By Michael R. Strain / Bloomberg Opinion
Covid-19 is surging; but, finally, the light at the end of the tunnel is visible.
Preliminary test results indicate that vaccines being developed by Pfizer and Moderna are more effective than many dared to hope. Treatment protocols have improved and new therapies are available. The mortality rate from the virus is dropping.
Medical developments aren’t the only thing to put a bounce in your step. The economy added an eye-popping 638,000 net new jobs in October, and the unemployment rate fell below 7 percent. The economy has so far avoided structural problems from the virus and recession. Commercial bankruptcy filings are actually below their pre-virus levels. Small businesses are surviving, with last spring’s closures proving temporary and new-business formation surprisingly robust. Large U.S. corporations are beating their earnings estimates.
But don’t let the good news obscure the economy’s urgent need for additional government support. The economic recovery from this spring’s recession is slowing, and the outlook for the winter is troubling. It would be a mistake to wait until President-elect Biden is sworn into office in late January to give the economy the boost it needs today. Compromise between the two political parties will be difficult, but it is imperative.
The Cares Act — the $1.8-trillion economic recovery law passed in March — helped the economy recover rapidly in May and June. Its effects are wearing off, and the recovery is slowing as a result. Relative to June, monthly job gains fell by 69 percent in August and 87 percent in October. There were 2.6 times as many long-term unemployed workers in October as there were in June.
Consumers are souring, as well. The University of Michigan’s index of consumer sentiment for November fell to a three-month low. Consumer spending has retreated to its lowest level since early September, according to economists at JPMorgan Chase & Co. The March recovery law boosted incomes, and the personal savings rate shot up to 34 percent in April. But households are burning through their savings, and the rate had fallen by 20 percentage points in September.
The surging pandemic will suppress economic activity more this winter. So will colder weather, which will limit outdoor activities.
The economy needs support in November, December and January. Waiting until February — and allowing much damage in the intervening months — would be a grave mistake.
Yes, consumers may be more willing to tolerate the risk of getting sick in order to have more normal daily lives. So the economy might be able to grind through the winter, recovering at a slower pace, even given surging caseloads.
Even if that’s likely, another economic recovery package is needed. The balance of risk strongly favors additional support. If optimists are wrong, the economic and human costs of inaction are significant. If they are right, the harm from too much additional stimulus is minimal. And the slowing pace of the recovery is reason enough to merit additional federal aid.
Some Democrats may prefer to wait until Biden is sworn in, expecting they could get more of what they want in a package of stimulus legislation. This strategy is risky and irresponsible. Senate Republicans will be less likely to give Biden a big win in February than President Trump a big win in November. And in February, with the promise of a vaccine in wide distribution looming, Senate Republicans may feel less pressure to pass another expensive bill.
In addition, waiting until February means providing no help to unemployed workers, low-income households, schools and small businesses for the next three months. Democrats in Congress should not gamble with support for vulnerable households and business survival. They should want to stop the economy from taking on water today so that it is as strong as possible under Biden’s watch.
Senate Majority Leader Mitch McConnell is appropriately focused on the outcome of the Georgia Senate runoff elections in early January, which will determine whether his party keeps control of the Senate. McConnell should want to pass another stimulus this month so that moderate voters in Georgia don’t perceive a Republican Senate to be an obstacle to economic recovery.
Senate Republicans put at risk the success of the March stimulus by not following up with the support the economy needs today. The Paycheck Protection Program has helped stem a wave of small-business bankruptcies. But why spend hundreds of billions to ensure small business continuity from April until December, just to see millions of bankruptcies in January?
The outlines of a compromise are clear. Another round of PPP, perhaps targeted at even smaller businesses — say, those with less than 300 employees — than in the March Cares Act. Spending for public health measures, including increasing testing. Renewing the Cares Act’s expansions of unemployment insurance benefit duration and eligibility, and supplementing state-provided benefits by a few hundred dollars per week. Offering businesses protection against covid-19-related lawsuits. Expanding food stamps. Offering grants to state and local governments to avoid layoffs and help schools reopen.
This compromise has elements that both parties (and I) would rather not see signed into law. But it is reasonable, and would command majorities in both the Senate and House of Representatives. It would cost around $1 trillion, which is both politically feasible and appropriate to the need. Democrats should be willing to accept a few billion dollars less than that, and Republicans should be willing to spend a few billion dollars more.
The two parties are at a stalemate, each preferring to blame the other for a lack of progress than to compromise. The odds are currently against another stimulus. But it could happen with presidential leadership. House Democrats would need to stop allowing the perfect to be the enemy of the good and agree to a compromise that can pass the Senate. McConnell would need to bring a compromise to the Senate floor, knowing that it would lose a dozen or two Republican votes and pass with the support of Democrats.
And Trump should be told this: “If you want your legacy to be that you saved the economy from the pandemic recession, the Cares Act isn’t enough. Break the stalemate. Today.”
Michael R. Strain is a Bloomberg Opinion columnist. He is director of economic policy studies and Arthur F. Burns Scholar in Political Economy at the American Enterprise Institute. He is the author of “The American Dream Is Not Dead: (But Populism Could Kill It).”
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