Much of this was due to a series of huge stimulus programmes agreed upon early in the
pandemic. So far Congress has passed some $3trn-worth of fiscal support, more than in
any other country both in absolute terms and relative to the size of the economy. People
have received cheques of up to $1,200, for instance, while Congress bumped up
unemployment-insurance payments by $600 a week. Many people’s incomes are higher
today than they were before the pandemic hit.
Unemployment will keep going down. The evidence from the aftermath of past
recessions suggests that joblessness falls quickly when a large share of the unemployed
believe that their job loss is only temporary. Being let go by a restaurant that is not
allowed to serve customers because of a lockdown is different from being let go when
the place has gone bust. Early in the pandemic, three-quarters of those who had lost
their jobs believed their predicament was temporary.
Economists worry that Congress’s failure to agree on extra stimulus in the summer will
doom the economy in 2021. That is too pessimistic. Many people saved a large part of
their stimulus cheques: they can now spend them, giving the economy a boost. A fresh
stimulus package in 2021 cannot be ruled out. Republicans and Democrats strongly
differ on precisely what the economy needs, but a majority would like to inject more
money.
Though America may recover faster than many other rich countries, the effects of the
pandemic will linger. Few economists expect the unemployment rate to return to 3.5%
soon (analysts at Goldman Sachs predict it will not come down to 4% until 2025). A
large and growing group of those who lost their jobs—if still a minority—believe that
they were let go permanently. They will find it harder to find new work. The risk for
these people, as they spend more time out of employment, is that they will lose the
motivation to try something new and their skills will ossify or perish. For now,
policymakers must focus on steering the American economy back on course. But at
some point they will need to turn their attention to the pandemic’s lost generation.
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