling the stress of being laid off, but the uncertainty of whether they’ll even have a job to go back to.”
Payments to large companies could prove trickier. Many of the companies now asking for government support received a big corporate tax break from Mr. Trump’s 2017 tax cuts and have spent years returning cash to shareholders in the form of stock buybacks and dividends. That has drawn criticism from Democratic lawmakers, who accuse big companies of moving jobs out of the United States and putting shareholders ahead of workers, whose wages have risen only modestly since the last recession ended in 2009.
The four biggest American airlines collectively bought back $39 billion in stock from 2015 to 2019 and paid out $6 billion in dividends, according to data from Capital IQ. The companies that make up the broader S&P 500 index spent more than $5 trillion in buybacks and dividends over that period.
Even if companies had returned no cash to shareholders, they probably would have found other places to spend the money rather than keeping it on their balance sheets for a rainy day. On Feb. 6, as the virus was already spreading, Delta approved a $257 million dividend to shareholders, according to Allied Progress, a consumer advocacy group.
“They have known about the risks of an outbreak to their business for years,” said Derek Martin, the group’s director. “We ask Americans and average people to be prepared for a crisis.”
Treasury officials proposed on Wednesday that Congress spend $50 billion on a bailout for airlines and $150 billion for other hard-hit industries, like cruise lines. But Democratic and Republican senators alike have insisted that any bailouts contain provisions meant to change how corporations spend their money going forward. Senator Josh Hawley, Republican of Missouri, said on Twitter on Wednesday that any multinational company seeking assistance would need to “explain how you will move supply chains and jobs back to America.”
Senator Elizabeth Warren, Democrat of Massachusetts, released an eight-point list of conditions this week for companies seeking aid, including a permanent ban on buybacks, the institution of a minimum wage of $15 an hour for employees and at least a three-year ban on dividend payments and executive bonuses.
“During this crisis, we cannot do a no-strings bailout for corporations like we did in 2008,” Ms. Warren said in an interview. “It’s got to be clear that the money will be used in ways that will help workers and strengthen the whole economy.”
Ms. Warren compared the conditions on assistance with a mortgage lender that insists that the borrowed money actually be spent on buying a house. “It’s good lending practice,” she said. “If we’re going to lend money to these guys, we ought to know how the money is going to be used, and that’s what the strings are for.”
Patrick L. Anderson, an economist in East Lansing, Mich., publicly opposed the financial bailouts in 2008. But he said there were important differences between this crisis and that one.
“That was money that was largely going to giant lenders, some of whom were irresponsible, and was going to prop up organizations that were part of the problem,” Mr. Anderson said. “This is different. It’s not a bailout if you, the government, tell a business to close, and then they ask you to help cover payroll while they’re closed. That’s not a bailout — you told them to close.”
Helping businesses survive the crisis also makes good economic sense, Mr. Anderson said. In a report published Wednesday, he estimated that more than 100 million Americans could lose significant income as a result of the outbreak, and 45 million could lose half or more of their wages.
Diane Swonk, the chief economist at Grant Thornton, said many fundamentally healthy businesses were suddenly seeing catastrophic losses in revenue — not because of any choices they made, but because of an unfathomable crisis. “You can make sure that the loss in spending doesn’t become an insolvency problem,” Ms. Swonk said. “You’re trying to keep individuals and firms solvent.”
But Joseph S. Vavra, an economist at the University of Chicago’s Booth School of Business who has studied how the policies used to fight the Great Recession worsened inequality, said any bailouts should help companies and their workers, not reward shareholders.
“What we don’t really want is bailouts to well-off equity holders,” he said. “We want airlines to still exist when this thing ends, but we also ideally don’t want to be transferring $50 billion to the most well-off people in the economy, who are the stockholders of the airlines.”
Even groups that normally oppose government assistance to businesses are expressing openness to it now. But they are tempering that with warnings that any effort seen as benefiting shareholders and corporate executives over ordinary workers will be met with a strong opposition.
“There is still a strong view in this country that in 2008, Wall Street got bailed out and Main Street got the bill,” said Dennis Kelleher, the president of Better Markets, which advocates more regulation of the finance industry. “So that kindling is already there throughout the American population, and it’s not going to take much to ignite that kindling and set off a backlash of potentially catastrophic consequences.”
Business groups have largely supported congressional efforts to provide federally funded sick pay for affected workers and direct payments for individuals. Some executives say helping workers will in turn keep businesses viable.
Robert Gamgort, the chief executive of the beverage company Keurig Dr. Pepper, said he worried most about consumers, “especially many hourly workers and tipped workers who aren’t getting paid at all right now.”
“I think the government needs to step in and prioritize that,” he said. “Within a couple of days they’re going to start worrying about how to pay for food.”
Mr. Trump, for his part, said any response would have to be big.
“We have to help everybody. It was nobody’s fault,” he said on Wednesday. “We want to keep those companies vibrant because there’s going to be a comeback very, very quickly, as soon as this is solved. And it will be solved. We will win. And there will be a comeback, and it’ll take place very quickly.”
Jim Tankersley reported from Washington, and Ben Casselman from New York. Catie Edmondson contributed reporting from Washington, and David Gelles and Niraj Chokshi from New York.