It is quite possible, even probable, that the American people are staring down at least three more months without any further stimulus or economic support from the federal government, even as the Covid-19 pandemic rages on and life is nowhere near back to normal. To put it plainly, help is not on the way.
If Joe Biden wins the election, it’s difficult to see a lot of energy from a lame-duck president and Republican Senate to push new stimulus legislation through. And if Donald Trump wins, well, he’s been president this whole time, and beyond an errant tweet here and there, he seems to have shrugged off further stimulus talks lately. The same goes for many Republicans in Congress.
“The odds that the economy backtracks, that job losses and unemployment increase, are high. You’ve got the intensifying pandemic, you’ve got very little prospect for any help from the federal government until the next president is inaugurated, and that’s early next year. And you’ve got the potential for a contested election and all the political rancor that comes from that,” said Mark Zandi, chief economist at Moody’s Analytics. “It’s a pretty noxious brew.”
His take: “It’s pretty hard to see this economy gaining any traction until the next president is safely in office.”
Meanwhile, the country is experiencing its most widespread coronavirus outbreak yet. The economy isn’t as bad as some feared at the outset of the pandemic, but it’s not on solid footing, either. New jobless claims are still clocking in at over 700,000 a week, and small businesses are closing at an alarming rate. The people at the top of the income spectrum are having a much better time of it than those at the bottom.
It’s been more than nine months since the first Covid-19 cases were diagnosed in the United States. It’s been seven months since Congress passed the CARES Act, a sweeping effort to boost the economy amid expected efforts to get the virus under control. It’s been three months since the extra $600 in weekly unemployment benefits under the CARES Act expired.
“It would have been better, as the CARES Act came to an end, if we had picked up with a new round, but we didn’t do that. But the time is now,” said Columbia University economist and Nobel laureate Joseph Stiglitz in a recent interview with Vox. “Every week that we don’t do anything, the damage is going to increase.”
Despite some very ominous warnings, the message could very well be, “Tough luck, America,” at least until January 2021.
The outlook for a lame-duck stimulus deal is not great
House Speaker Nancy Pelosi (D-CA) has said that she would like to get a deal done during the lame-duck session, but if past is precedent, it’s hard to imagine that would happen. If it were just Pelosi and Treasury Secretary Steve Mnuchin involved, sure, maybe, but with the other stakeholders, it seems like quite a tall order.
Senate Majority Leader Mitch McConnell (R-KY), who has spent much of the stimulus talks trying to free corporations from liability if their workers and customers get sick, seems to have taken the idea of another bill off the table. He doesn’t plan to get to it until 2021. “We probably need to do another package, certainly more modest than the $3 trillion Nancy Pelosi package. I think that’ll be something we’ll need to do right at the beginning of the year,” McConnell said in a radio interview just days ahead of the election.
He said that if Republicans sweep and hold onto control of the Senate, “judges will come first.” In other words, even if Republicans get what they want, they’re going to prioritize the courts over helping struggling Americans.
It’s impossible to predict the future and to know how the next few months will play out, but in the near term, most scenarios aren’t super promising in terms of getting people more economic help. Every day that passes without intervention, the slower and longer the recovery becomes.
And then there’s also the issue of what happens after Inauguration Day.
If Biden wins and Democrats sweep both houses of Congress, action is likely on the other side once he’s actually in the White House.
“He’s going to have a tailwind behind him because the economy is going to be struggling, and the political pressure to do something will be much more intense than it is now,” Zandi said.
The former vice president is proposing $5.4 trillion in spending over the next decade, according to the nonpartisan Penn Wharton Budget Model. Moody’s Analytics estimates that a blue-wave scenario would create 18.6 million jobs and reduce unemployment to just over 4 percent by the second half of 2022. By comparison, it estimates that a Republican sweep would translate to 11.2 million jobs and a return to full employment in the first half of 2024. (Not to mention that the Trump administration’s coronavirus response plan at this point is basically to wait for a vaccine.)
The thorniest scenario for the economy and the American people might be one where Biden wins the White House but Republicans maintain control of the Senate. If McConnell hasn’t been eager to take more action with Trump in the White House, he probably doesn’t feel more inclined to work with Biden.
“I suspect that Republicans in Congress will be very hesitant to pass any relief at all. I think that they would be doing that wholly for political reasons, but I do think that there is some likelihood that they’ll be in full obstructionist mode,” said Angela Hanks, deputy executive director of the progressive group Groundwork Collaborative. “The bottom line is that it will be devastating for the economy if they choose that position.”
