Mohamed A El-Erian
Financial markets will resume trading on Monday in the midst of a raging debate about President Donald Trump’s executive actions, which he said would extend relief to households and companies struggling from the Covid-19 shock. The measures are likely to do little beyond some possible immediate respite for the most vulnerable. As important as that is, the debate’s content and consequences range well beyond economics and encompass legal and political aspects. They may also risk the US’s standing as the world looks to recover from both health and economic emergencies.
Three issues stand out in particular: As Larry Kudlow, director of the National Economic Council, acknowledged on Sunday, the executive actions are likely to end up in court. The main challenge is likely to center on the Trump administration’s ability to circumvent the power of the purse that resides with Congress but, at this stage, is undermined by the impasse between Democratic and Republican senators.
Most legal experts predict that the courts would sustain the challenge, but that’s far from guaranteed. What is less clear is whether the White House would subsequently appeal. This legal uncertainty is a reason some economists caution about the immediate impact of the executive actions on consumption, household economic insecurity and overall economic confidence.
Duration is also an issue because some of the measures are not just less limited in scope than those that expired at the end of July but also don’t last long.
Accordingly, while the measures could provide some quick relief for the most vulnerable segments of the population, they are unlikely to provide a foundation for longer-lasting economic improvements even if they survive legal challenges. This is particularly the case if the third issue, the deadlocked congressional negotiations, isn’t resolved by a quick compromise.
It is unclear how Trump’s executive actions will influence agreement on a new relief bill. With Trump and Republicans amplifying their narrative of the “do-nothing Democrats,” Democratic leaders may feel more inclined to compromise.
On the other hand, with the economic impact of the executive actions likely to be limited and thus disappointing to many, the Democrats may just be tempted to run out the clock more in the hope of further amplifying their narrative of the administration’s failed crisis management.
Regardless of opinion on these issues, the US risks inadvertently reinforcing a regrettable narrative both inside and outside the country: that dysfunctional politics continue to hamper the world’s superpower’s response to both health and economic emergencies. This would further undermine America’s role at the center of the international system and erode confidence about a coordinated global effort to achieve a sustainable recovery for public health and economic well-being.