Politics & Policy

Praying for a V-Shaped Recession

Holiday shoppers at the Pentagon City Mall in Arlington, Va., November 29, 2019. (Loren Elliott/Reuters)
Can we restart the economy quickly and safely?

States are reopening, some more speedily than others. For the time being, COVID-19 appears to be on the wane — and we can be cautiously optimistic that it won’t spread as quickly this summer as it did back in March.

In the densest parts of the country, people are keeping their distance, taking things outdoors when possible, wearing masks, and quarantining themselves when they get sick. Temperatures are up, which could help. And in the hardest-hit areas, particularly New York City, a decent share of the population is likely immune to reinfection — not a big enough share to create “herd immunity,” but enough to help control the spread a little, especially if the folks who’ve already caught the disease are the ones with the most social contacts.

All this brings us to a multi-trillion-dollar question: How quickly can we get this economy moving again? The answer depends on how many people are willing to go out and spend money; how many businesses will survive, reopen, and rehire workers; and how the government handles the next round of stimulus funding.

In terms of getting people out of the house, we have a ways to go, but it’s happening. Google’s cell-phone-tracking data for the U.S. indicate that Americans have made it about a quarter of the way back to their baseline degree of mobility. “Retail and recreation” visits were down more than 40 percent at the beginning of April relative to their level at the beginning of the year, but only 30 percent as of May 16. “Workplace” visits also improved, from a drop of about 40 percent to one of 24 percent. As the weather warms up and more and more states give the official go-ahead to (carefully) resume normal activities, these numbers should slowly climb closer to their previous level.

What about businesses? Unfortunately, bankruptcy data are spotty and delayed, so it’s not entirely clear how many enterprises we have lost to date. Given that many businesses have less than a month’s worth of cash on hand, however, there are good reasons for concern. There are already stories of theaters, airlines, rental-car companies, and retail outlets seeking protection, though sometimes the Chapter 11 protection that allows businesses to reorganize rather than disappear entirely.

Meanwhile, April’s unemployment rate was a shocking 14.7 percent, so it’s clear that plenty of people aren’t working, even if their former employers haven’t gone fully out of business. At minimum, those businesses have a lot of hiring to do before things will be normal again.

Perhaps the biggest unknown here is how the federal government will act. It needs to strike a balance among the goals of helping companies stay afloat through this (hopefully) final stretch, allowing businesses to safely reopen without risking lawsuits, encouraging workers to get back to their jobs, continuing to help the unemployed at a time when jobs are scarce, and preventing a resurgence of COVID-19.

The political parties are starkly divided on how best to strike that balance, but they need to act soon, because the mix of policies we have in place now is coming to an end. A $600 boost to unemployment benefits, which often makes being laid off more remunerative than work, expires at the end of July. The Paycheck Protection Program (PPP), which basically gives businesses money to keep their employees on the payroll, is tapering off, and participating companies have until June 30 to get their staffing levels back to where they were pre-COVID if they want their loans forgiven.

In a recent House bill, Democrats proposed throwing money at pretty much everyone. The $600 unemployment boost would continue until January. Essential workers would receive hazard pay. PPP would continue through the end of the year. Another round of stimulus checks would go out.

Some Republicans, by contrast, are leery of continued government involvement as businesses reopen — which is understandable because different states are taking different routes here, and a one-size-fits-all federal policy of subsidizing shutdowns is no longer appropriate. Other Republicans, though, support a counterweight to the $600 unemployment boost until it expires in two months, such as continuing to give people $450 a week of their unemployment after they return to work. On the PPP side, there are proposals to give businesses more time to return to their original staffing levels and more flexibility to use the money for non-payroll expenses. The White House is pushing a cut to payroll taxes, too.

Big legislation in the Senate is not expected for about a month, though a targeted PPP fix could come sooner. Much is uncertain, but the big Senate bill is expected to include liability protections for businesses and to have a far lower price tag than the $3 trillion House bill. After that, both houses of Congress and the White House will have to figure out a compromise they can agree on.

How are all these factors going to add up? That’s up to Congress, the American people, and COVID-19. But this virus and the shutdowns we undertook to control it could cost us dearly for quite some time.

Kiplinger expects 2020’s GDP to be down nearly 6 percent, and a full recovery to take until the beginning of 2022. Similarly, the Congressional Budget Office expects economic output in the fourth quarter of 2021 to be slightly less than the output from late 2019, which, should it come to pass, would mean that the pandemic destroyed more than two years’ worth of economic growth. It sees an average unemployment rate of over 9 percent next year. On the more optimistic side, former Obama adviser Jason Furman has made the case that we could recover quickly, but even he sees double-digit unemployment lasting through election time.

We faced a situation where there was no good option, and we chose a strategy of temporarily pausing the economy, working to get ahead of the virus, and then restarting in a careful manner. I am hopeful that we can pull it off, holding the body count and the unemployment rate down at the same time. Whether that hope is warranted, we could know by the middle of summer — with the caveat that the fall, when our guard is down and temperatures have once again started to work against us, still looms.

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