“All the economists I’ve talked to are as freaked out as they’ve ever been,” Jared Bernstein, who served as chief economist to Vice President Joe Biden in the Obama administration and informally advises his presidential campaign, told me.
Yet what is scariest about the new economic projections is that they are probably too rosy. Both Goldman Sachs and J.P. Morgan foresee big rebounds in the third quarter, over the summer, due in part to assumptions that the Federal Reserve will accelerate its moves to stabilize the financial system and Congress will soon enact another enormous fiscal-stimulus package. But the crisis might not be over by then. A federal-government plan to combat the pandemic estimated that it could last 18 months and hit in “multiple waves” that would require some degree of prolonged social distancing. Modeling by Imperial College London indicated a similar duration.
“The economy isn’t going to recover before the social distancing is over,” Shierholz said.
And even when life returns to some semblance of normalcy, the economic trauma won’t be over. According to Zandi, at least three big waves will hit American economy activity. The first is occurring now, as businesses close and the economy grinds to a halt. Next will be the job losses.
“The third wave will hit when people realize they are worth so much less, particularly the Boomers, who are focused on their retirement,” Zandi told me. “When they realize their nest egg has evaporated, they’ll go into panic mode and cut back on spending, and that further exacerbates the problem.”
If there is any hope in this dark outlook, these economists told me, it is that the federal government likely has more power to soften the economic blow than it does to contain the virus. And unlike during the last economic crisis, in 2008 and 2009, both parties are in general consensus about the scope of the fiscal response required, deficits be damned. People who have lost jobs or who have seen their hours cut dramatically need immediate money to buy food and stay in their homes, while businesses need funds to stay afloat and postpone layoffs as much as possible.
“We know we’re going to cause a recession when we shut down huge parts of the economy, and it’s the right thing to do. It’ll make us better off in the long run,” Shierholz said. “But we need to make sure households are as whole as possible, so we don’t start to see a whole wave of foreclosures, bankruptcies—all the things that don’t have to happen.
“Those things don’t have to happen,” she emphasized. “We have total control over that.”
With warnings that the unemployment rate could hit a staggering 20 percent—by far the highest since the Great Depression—if Congress doesn’t act, Trump and his advisers have called for $1 trillion or more in stimulus spending. That’s in addition to the smaller emergency measures lawmakers have already enacted in recent weeks. On Thursday, Senate Majority Leader Mitch McConnell unveiled a Republican proposal that would send one-time payments of $1,200 to individuals earning up to $75,000 a year (those amounts double for married couples) and an extra $500 per child. The plan also contains hundreds of billions in loans for businesses and corporate tax cuts to encourage big companies like airlines and hotel chains to keep their idle workforce on salary.
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