Advertisement
It may take months or even years to recover its vigor. Here’s how economists say the government could help.
When states began to order businesses to close and residents to stay home as the coronavirus outbreak spread, economists likened the policy to a medically induced coma: shutting down all but the most vital functions to focus on the underlying affliction.
Now the patient is awake, but the malady remains.
A surge in coronavirus cases has forced several states to reimpose restrictions and dashed hopes of a rapid economic rebound. But a widespread return to the shutdown policies that dominated in March and April seems unlikely.
Instead, the economy looks likely to remain in a sort of limbo, neither fully open nor fully shut, for months or even years.
For certain workers in certain industries in certain locations, life again seems somewhat normal. But for many others — those whose age or health conditions make them especially vulnerable to the virus, or who have young children at home, or who work in high-risk industries, or who live in places where cases are rising rapidly — the pandemic remains a major disruption.
This new phase poses a unique challenge for policymakers. Economists across the political spectrum say it would be a mistake for the federal government to cut off support for workers and businesses while the economy remained weak. But those policies may need to be revamped to help the worst-hit industries and regions — and will have to change as the crisis evolves.
“We don’t know how the pandemic is going to unfurl, and we don’t know where the hot spots are going to be,” said Wendy Edelberg, a former chief economist for the Congressional Budget Office and now the director of the Hamilton Project, an economic policy arm of the Brookings Institution. “That’s going to demand that the policy response be a lot more nimble.”
Still, economists and other experts say there are steps that government, at all levels, can take to mitigate the economic damage.
In the political debate over reopening, economic and public health considerations are often portrayed as being at odds. But economists have said since the beginning of the crisis that the two go hand in hand: The economy cannot recover until the virus is in check.
“One thing we’ve learned thus far is that a halfway commitment to public health measures just isn’t very effective,” said David Wilcox, a former Federal Reserve official who is an economist at the Peterson Institute for International Economics. “It’s not effective in arresting the virus, and you still incur tremendous economic damage. In order to build the foundation of a secure recovery, the imperative is to bring the virus under control.”
If political leaders want businesses to reopen and customers to return, Mr. Wilcox said, they need to invest in widespread testing and tracing to make consumers confident that they are safe. And they need to avoid encouraging businesses to reopen before it is safe to do so.
More than 20 million Americans are getting an extra $600 a week in their unemployment checks because of the federal aid package passed in March, but that provision is scheduled to expire this month. While some economists say the enhanced benefits could be scaled back or modified, most say it would be a mistake to let them lapse altogether.
Unemployment benefits are serving three purposes. In states where the virus is raging, they help residents afford to stay home, which is crucial to overcoming the pandemic. In all states, they help jobless workers avoid hunger, eviction and financial ruin. And by providing billions of dollars to the people most likely to spend it, they stimulate the economy.
The extra $600 means that many low-wage workers are earning more on unemployment than they were on the job, which Republicans in Congress worry could discourage returning to work. Economists say that is a valid concern — when the unemployment rate is low and workers are scarce. Right now, the situation is the opposite: In May, there were roughly five million open jobs and 20 million unemployed workers.
“There’s not enough jobs for everybody anyway,” said Erik Hurst, an economist at the University of Chicago who has been studying the economic effects of the pandemic.
Some economists, particularly on the right, say it may make sense to reduce the weekly supplement as the economy improves, and some have suggested tweaks like a “back-to-work bonus” that rewards people for finding jobs. But few think it makes sense to scrap the enhanced benefits.
Whether or not to reopen schools this fall has become a political point of contention in recent days. But economists say there is no doubt about one thing: The economy can’t get back to normal while millions who would otherwise be working must stay at home caring for their school-age children.
Epidemiologists and public health experts are unsure that in-person classes can be held safely in places where the virus is out of control, like Florida and Arizona. But in other places, the biggest obstacle is money: It would cost billions of dollars to retrofit classrooms, overhaul ventilation systems, buy protective equipment and add staff members to ensure that both children and adults were safe.
“Schools are going to need a lot more resources to get open safely, given we haven’t gotten the virus under control in a lot of places,” said Melissa Kearney, a University of Maryland economist who heads the Economic Strategy Group at the Aspen Institute. “The less control we have over this virus, the more expensive it’s going to be.”
State and local governments, reeling from plummeting tax revenues, don’t have the resources for such changes. But the federal government does. And it could be money well spent: Allowing schools to reopen safely would free up adults for work and allow other economic activity to resume.
Even in states where the virus is less prevalent, some businesses, like indoor bars, movie theaters and concert venues, may not be able to open safely for a long time. Others, like restaurants, will have to operate at a capacity unlikely to turn a profit.
That means that without government help, thousands of businesses are likely to fail in the months ahead. That could have devastating economic consequences, turning temporary furloughs into permanent job losses and slowing the eventual recovery.
Lost jobs “are going to come back very slowly — it’s going to be months and months of hard work,” said Betsey Stevenson, a University of Michigan economist who was on President Barack Obama’s Council of Economic Advisers. “The question is, do we have 30 million people who are going to go through that process, or do we have five million? We don’t have the answer to that yet, but every month it goes on, that number grows larger.”
Experts say Congress needs a new approach to save businesses.
The Economic Innovation Group, a Washington think tank focused on entrepreneurship, has proposed giving interest-free loans to small employers. Rather than providing a temporary injection of cash, they argued, a loan program could let companies invest in improving their long-term prospects. A retailer could buy a building it had been renting, for example, bringing down monthly costs. Or a restaurant could add outdoor space, reducing dependence on indoor dining.
Mr. Wilcox of the Peterson Institute has recommended a more expansive — and expensive — approach, essentially having the government fill in the revenue shortfall created by the pandemic through direct grants to businesses. The government has effectively forced business owners to take a hit, he said, so it should help them survive.
“Start from a social agreement that the government is going to take onto its shoulders the cost of sustaining businesses through the period of intense public health crisis,” he said.
No one knows where and when cases will surge, how long the pandemic will last, or when a vaccine will be ready. That makes it harder for both businesses and policymakers to plan effectively, said Martha Gimbel, an economist and a labor market expert at Schmidt Futures, a philanthropic initiative.
“If we knew we were going to have a vaccine in January, we could make decisions,” she said. “If we knew we were going to have a vaccine in January 2022, we could make decisions. But we don’t know, and economies don’t do well when there’s uncertainty.”
Economic policy can’t eliminate that uncertainty. But right now, it is making it worse: Jobless workers don’t know whether their extra benefits will run out in a matter of days. Businesses don’t know if they will be able to apply for a new round of federal loans, or have to enroll in a new program, or get nothing at all. State and local governments are trying to plug multibillion-dollar budget holes with no idea whether they will get federal help, or how much.
Economists have urged Congress to answer some of those questions — not just now, but for the future. Benefits could be linked to the unemployment rate, for example, so that workers would not have to worry about losing benefits before the job market improved. Similar steps, linked to different metrics, could make businesses and state and local governments confident that government support won’t evaporate without warning.
Brinkmanship, on the other hand, could have economic costs even if Congress ends up extending support at the last moment.