Economic recovery
In many ways, the economic recovery from the coronavirus has defied the worst-case scenarios. Jobs, spending and markets have bounced back more quickly than expected, although they largely remain below pre-pandemic levels. This is mostly thanks to unprecedented government intervention, but many of those stimulus programs are set to expire soon. Then what?
A heavyweight group of economists and former policymakers has a plan. Under the banner of the Aspen Institute’s Economic Strategy Group, the four-member team has published a meaty report outlining a flexible approach to supporting the recovery, tied to the strength of the rebound and not to any specific date. (High-level details are in this Washington Post op-ed.)
• The group behind the plan: Jason Furman of Harvard, who chaired the Council of Economic Advisers under President Barack Obama; Timothy Geithner of Warburg Pincus, who was Treasury secretary during the Obama administration; Glenn Hubbard of Columbia University, who chaired the Council of Economic Advisers under President George W. Bush; and Melissa Kearney of the University of Maryland, the director of the Economic Strategy Group.
Their proposal has four parts:
1️⃣ Income support for the unemployed. Provide a weekly benefit of up to 40 percent of wages for the jobless as long as a state’s unemployment rate is above 15 percent, phased out until the rate hits 7 percent, when it is eliminated.
2️⃣ Additional incentives to return to work. Subsidize lower-wage jobs, which become less attractive when enhanced unemployment benefits are on offer and many of the roles are at higher risk of exposure to the coronavirus. Incentives could include a more generous Earned Income Tax Credit or direct hiring bonuses.
3️⃣ Lending to small and midsize businesses. A “much more aggressive use” of the funds already allocated by Congress to support loans — not grants — to target viable businesses, at better rates, understanding that the government could face more potential losses.
4️⃣ Support the states. Issue grants for general use (and especially education), along with federal funding for Medicaid tied to the unemployment rate.
It won’t be cheap. At best, the group reckons that its plan would cost just under $1 trillion. If the recovery drags on, it could cost something like $2 trillion. “Rather than misleading or pretending the recovery will be cheaper, for example by covering only a few months of unemployment insurance or only a fraction of the ultimate cost of the Paycheck Protection Plan,” the group writes, “we believe it is better to be upfront about what the total costs will ultimately be and legislate them today in a contingent fashion that depends on economic circumstances.”
In other news on recovery and reopening:
A virus surge in Sun Belt states. Arizona, Florida and Texas reported their largest one-day increases in Covid-19 cases yet. And it’s not just because of more testing: The rate of positive test results is also rising. But Gov. Ron DeSantis of Florida said, “We’re not shutting down.”
Beijing goes back into lockdown. A rise in cases led to the closing of schools and cancellation of flights to the capital, as authorities raised the coronavirus threat level just 10 days after lowering it, which had allowed more economic activity to resume.
Prepare for negative interest rates in the U.S., Bloomberg advised users of its data terminals. The company recommended that subscribers ensure their financial models wouldn’t break, Y2K-style, if the Fed pushes rates below zero. The central bank says it won’t ... but experience suggests that it’s best to be prepared.