Predicting the speed and strength of the United States' recovery from the current recession is extremely difficult. But what is clear is that policymakers must boost incentives to work in normal times when jobs are plentiful, while strengthening the safety net for when they are not and for those who are unable to work.
STANFORD – Like most of the world, the United States is attempting to overcome both the COVID-19 pandemic and a deep recession caused by the resulting government-ordered shutdown. At annual rates, the US economy shrank by 5% in the first quarter of 2020, and in the second quarter just ending, it could contract by 40% – the steepest decline since the Great Depression.
Moreover, tens of millions of workers have lost their jobs, causing the unemployment rate to soar to a post-Great Depression high of 14.7% in April. And although 70% of those laid off say they expect to be recalled to their jobs, not all will be, because many firms will fold, relocate, or reorganize.
True, the initial reopening of the economy has led to a sharp rebound that is projected to continue in the third quarter. Employment rose by 2.5 million in May, while high-frequency data from credit cards and mobility tracking for May and June show sizable bounce backs from April lows, with activity in a few sectors approaching or even exceeding year-earlier levels.
But the rebound varies by sector and region. Although Big Tech, home-improvement suppliers, and retail sales of alcoholic beverages have flourished, travel and leisure have collapsed and will take much longer to recover. And restaurants with drive-through service have fared much better than those able to serve only indoors.
Most forecasters therefore predict that the early “V-shaped” recovery will slow over the next few quarters, and instead come to resemble the Nike swoosh. But this plausible baseline forecast is subject to greater than normal uncertainty.
For starters, the shutdown of non-essential businesses in response to the pandemic led to a demand-side shock as well. So far, trillions of dollars in business grants and loans, cash payments to households, and unemployment insurance with federal bonus payments (enabling two-thirds of eligible workers to receive benefits that exceed their lost earnings) have provided a cushion to help the economy recover. The US Federal Reserve has pledged to keep its target interest rate until the economy returns to full employment, and it continues to expand the scope of its asset purchases. And a fourth fiscal package expected next month should focus on reopening the economy, including by limiting firms’ legal liability and redirecting bonus payments to encourage employees to return to work.
How quickly the US recovers from its public-health and economic crises will also depend on how well other countries handle them, and vice versa. The World Bank expects 93% of countries to slide into recession in 2020, the highest share ever.
Although the recent spikes in new COVID-19 cases and hospitalizations in the US appear manageable for now, given adequate provision of hospital beds and equipment, a significant worsening could trigger new shutdowns or stall further reopening. That would slow the recovery, resulting in economic despair and related health and social problems for many Americans.
Moreover, America’s twin crises have revealed longer-term problems, starting with the country’s inadequate stockpiles of medical supplies. California, for example, never maintained the supplies then-Governor Arnold Schwarzenegger built up to combat the 2002-03 SARS epidemic, and had to repair hundreds of defective ventilators. And state governments’ antiquated computer systems for processing unemployment claims and dispensing benefits buckled under the pandemic-induced strain.
In addition, the COVID-19 shock has shown that too many individuals and firms lack the financial margin to weather even a few months of lost income or revenue. It has also both highlighted and worsened racial disparities in health, income, and vulnerability to economic and health shocks.
These crises elicited massive, rapid, and unprecedented interventionist responses. But government responses enacted under exigent circumstances must control costs better and restore private incentives in the longer term, because history shows that, once launched, public programs and interventions seldom end.
The economic and health recoveries also heavily depend on the actions of businesses, citizens, and schools, including whether they adhere to recommended precautions such as social distancing, frequent hand washing, and wearing face masks. It remains to be seen whether firms can survive with restrictions on employees and customers, and whether the accelerated digital transformation will be a net plus. The other danger, of course, is a large second wave of the virus that overwhelms hospitals and scares away employees, students, and customers.
One bright spot has been the rapid pace of adaptive innovation. Most US schools quickly continued teaching online following the shutdown, while telemedicine has boomed, helped by the relaxation of government pay restrictions and rules prohibiting inter-state medical consultations. And medical researchers quickly refocused on COVID-19 testing, therapeutics, and vaccines: human trials have started for several promising vaccines, and new tests may be deployed before winter. For the first time, vaccine production capacity will be ramped up simultaneously with testing, so that any safe and effective vaccine that emerges will become available far more quickly.Sign up for our weekly newsletter, PS on Sunday
But the longer-term problems revealed by the pandemic and the recession will not disappear when these crises end. True, before COVID-19 struck, things finally had started looking up for lower-income workers. Minority unemployment was at an all-time low, and wages were rising most rapidly at the bottom of the pay scale. But while strong economic growth will be needed to ensure that these trends resume, there are pockets of people who have been left behind.
To address this requires reinvigorating policies to broaden school choice, bring private jobs and capital to depressed areas, and ensure better job training (including more apprenticeships and job matching), as well as taking a new approach to overlapping means-tested anti-poverty programs. US welfare recipients face extremely high implicit marginal tax rates in terms of the benefits they lose if they work, with many standing to earn less if they worked than if they remained on the several overlapping programs.
It is extremely difficult to predict the speed and strength of the US economic recovery with any certainty. What is clear, however, is that we must boost incentives to work in normal times when jobs are plentiful, while strengthening the safety net for when they are not and for those who are unable to work.
Families are no longer fooled by ‘hope and change’ happy talk
By Stephen Moore • Washington Times
The stock market closed down for 2015 reversing one of the few positive accomplishments under the Barack Obama presidency. This has been a pretty prosperous time for the top two percent. For most Americans though — not so much.
