It spent early and spent big—and is now poised to reap the rewards.
Nearly eight months after it was declared a pandemic, COVID-19 rages on, and there is no global consensus on the right policy mix for addressing the public health crisis. But on how to deal with the economic fallout, the winning strategy is clear: Spend early and spend big. And no major economy has done that better than the United States.
Washington’s secret weapon has been the support for consumers. In late March, Congress overcame partisan differences to pass the Coronavirus Aid, Relief, and Economic Security (CARES) Act, rushing out $2.1 trillion of public money, or more than 10 percent of GDP, to support households, small businesses, and larger corporations. At the same time, the Federal Reserve put in place a series of emergency lending programs to keep the money flowing.
The funds were deployed hastily, which of course entailed risks that not all of the spending would be optimal. But the economic results show that the effort was well worth the risks, particularly for U.S. households. Nearly alone among the major Western economies, American household incomes actually went up during the COVID-19 recession, by an unprecedented 10 percent between the first and second quarters of 2020.