Keeping The Factories Running And The Lights On: How To Use $500 Billion In 8 Months, Wisely

As of Thursday, April 9, Treasury and the Federal Reserve are finally starting to set set up the facilities need to use the $500 billion in funds for “severely distressed sectors” contained in the $2.2 trillion CARES relief act. The money has to be allocated by December 31, 2020.

In this initial round, the Fed is stepping up to lend $600 billion to small and medium sized businesses; $850 billion to bond issuers to fund corporations and household borrowing for items like automobiles; and $500 billion to support state and municipal liquidity. This lending is backed up by $195 billion in Treasury funds from the CARES act.

What should Treasury and the Fed do with the rest of the $500 billion? Some will go directly to the airlines and industries essential to national security, like airplane manufacturing.

But Treasury must think strategically as it decides how to dole out the money over the rest of the year. Not all industries and activities are created equal. We can survive as a society if the cruise ship industry is wounded. It will be much harder to fight the virus and to recover economically if our core systems—key manufacturing, power, food production and distribution, communications, transportation, water, waste removal, public safety—start failing. 

On the private side, these industries are mostly led by large companies with plenty of resources—which is why many progressives are reluctant to provide support for them—but even their resources can’t stand up indefinitely to the current level of stress.

We haven’t hit bottom yet in terms of the intensity of the pandemic. Sectors that are doing relatively fine right now may run into unforeseen problems later in the year as more and more people get sick across the country. As the virus sweeps across the country, more industries that are functioning now, like the food manufacturing industry, may find themselves needing a helping hand.

That’s why we need to reserve $100 billion, for now, to protect core economic systems that are central to the economy’s functioning. Each of the core systems interlock with the others. For example, problems with the power system will mean that fuel stations won’t be able to pump gas and diesel, which will cut off truck transportation.  Problems with freight package delivery will make it hard to ship medical supplies around the country. And of course, loss of water or public safety will make all tasks infinitely harder.

Core systems are designed to be robust. That’s why many important industries don’t need immediate help. When asked during a recent television appearance whether his company will seek assistance from the federal government, FedEx Corp. CEO Fred Smith said “I don’t think so at this point in time.”

But we can’t be overconfident—not now. As the crisis rampages across the country even well-run companies will come under increasing pressure. A failure in our package delivery network, for example, could make it far harder to deliver potential treatments across the country. Failures in manufacturing could have knock-on effects through the entire economy. We need to make sure we have the funds to keep the factories running, the lights on, the Internet humming, the packages of medicine and supplies moving, and the food arriving.

It’s essential to identify those manufacturers that play a critical role in the economy. In some cases it might be those operations with advanced knowledge and capabilities that would be difficult to replace quickly. But any manufacturing business that can make a case that it has unique capabilities should get priority as well.

Nothing like this has ever been done at this scale and this breakneck pace. But we have to get it right—and that means acting strategically to keep the lights on and the factories running.