Time is running out for an economic rescue
The American economy has slowly stalled out over the last several months, as the economic boost from the CARES Act rescue package has been spent down. Now that progress may be falling into reverse. New claims for unemployment insurance have been steady at around 850,000 per week since late August — which is about 200,000 more than the very worst point of the Great Recession.
If Congress doesn't pass another round of economic rescues, then this will be one of the worst winters in American history. Speaker of the House Nancy Pelosi and Secretary of the Treasury Steven Mnuchin were reportedly close to an agreement last week on a $1.6 trillion deal that would tide the United States over until the new year. Congress should pass that, or something like it, as soon as possible.
Obviously there is some degree of uncertainty about what is going on with the economy, given unreliable early data. But as economist J.W. Mason argues, this is the rough situation: There was a huge collapse in economic output from March through May thanks to the pandemic and near-total cessation of in-person activities, but the CARES Act rescue was so enormous and generous that it actually left most people better off. Personal income and savings increased markedly, and poverty decreased.
Alas, most of the CARES Act measures expired at the end of July, and since then the economy has been rapidly losing steam. The monthly jobs reports have seen successive decline in job creation for each subsequent month after June — from 4.8 million new jobs that month, to 1.8 million in July, 1.4 million in August, and just 661,000 in September. We have only recovered about half the jobs lost as a result of the pandemic, but job creation has almost completely stalled out.
Essentially, a normal recession has been developing within the peculiar pandemic recession, as businesses close and people are laid off thanks not to lockdowns and self-isolation but simple lack of sales. As Mason writes, "Back in May, almost 90 percent of the people out of work described it as temporary. Today, it's less than half. Business closings and layoffs that were expected to be temporary in the spring are now becoming permanent."
The "core" unemployment (that is, excluding temporary layoffs), as calculated by economist Jed Kolko, has risen to 6.1 percent:
Core unemployment rose again, to 6.1%, the highest level since the pandemic started.
Core unemployment excludes those on temporary layoffs.
— Jed Kolko (@JedKolko) October 2, 2020
There's every reason to think that without another round of rescues, that figure will continue to rise, the knock-on recession will overwhelm the end of temporary layoffs, and the economy will start to shrink again, killing millions of jobs.
Things are already very bad for many Americans at the bottom of the income ladder, particularly those who weren't included in the initial round of rescues. Millions of people are running up credit card debt, or have lost their savings, or have been evicted, even in spite of a federal moratorium on the practice, or are simply going hungry. Those numbers will increase sharply without more aid, as businesses of every size (particularly airlines) are planning mass layoffs if they don't get help. Even the higher-status occupations that have largely recovered since the initial pandemic shock will start to be hit again if a broader recession takes hold — not to mention the possibility that coronavirus infections could accelerate as the weather turns colder again. It could be the worst winter in this country since 1932.
The politics of this issue are completely backwards, as they have been from the start. A horrible economy harms the incumbent president, but it is Democrats who have been pushing for a larger rescue package — just recently they passed another $2.2 trillion measure in the House, but both the Republican Senate and the White House have ignored it. As noted, at the end of September, Secretary Mnuchin and Speaker Pelosi were reportedly close to agreement on a $1.6 trillion package that was actually pretty good — including $250 billion for state and local governments, a $400 weekly boost to unemployment benefits, $150 billion for education, $75 billion for coronavirus testing and tracing, and a raft of other measures. Then President Trump abruptly announced he was refusing to do another deal, after which the stock market crashed, only for him to turn on a dime again and demand stand-alone bailouts for airlines, plus another round of $1,200 checks and small business grants. Pelosi shot that one down.
It is hard to know what to make of Trump's stance here. He is certainly not paying attention to any details, and may be out of his skull on powerful steroids. But the $1.6 trillion deal outlined above is much, much better than nothing, and realistically speaking it's probably as good as could be imagined given our crappy constitution and crack-brained president and ruling party. Congress is nearly out of time before the election. If an opportunity opens in Trump's erratic brain to sneak through something along those lines, I suggest Pelosi and Mnuchin seize it and push the Republican Senate to agree to it.
Because if Trump loses the election, as seems likely at this point, then there will be no more rescue until late January at the earliest. And if Democrats don't take the Senate, which is also quite possible, there may not be any until January 2023. Let's get some cash for the American people while the getting is good.