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COMMENTARY

$900b is a start, but the economy will need much more help

The US Capitol Building in Washington, DC, on Sunday.Ting Shen/Bloomberg

How to sum up the new $900 billion stimulus bill?

“Half a loaf is better than none” is the pragmatic takeaway. The bill, which Congress approved Monday night, would provide enhanced unemployment payments and extend benefits for an estimated 12 million people who otherwise would have been cut off this week. It will send stimulus checks to millions of Americans. And it would allocate hundreds of billions of dollars in aid for small businesses, airlines, schools, and coronavirus vaccines and testing.

The boost to the economy will be significant, adding an estimated 1.5 percentage points to annualized growth in the first three months of 2021 and about 2.5 percentage points for the year, according to Moody’s Analytics.

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“If lawmakers had not come through, the economy probably would have suffered a double-dip recession in early 2021,” Mark Zandi, the firm’s chief economist, wrote in a note to clients Sunday.

Still, the spending is a short-term salve for the financial pain so many people in the country are enduring. Most significantly, it doesn’t include the massive help state and local governments will need to pay workers and avoid cuts to essential services. And the emergency federal jobless benefits will run out for most recipients in March, long before much of the nation can be vaccinated and the economy gets back to full steam.

Democrats lacked the numbers in the Senate to push through the $3 trillion HEROES Act they passed in the House in May. Then they failed with a $2.2 trillion plan, before settling for the even more parsimonious package over the weekend.

So while they actually got much less than half a loaf, Democrats are promising to press for another rescue package once President-elect Joe Biden takes office. It will be tough; the congressional calculus won’t work unless they take both of the two Senate seats up for grabs in Georgia next month. But the economy needs more help.

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Here are three reasons why:

The recovery is losing momentum

Congress’s action may keep the country out of another recession, but the economy will remain under significant pressure from COVID-19. The virus is spreading rapidly, threatening to overwhelm some hospitals, and the situation is expected to deteriorate as a result of travel and family gatherings over the holidays.

That means more and longer pandemic restrictions that will stifle businesses and make it hard to bring more workers back. More than 20 million people remain on unemployment benefits, and the number of long-term recipients is growing.

Consumer spending, which powers two-thirds of the economy, is softening after a strong rebound during the summer and early fall. Lower-income families are getting squeezed the most. A recent Census Bureau survey found that these families are increasingly turning to credit cards, savings, and borrowing from friends and family to get by.

The new round of stimulus checks will help, but they are half the size of the first payouts that began in April: $600 per person, including adults and children, for single-filers earnings less than $75,000 a year, and smaller amounts for those with incomes up to $99,000.

Also cut in half is the federal jobless pay “bonus” added to unemployment checks, down to $300 a week from the $600 a week that disappeared in July.

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Congress authorized just 11 added weeks of unemployment pay for gig workers and those who have exhausted state benefits, but economists don’t expect growth to really pick up until the second half of next year, leaving many people vulnerable for months unless more stimulus is forthcoming after March.

“The savings of jobless workers have been largely or completely depleted . . . and the limited aid in this package is unlikely to be enough for them to rebuild,” said Andrew Stettner, a senior fellow at the Century Foundation.

States, cities, towns are blowing through their budgets

Republicans beat back repeated attempts by Democrats to include as much as $1 trillion in aid for state and local governments. The pandemic has led to a drop in sales taxes and other revenues that municipalities rely on to balance their budgets — a decline that could total almost $550 billion through 2022, according to a Brookings Institution report in September.

Already, local governments have cut some 1.3 million jobs since the start of the crisis, and without help from the feds, layoffs that impact important services will mount.

“States and cities are already facing large, large budget shortfalls this year,” Biden said earlier this month. “Even more teachers, firefighters, cops will lose their jobs unless federal government steps up now.”

Millions of jobs are gone for good

More than a third of the 22 million jobs that disappeared in April and May have not returned, and the number of people out of work for 27 weeks or more has climbed to 3.9 million, or 37 percent of the Labor Department’s tally of unemployed. That number is crucial because the longer workers don’t have a job, the harder it is for them to find a new one.

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Getting the country back to pre-pandemic unemployment levels — the jobless rate was 3.5 percent in March, compared with 6.7 percent last month — will require aggressive worker retraining programs and government-funded jobs projects. President Trump promised to pool federal and private money for rebuilding roads, bridges, airports, and other infrastructure, but he failed to deliver.

Now Biden is vowing to spend trillions of dollars on infrastructure and clean technology.

“The administration should also begin to pivot policy towards how to get the economy back to full employment as quickly as possible on the other side of the pandemic,” Zandi, the Moody’s economist, said. “Most efficacious would be a sizable infrastructure package. Many of those permanently unemployed can be trained for these jobs in hard-pressed communities across the country.”

With the latest package, Congress has committed about $5 trillion to pandemic relief, according to the Committee for a Responsible Federal Budget. That’s equal to about 25 percent of the US economy, a far larger percentage than any other industrialized country.

As hard as it will be, lawmakers will need to dig deeper to get the nation through this.


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