A new report from Sentier Research based on Census data finds that median household income of $56,700 at the end of 2015 stood exactly where it was adjusted for inflation at the end of 2007.
That’s eight years of virtually zero income gain. And President Obama and his Washington political pundits wonder why voters are in such a cranky mood.
Last week the Joint Economic Committee of Congress issued a report on the Obama recovery loaded with even more dismal news. On almost every measure examined, the 2009-15 recovery since the recovery ended in June of 2009 has been the meekest in more than 50 years. Continue reading
Public policy intended to make layoffs less painful actually made layoffs cheaper and more common.
Why has the labor market contracted so much and why does it remain depressed? Major subsidies and regulations intended to help the poor and unemployed were changed in more than a dozen ways—and although these policies were advertised as employment-expanding, the fact is that they reduced incentives for people to work and for businesses to hire.
You probably heard about the emergency-assistance program for the long-term unemployed that ended only a few months ago after running for almost six years. But there is also the food-stamp program. It got a new name and replaced the stamps with debit cards. Participants are no longer required to seek work and are not asked to demonstrate that they have no wealth. Essentially, any unmarried person can get food stamps while out of work and can stay on the program indefinitely. Continue reading
How often have you heard a Democrat prattle on and on about how well Barack Obama has done with the economy, given the mess he inherited? Usually, it’s some version of, “Things are getting better, but the economy the President started with was so awful, so he’s done as well as anyone could expect.”
When Ronald Reagan took over from Jimmy Carter in ’81, things were actually worse economically compared to when Obama took over from George W. Bush in ’08. Continue reading
by Grover Norquist
With the arrival and passing of yet another April 15th Tax Day, the federal government will consume 20.5 percent of America’s total income this year. It’s not as bad as in France or Greece, but somewhat worse than when we formed these United States. When we were Colonies under the British, the average tax burden on American colonists was 2 percent. That was considered unbearable, and the revolution was on.
There has been some slippage over the years. The 16th Amendment allowing the income tax opened the door to truly European, supersized government. Continue reading
More people have left the workforce than got a new job during the recovery—by a factor of nearly three.
In recent months, Americans have heard reports out of Washington and in the media that the economy is looking up—that recovery from the Great Recession is gathering steam. If only it were true. The longest and worst recession since the end of World War II has been marked by the weakest recovery from any U.S. recession in that same period.
The jobless nature of the recovery is particularly unsettling. In June, the government’s Household Survey reported that since the start of the year, the number of people with jobs increased by 753,000—but there are jobs and then there are “jobs.” No fewer than 557,000 of these positions were only part-time. The survey also reported that in June full-time jobs declined by 240,000, while part-time jobs soared by 360,000 and have now reached an all-time high of 28,059,000—three million more part-time positions than when the recession began at the end of 2007. Continue reading
Behind Wal-Mart, the second-largest employer in America is Kelly Services, a temporary work provider.
Friday’s disappointing jobs report showed that part-time jobs are at an all-time high, with 28 million Americans now working part-time. The report also showed another disturbing fact: There are now a record number of Americans with temporary jobs.
Approximately 2.7 million, in fact. And the trend has been growing. Continue reading
With the recent news that the Obama Administration will postpone the healthcare mandate on employers (but not on individuals) until after the mid-term elections, a new Gallup poll of 603 small business owners sheds some very interesting light on the Administration’s political calculations. The Gallup poll revealed that Obamacare is having a dramatic negative effect on the economy and on the ability of Americans to find jobs.
The Gallup poll reveals that more than 40 percent of small-business owners say that Obamacare has caused them to institute a hiring freeze. Nearly one in five small business employers say that Obamacare has caused them to fire existing employees. Almost one in five small-business owners said they have already cut back their workers’ hours to avoid adverse impacts of Obamacare. About one in four employers “are weighing whether to drop insurance coverage.” Continue reading
“Nothing was more typical of Ronald Reagan than that large-hearted magnanimity, and nothing was more American.”
by Margaret Thatcher
We have lost a great president, a great American, and a great man, and I have lost a dear friend.
CHEERFUL, FRESHNESS, OPTIMISM
In his lifetime, Ronald Reagan was such a cheerful and invigorating presence that it was easy to forget what daunting historic tasks he set himself. He sought to mend America’s wounded spirit, to restore the strength of the free world, and to free the slaves of communism. These were causes hard to accomplish and heavy with risk, yet they were pursued with almost a lightness of spirit, Continue reading
“The American sound . . . is hopeful, big-hearted, idealistic, daring, decent, and fair.”
by Scott L. Vanatter
One-term presidents rarely are considered our most successful presidents. Getting re-elected is not in and of itself an indicator of a successful second term. Of course, the more successful the first term, the more likely the success of a second.
During his second term Reagan built on the real economic accomplishment of his first. This success enabled him to ensure our freedoms and secure our defense. This freedom, then, spread around the world. Indeed, America became again the last best hope of earth. Continue reading
“Every other employment indicator is worse today than it was in January 2009.”
Editorial: Investor’s Business Daily
November 02, 2012
President Obama holds up a printed copy of his jobs plan at a campaign event at Burke Lakefront Airport in Cleveland on Thursday
President Obama wants four more years because, he says, things are getting better and this is no time to turn back. And the latest jobs report to be released before the election appeared to hold good news, showing the economy created 171,000 jobs in October.
But you don’t have to look very hard to see that Obama has the worst jobs record of any president in modern times.
Despite 40 months of economic recovery, the number of payroll jobs today is just 0.1% above where it stood when Obama took office, and it’s still 4.3 million below the previous peak. Continue reading