The Economy And Unemployment; Will Trump And Washington Help?

We remain in a deep recession with growing long-term unemployment and other signs of economic slowdown.  But so far, there’s no sign of additional Federal help as we enter the fall election season. 

At this week’s Republican convention, positive messages focus on President Trump’s economic record earlier this year, before the pandemic.  But we remain in a deep recession with growing long-term unemployment and other signs of economic slowdown.  But so far, there’s no sign of additional Federal help as we enter the fall election season. 

The Republican convention’s economic message is clear:  before the pandemic, the President “built the greatest economy our country has ever seen”, as Donald Trump, Jr. said Monday night.  Although several economists point out that Trump inherited a strong economy from the Obama years, polls had been showing that voters approved Trump’s economic record.  But that approval has declined as we remain in a deep recession.

And the economic signs for a turnaround aren’t good.  Forbes contributor Jack Kelly describes how, just this week, airlines announced plans to lay off thousands of workers unless they get new federal aid.  Their earlier funding has run out and air traffic has not rebounded due to continuing fears of Covid.

Airlines are just one version of the story hitting across the economy.   Earlier federal aid has been spent down—from special industry grants to $1200 household stimulus checks to $600 supplemental weekly unemployment to small business assistance.  The lack of additional aid means consumer spending drops and the economy slows even further.  

Consumer spending matters because it accounts for around 70% of the economy.  Although it showed some life earlier this year, boosted by government spending, this month the Conference Board’s Consumer Confidence Index fell by 7.5%.  And August ‘s Index reading is 36.8% lower than one year ago, showing how far we have to go for a full recovery.

True, some people are doing well—the highest paid and those with capital wealth.  Opportunity Insights has shown that by late June, the highest-wage workers had almost entirely recovered their employment, and were only down by one-half of one percent from pre-Covid highs. But the lowest-wage workers in the economy have a 16% lower employment rate than before the pandemic hit.

Got capital or stocks?  The markets have risen by around 50% since March, helping fuel further inequality and polarization.  The Washington Post’s Heather Long tells us of “the new phase the economy has entered: The wealthy have mostly recovered. The bottom half remain far from it.”

And most economists don’t see things turning around any time soon.  In a recent survey, members of The National Association of Business Economists (NABE), a sober-minded nonpartisan group, foresee continuing hard times.  49% of them don’t see economic output fully recovering until the second quarter of 2022 or later.

Economist Teresa Ghilarducci says gloomy forecasts shouldn’t surprise us.  Pre-Covid, the Administration ignored economists who said (correctly) that tax cuts and tariffs would weaken the economy, not strengthen it.  But once Covid hit, Ghilarducci describes an even bigger policy mistake, when “the Trump administration went against the professional consensus among economists that there was no tradeoff between health and wealth.”

Instead, the Administration embraced a false tradeoff between public health and economic growth, leading to the erratic and weak economic performance we are experiencing.  The economy is stuck and private actions can’t pull it out on their own, especially while the pandemic remains uncontrolled.

This is leading to an ever-growing output gap, where the economy runs below potential, and each weak quarter in turn makes it harder for recovery to take off.  In this situation, economists of all stripes say there should be more spending.  40% of the NABE business economists said the federal spending response so far is “insufficient,” and 72% of them said the next round of stimulus should be at least $1 trillion, with some calling for spending up to $3 trillion.

But so far we don’t have another $3 trillion, or $1 trillion.  We have zero.  Although the House passed a $3 trillion spending package back in mid-May, the Senate adjourned in August without passing anything.  Given the ongoing evidence of economic weakness, the failure to act is puzzling economists across the political spectrum.

The Economic Policy Institute recently held a bipartisan discussion with economists who served under Democratic and Republican presidents, and all of them endorsed substantial, immediate federal aid to state and city governments.  (These governments are drowning in red ink, and are laying off workers and cutting spending, further reducing economic stimulus.)

Aid to governments is only one element of what’s needed, along with another round of household stimulus checks, restoration of the $600 weekly supplement to unemployment insurance, more aid to small businesses, and funding for the U.S. Postal Service.  But Washington remains deadlocked on another round of spending, with Republican in-fighting reportedly holding things up.

Although some negotiations are continuing, the press of political conventions and the reported disengagement of the Administration may mean nothing happens until the Senate returns from its recess on September 8.  Earlier, the President issued a series of executive orders, but those were not anywhere near the scale needed, and have now run into their own set of administrative problems.

In the helter-skelter of the fall Presidential campaign, it will be harder every day to reach consensus on new spending.  But continuing economic weakness may force action.  For many households, state and local governments, and small businesses—and the overall economy—that appears to be our best, if not only hope, to shake loose the increased economic aid we need.