There are ways for Biden to get around potential obstruction, but that’s not the straightest path forward. And again, we’re talking about three months from now.
The stimulus shrug
Early on in the pandemic, the federal government took some big measures to try to address the pandemic and the subsequent economic fallout. On the economic front, by far the most consequential was the Coronavirus Aid, Relief, and Economic Stimulus Act, or the CARES Act, a $2.2 trillion stimulus bill signed into law by President Trump in late March.
But after that, the collective impetus to do more just … faded. In May, House Democrats passed a follow-up $3 trillion package, the HEROES Act, that went nowhere in the Republican Senate. And as the clock ticked down on items such as expanded unemployment insurance, mortgage and student loan forbearance, and eviction moratoriums, very little was done in the way of legislative fiscal follow-up.
“We designed an economic response that was predicated on a public health response that did not materialize,” Trevon Logan, an economist at Ohio State University and research associate at the National Bureau of Economic Research, recently told me.
It feels like the country, or at least some of the people in power, gave up.
Talks about a follow-up stimulus bill on Capitol Hill appear to have largely come to a halt. The will-they-or-won’t-they dance between Speaker Pelosi and Secretary Mnuchin on coming to an agreement has ended. Beyond a tweet here or there, President Trump seems to have shrugged off the issue. Sen. McConnell never seemed to really want a second stimulus bill anyway. In mid-October, the Kentucky Republican reportedly warned the White House not to make a deal.
“People who are wealthy or well-off are recovering more quickly, and I think he’s inclined to pay less attention to providing additional relief,” Hanks said. “He really is the person who both has the power to act and also is right now exercising the power to do nothing.”
Even the stock market, which has been flying high in recent months even as the real economy has struggled, seems to have recently awoken to the reality of the situation: The White House has no plans to try to control the virus, and the stimulus investors were banking on is, at the very least, likely months away. The week heading into the election, the market saw its worst declines since March.
The near-term plan is that there is no plan
The federal government’s early fiscal action during the pandemic made quite a difference in people’s lives. Despite the turmoil in the spring that saw huge portions of the economy shuttered, poverty rates didn’t increase, thanks in large part to expanded unemployment and $1,200 stimulus checks. And while the Paycheck Protection Program (PPP) for small businesses wasn’t perfect and the airline bailout’s design was questionable, they did help to keep some people on the job who would have been laid off otherwise.
But we can’t fool ourselves about what’s happening on the ground and the risks for what’s ahead.
An unemployment rate of 7.9 percent is bad, not to mention a Black unemployment rate that is 12.1 percent and a Hispanic unemployment rate that is 10.3 percent. By Zandi’s calculation, roughly one-third of American workers are unemployed, underemployed, or have taken a pay cut. Data from Homebase, a team management software company, shows that the number of hours worked at small businesses has for months been 20 percent below where it was in January. US GDP grew by a record 7.4 percent in the third quarter, but that’s just two-thirds of what was lost during the first six months of the year.
Even without the data, you can see a lot of what’s going on in the economy with your own eyes. How many businesses in your neighborhood or town are now gone? Maybe you haven’t lost your job, but do you know someone who has? Haven’t your own spending habits changed, either because you’ve run through your savings or you’re saving up because you’re not sure what’s to come?
Zandi’s assessment of the economy: “It’s a mess.”
The effects of the federal government’s inaction aren’t being experienced equally. Poorer people and people of color have born much of the brunt of the pandemic, including the economic impact, and that’s not going away.
“Without additional relief, we really will see a longer, slower, more painful recovery, and one that will disproportionately inflict deep harm on communities of color,” Hanks said.
The problem of the US economy is both a near-term one and a long-term one, both of which, ideally, would merit corresponding solutions. One of the mistakes the federal government made after the Great Recession was to pass a big package and then walk away. Right now, there’s a real possibility that will happen again. Republicans, who in 2017 passed a $1.5 trillion tax cut, are already starting to sound the alarm about the deficit and looking for ways to tighten the federal government’s metaphorical belt. If there isn’t more help to state and local governments, even the most well-meaning governors are going to have to cut programs and spending because of state balanced budget requirements.
“I worry about both the effects of not doing anything in the next couple of months, but I also worry about the potential for additional harm to be inflicted by way of austerity in the longer term,” Hanks said.
The future of the US economy is on the ballot in the 2020 election. But the tragedy is that, no matter how Americans vote, they are largely helpless when it comes to economic relief in the months to come.