The Road We’re Headed Down
I get accused of being a downer sometimes, and my usual response is “when the news gets cheerier, so will I.” And the news is just not that cheery these days. This filter of reality allows some focus on what really matters. And until the means to fiscal policy are wrested away from those who’d rather watch the world burn, what really matters, sad to say, is targeting what exactly the rotted state of the economy will look like come January 2021.
Most important, we will be in the throes of another wave of the virus. Fortunately, the medical profession is doing its work, and there’s been a sharp drop in mortality for sick patients. Unlike the Spanish flu of 1918, the fall/winter wave will probably not accompany an exponentially greater number of deaths. Nevertheless, the virus remains deadly and creates some still indeterminate long-term consequences, enough for people to likely stay out of public even without a lockdown order. That’s going to inevitably lead to depressed spending and economic activity. Don’t expect many large gatherings this winter. Cancel Times Square on New Year’s.
The CARES Act delayed a reckoning that those economically affected by the pandemic should never have had to face. But that reckoning is finally here. Some charts from JPMorgan Chase show that spending for the unemployed cratered after the expiration of the $600/week federal benefit, and the median checking account balance has fallen sharply as well. The reporting only goes through the end of August, and by now it’s likely that those checking account balances are below where they were at the end of February. In other words, whatever savings came from the boosted benefits is gone.
The same dynamic is in place with credit scores, which soared to a record high in July as people were flush, but will now serve as a lagging indicator of financial stress. Forbearance in student loans, auto payments, and mortgages also assisted credit scores and financial health. That too is coming to an end.
This dovetails with even more expirations due at the end of the year. Long-term unemployment (over six months) was up to 2.4 million in September, and the 13-week extension under the CARES Act known as Pandemic Emergency Unemployment Compensation ends December 31. So does Pandemic Unemployment Assistance for close to 10 million gig workers, freelancers, and independent contractors. Those people will shift to no benefits whatsoever. Evictions have been on hold thanks to a federal moratorium of dubious quality. But $32 billion in rent is going to come due in January, and up to 8 million eviction cases.
State and local governments, the source of economy-breaking austerity during the Great Recession, have already given up as many jobs as the public sector. But an interesting report from Josh Lehner of the Oregon Office of Economic Analysis (h/t Bill McBride) finds that the bulk of the losses so far are attributable to the pandemic—substitute teachers, employees at public zoos, convention centers, public pools, and libraries that have been shuttered. The usual recessionary job losses are all in the future, with cuts to administrators, furloughs, and the like. So that’s hitting just as no money has been made available.
Meanwhile, we can expect more job loss simply because of the path of the economy. Goldman Sachs is the recognized leader among mergers and acquisitions bankers, and its president stated bluntly that a wave of M&A will lead to job cuts (known as “efficiencies” to the merging companies). “Politicians are going to be faced with the uncomfortable reality that you’re going to have more big business doing better and that there’s going to be more losses of jobs along the way,” John Waldron said. Consolidation will compound the employment problem.
Meanwhile there’s no money available to actually distribute a coronavirus vaccine nationwide, meaning that we’re short in the specific budget area required to fight the virus, when the time comes.
There’s an assumption that a Democratic trifecta will lead to a larger stimulus. This indicates where that money needs to go. We need to extend the time frame and funding for unemployment; put a moratorium on large-scale deals that are likely to lead to mass layoffs; fully fund bars and restaurants and music venues and other gathering spots that won’t be reopened for a while; construct and fund housing for everyone who needs it; fill the shortfall in revenues for state and local governments; add as much funding as possible to actually attack the virus, including in particular vaccine production and distribution.
If we do all that, given the likely time frame there will still be a lot of economic scarring that cannot be fixed. But swift and immediate targeting can pull many people through.
Wake Me Up When the Senate Ends
Two weeks ago, news leaked that Mitch McConnell told President Trump he should not negotiate with Nancy Pelosi on a coronavirus relief bill, and that his caucus wouldn’t be able to pass it. That’s what led Trump to temporarily suspend negotiations. That suspension lifted, for two weeks House Democrats and the White House have been dutifully negotiating, and then… yesterday news leaked that Mitch McConnell told President Trump he should not negotiate with Nancy Pelosi on a coronavirus relief bill.
I feel bad for the reporters being yanked around on this. They could be talking to renters facing eviction, or unemployed people unable to feed their families. They could be laying out the consequences of inaction rather than running back and forth in the futile hope that there won’t be inaction. This treadmill has been running for six months, and nobody has gotten anywhere.