The Economy Can’t Wait Until January

Families and states need relief now. The lame-duck Congress should act fast to alleviate the suffering.

By Jason Furman

PHOTO: DAVID GOTHARD


The U.S. economy has recovered from the coronavirus shock faster than most economists expected. Unfortunately, things aren’t where they should be and additional progress is becoming harder—even without the complications of the resurgent virus. 

The Federal Reserve is limited in how much more it can do to help the macroeconomy, and it can’t do anything directly to alleviate the suffering of those who are out of work and no longer getting any additional assistance from Washington.

Congress shouldn’t wait for President Biden to be sworn in. It should act quickly to pass a relief package for families and states that includes funding for schools and money to combat the virus itself. This will require compromises on all sides, but they are worth making because time is of the essence.

The economy collapsed in March and April, with 25 million workers losing their jobs. 

The majority of the job losers, 17 million of them, were temporarily laid off, not unlike what might happen after a massive natural disaster. Although the pandemic continues, we have learned to coexist with it, for better or worse, and the majority of temporarily laid off workers have returned to their jobs. 

The result has been faster job growth than most forecasters expected. In October, the headline unemployment rate fell to 6.9%, well below the 9.3% that the Federal Open Market Committee had predicted in June.

The economy is still down 10 million jobs since February, and the unemployment rate understates the challenge because millions more than usual have given up looking for work entirely. Correcting for this, and for a misclassification error identified by the Bureau of Labor Statistics, brings the realistic unemployment rate to 8.4%. 

The lines at food banks tell the story: People are suffering.

Further progress will be harder as many of the unemployed who had a job to return to have already done so. As of October, there are only 2.4 million more workers on temporary layoff than there were before the pandemic started. 

At the same time, the number of unemployed workers not on temporary layoff has risen by 2.8 million. These are the people stuck in a more normal recession, many of whom will need to find new jobs with new employers or even in new industries; this is what economists call a “reallocation shock,” which can be particularly persistent and difficult to solve.

Progress will also be complicated by rapidly rising virus caseloads, hospitalizations, deaths and colder weather, which, in parts of the country, is starting to limit outdoor activity. At the same time the protective cushion provided by the Cares Act has been deflating since many of its key provisions expired. 

The Cares Act was so large that households generally had healthier balance sheets at the end of July than they did before the virus hit. Since then, the unemployed have been running through their savings and accumulating debt. I estimate that the expiration of the enhanced unemployment benefit will reduce demand enough to subtract about 3 percentage points from the annual growth rate in the fourth quarter. 

That is likely not enough to drive growth negative, but it is a substantial and unnecessary headwind nonetheless.

Economic relief and fiscal stimulus in the neighborhood of what Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi were negotiating this fall would be critical and well targeted to alleviate suffering and spur economic growth. 

The $600 weekly unemployment insurance bonus may have made sense in the April shutdown, but a lower number like the $400 a week endorsed by President Trump is more appropriate for the current labor market. Jobs are still hard, but not essentially impossible, to find.

In addition, expanding the Supplemental Nutrition Assistance Program and possibly an additional round of checks would help reach many people who aren’t eligible for unemployment insurance. People need money now—not next year or never.

State and local governments generally went into the crisis with very low debt levels and large rainy-day funds. They now face, through no fault of their own and regardless of their initial fiscal position, a revenue shortfall of $225 billion plus hundreds of billions more in emergency spending needs, especially for schools. 

States and localities have mostly gotten by to date with the combination of Cares Act funding, rainy-day funds and timing gimmicks, but there’s obviously a limit. For many, the fiscal hole will reopen next year, if it hasn’t already.

There can be no full solution to America’s economic problems without controlling the virus. This will require substantial additional resources, especially for testing, but also for vaccine distribution and manufacturing of antibodies and other remedies. 

Money spent limiting the virus has the greatest economic bang-for-the-buck of anything we can do. Given how quickly the virus spreads, every day that passes without this funding is especially costly, in jobs and lives.


Mr. Furman, a professor of practice at Harvard, was chairman of the White House Council of Economic Advisers, 2013-17

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