◼ ECONOMICS Bloomberg Businessweek July 27, 202027PHOTO
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CongresssinceMarchpreventedtheeconomyfrom
sinkingintoa depression.TheCaresActsentdirect
paymentsof$1,200tolow-andmiddle-income
households, more to those with children, and
topped up unemployment benefits by $600 a week.
Households spent most of the money, providing the
overall economy with desperately needed relief.
“Nothing’s perfect, but in the absence of that we
would now be very much worse off,” says David
Beckworth, a senior research fellow at the Mercator
Center at George Mason University.
However, the stimulative effects of the one-time
payments are beginning to fade, just as the latest
data show the economy starting to stall again as
Covid-19 infections surge in Sunbelt states from
California to Florida. New jobless claims soared in
March, then dropped in April and May, but they’ve
remained high, well above 1 million a week. They
never topped 665,000 a week during the Great
Recession. Meanwhile, the University of Michigan’s
Consumer Sentiment Index nosedived in July, an
unexpected drop that bodes ill for retail spend-
ing, which has rebounded strongly in the past cou-
ple of months. “If nothing is passed, the likelihood
of a double dip becomes our base case,” says Julia
Coronado, president and founder of MacroPolicy
Perspectives, a New York-based economic advisory
firm. “Too many unemployed people are just run-
ning out of money.”
In a survey conducted early in June, Bloomberg
asked economists how much additional stimu-
lus spending would be appropriate this year. The
median answer: $1.75 trillion.
Former Federal Reserve Chairman Ben
Bernanke weighed in recently with an op-ed in
the New York Times urging Congress to “act deci-
sively.” Asked what the size of the next stimulus
should be during July 17 testimony before a House
panel, Bernanke’s successor, Janet Yellen, replied,
“I don’t know what the right number is,” but added
she thought it should be bigger than $1 trillion. The
current chair, Jerome Powell, who generally shies
from offering prescriptions on fiscal policy, said in
April that lawmakers shouldn’t be worrying about
containing the federal debt: “This is the time to use
the great fiscal power of the U.S.”
JPMorgan’s Feroli says $1 trillion represents
the minimum needed to support demand. Jason
Furman, a former chief White House economist
under President Barack Obama and now a profes-
sor at Harvard, believes $2 trillion would be enough
to make a significant difference, especially if it’s tar-
geted at people and institutions that would go out
and spend it.
What’s needed most, and where will Congressget the most bang for its buck? Among economists
interviewed for this story, three things were raised
repeatedly: a new round of direct payments, espe-
cially for those with low income; some extension of
extra unemployment benefits; and a sizable chunk
of aid to state and local governments, which were
neglected in the Cares Act. (The legislation made
$150 billion available to states and municipalities,
but specifically for fighting the coronavirus, not for
more generally plugging holes in their budgets.)
The first two are seen simply as the most effective
way of replacing lost income and spending power
until more Americans get back to work. “We’re
trying to avoid a vicious spiral where people lose
their jobs and don’t spend as much, and that causes
more job losses and less spending,” Furman says.
Beckworth argues that when it comes to extending
unemployment payments, Congress shouldn’t even
put a number on the total amount available but tie
its gradual withdrawal to some measure of overall
economic activity, like nominal GDP.
In his New York Times op-ed, Bernanke made
the case for substantial aid to state and local
governments, which face “ominous budget-
aryoutlooks.”Inthelastdownturn,statesand
municipalities cut 720,000 jobs over four-plus
years, according to Moody’s Analytics, an outcome
that Bernanke said “meaningfully slowed the recov-
ery.” This time they’ve already axed about 1.5 mil-
lion workers, and more cuts are on the way.
Coronado makes the point that more aid to state
and local governments could also help them open
schools safely, which could have economic ben-
efits. “School reopening is the underappreciated
issue here,” she says. “If parents can confidently
send their kids to school and focus on their work,
thenthelabormarketwillfunctionbetter.”
Despite all the talk about the death of
bipartisanship, the unanimous vote on the Cares
Act was a reminder that politicians in Washington
can still find common cause in a crisis. But party
ideologies appear to be reasserting themselves
as the country draws closer to the presidential
election in November, with members of the GOP
seeking to reclaim their credentials as fiscal conser-
vatives, while Democrats are eager to demonstrate
they’re looking out for working-class families. That
could complicate negotiations on the latest itera-
tion of the rescue. In the meantime, the clock is
ticking, and for millions of American households
that fiscal cliff is coming into view. �Christopher
CondonandErikWasson“We’re trying
to avoid a
vicious spiral
where people
lose their
jobs and don’t
spend as
much”▼ Expiration of Covid-19
financial support
programsLATE JULY
Final payments of
additional $600-a-week
federal unemployment
insurance
AUG. 8
Deadline for small
businesses to apply for
Paycheck Protection
Program loans
SEPT. 30
End of payroll support
for airlines, end of
freeze on student loan
payments
DEC. 31
Deadline for companies
to seek payroll tax
deferral and apply for
Employee Retention
Tax CreditTHE BOTTOM LINE In a Bloomberg survey, economists
converged on $1.75 trillion as the additional stimulus spending
Congress needs to approve to keep the recovery on track.