The American economy looks like it's coming to a hard stop. And the relief package being cooked up in Congress — paid sick leave, expanded unemployment insurance, and state budget help — doesn't look like nearly enough to get it going again. That certainly seems to be one message being sent by the gyrating stock market.
Actually, at least one major Wall Street bank is explicitly delivering such a message. In a Thursday research note, JPMorgan economist Michael Feroli presented a dire economic forecast: The economy will shrink by 2.0 percent annualized in the first quarter and by 3.0 percent in the second before returning to modest growth in the third. Now, Feroli never uses the word "recession" in the note. Although consecutive quarters of economic contraction is the commonly accepted recession definition, the National Bureau of Economic Research — the folks who determine "official" recessions — uses a broader set of economic stats when making its call.
That said, Feroli is predicting a pretty sharp and nasty "downturn" over the next few months, even if not a technical recession. Even worse, the forecast assumes that the spread of the virus moderates in the summer and that Congress passes a $500 billion economic stimulus. Hopefully the first qualifier will happen as Americans and their government start taking the outbreak more seriously. But why isn't the second one already in the works, at least to help folks in the hardest-hit areas?
Look, the federal government is bad at lots of things. And one of those things, unfortunately, is preparing for the sort of deadly pandemic that experts have been warning about for years. Better luck next time. Because, you know, there will be a next time.
One thing Washington does well, however, is cut checks. Super efficient. For example: Every month, more than 64 million Americans get Social Security payments deposited into their bank accounts. We know how to do this. We did it in 2008 with tax rebates. And top economists on the left and right think direct cash payments to U.S. citizens is a good idea to both get the economy moving again and at least help lower-income Americans currently in financial distress. So the ideological permission structure is in place.
Yet Republicans and Democrats have so far shown little interest. President Trump's plan is a payroll tax cut through the end of the year. The idea would be an expensive misfire that wouldn't help workers who've lost their jobs, provide little relief to lower-wage workers, and only slowly show up in paychecks. Individual Americans and the broader economy need help now. And one would think that Trump would love such a simple idea that could give the economy a quick jolt. Indeed, he has in the past expressed belief in the notion that sometimes government needs to "prime the pump," a phrase typically connected to Keynesian stimulus plans. But this might be another time that Trump acts more like a traditional tax-cut loving Republican than an unorthodox populist outsider.
And maybe Democrats will yet come around. Perhaps the strongest advocate of sending checks is former Obama White House economist Jason Furman. As he tells Vox, "At this point, this feels much worse than 2008. ... A week ago, I thought $1,000 per adult, $500 per child. Now I'd double or triple that. Get them the check within three months, or less. And make clear that if the economy is in bad shape at the end of the year we'll do it again, and keep doing it."
But there are two obvious reasons for Democrats to hesitate. First, many might not want checks going to upper-middle class and rich people, basically the same gripe as they have with the payroll tax cut. Second, such a large stimulus means a Democratic president would take office after a big spending splurge. Republicans would surely use the higher deficit and increased debt as a reason to oppose, say, President Biden's Obamacare expansion or a big infrastructure investment plan. Then again, markets and the real economy might not give lawmakers a choice, just as they forced Congress in 2008 to pass the Bush administration's bank bailout plan.
Washington reacted too slowly to COVID-19. Now it may be making the same mistake dealing with the economic downturn caused by the global outbreak of the coronavirus. Time to pull out the national checkbook, at least to help the most vulnerable today and maybe the rest of the economy tomorrow.
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