HomeAs Job Losses Mount, Lawmakers Face a Make-or-Break MomentBusinessAs Job Losses Mount, Lawmakers Face a Make-or-Break Moment

As Job Losses Mount, Lawmakers Face a Make-or-Break Moment

WASHINGTON — As the nation confronts unemployment levels not seen since the Great Depression, Congress and the Trump administration face a pivotal choice: Continue spending trillions trying to shore up businesses and workers, or bet that state reopenings will jump-start the United States economy.

At least 20 million Americans are unemployed and a large share of the nation’s small businesses are shut and facing possible insolvency. Policy errors in the coming weeks could turn the 18 million temporary layoffs recorded in April into permanent job losses that could plunge the United States into a deep and protracted recession unrivaled in recent history.

Yet the federal government is lurching away from the strategy that has thus far helped slow the spread of the coronavirus and sustain people and companies struggling during the self-inflicted economic shutdown.

Over the past two months, as consumers and workers retreated and state officials imposed limits on economic activity, President Trump and bipartisan coalitions in the House and Senate have approved $3 trillion in federal spending to help companies, workers and the unemployed. The Federal Reserve has taken extraordinary steps to keep the financial system functioning, buying up government-backed securities and embarking on plans to purchase corporate and municipal debt to keep credit flowing. Governors have embraced stay-at-home orders in an effort to slow the virus’s spread.

Economists and policy experts, including some in the administration, have likened those efforts to building a bridge through the pandemic recession — one that will carry as many people and companies to the other side of the crisis as possible.

But as the virus threatens to haunt the nation and its economy longer than some officials had anticipated, Mr. Trump and many Republicans in Congress have grown weary of federal spending to support workers and businesses and have begun urging states to get back to what was considered normal.

Even some allies of the president, though, acknowledge that may be an unrealistic gamble and more wishful thinking than an actual plan. With confirmed infections and deaths projected to continue rising, and limited capacity to test for the virus, many states are expected to keep businesses closed into the summer or longer. And even once things reopen, simply allowing people to walk into a barber shop or a movie theater does not mean they will do so during a pandemic until a vaccine or effective treatments are available.

Economists, including liberals and many conservatives, warn that prematurely ending efforts to aid businesses and workers without enacting a new strategy could force the economy into a summer of partial recoveries, rising infection rates and insufficient support for struggling businesses and those out of work.

In that case, the experts warn, today’s government-financed bridge through the crisis will have become, for vulnerable people and companies, a bridge to nowhere.

“We’re at the choose-your-own-adventure part of the book,” said Claudia Sahm, a former Federal Reserve economist who is now the director of macroeconomic policy at the Washington Center for Equitable Growth, a liberal think tank focused on inequality.

“It is unconscionable to wait for the economy to reopen,” she said. “For a lot of American workers, there will not be a job to go back to. Those temporary layoffs will not be temporary.”

Parts of the country are beginning to emerge from the deep freeze that has characterized the first months of a pandemic that has killed more than 75,000 Americans. Those efforts are happening in uneven fashion and often without the kind of precautions that health experts say will be needed to prevent another wave of infections that requires another lockdown.

Democrats and Republicans, eyeing a rapidly approaching election, are pushing opposing plans for what lawmakers should do next, with no quick agreement in sight. Democrats want to continue to spend trillions of dollars in additional aid to people, companies and local governments, and to keep the assistance flowing until economic data shows the country is well into recovery. Liberal voices like Ms. Sahm and Senator Elizabeth Warren of Massachusetts say they are determined to avoid the mistakes of the last crisis and prevent lawmakers from cutting off assistance too early, dooming the economy to years of slow growth.

Mr. Trump and Republicans want to shift government efforts toward relaxing restrictions and financing efforts they say would invigorate a reopened economy, like tax cuts and new business deductions. The White House and Republicans in Congress have hit pause on more stimulus efforts, as they push states to reopen and voice renewed concerns about the ballooning federal deficit, which is now projected to hit $3.7 trillion for this fiscal year.

“We put all this money in, which is fine,” the director of the National Economic Council, Larry Kudlow, told reporters on Friday at the White House. “It’s well worth it. Let’s see what happens. As we move into the reopening phase this month, maybe spillover to June, let’s have a look at it before we decide who, what, where, when.”

Behind the scenes, White House officials are privately bracing for additional economic damage in the coming months and for the economy to take several quarters to return to its precrisis levels, even if growth resumes this summer. Yet they are divided over how quickly and aggressively to shift the government from more spending and for now are watching how the economy reacts as states lift restrictions.

As the virus spread rapidly in the United States in March, large portions of the American economy shut down almost overnight. Congress and the Fed took swift action to support companies that were forced to close and workers who lost jobs or pay, offering aid to businesses, expanded unemployment benefits and one-time stimulus checks.

But those efforts were time-limited and did not reach everyone who needed aid. The most prominent effort to help small businesses, the Paycheck Protection Program, had just $349 billion at the start and quickly ran out of money, requiring an infusion of $310 billion. The money covers only eight weeks of employee payroll, meaning many companies will see their aid run dry as early as May 29.

Expanded unemployment benefits, which provided an extra $600 a week, are set to expire at the end of July. Checks that were sent to low- and middle-income Americans, of up to $1,200 an adult, were a one-time payment.

While some economists, including those at the Congressional Budget Office, expect economic growth to return this summer after a devastating spring contraction, no one expects the job market to reach the same lofty levels any time soon. Moody’s Analytics said Friday it did not expect the country to make up all the jobs it had currently lost until 2023.

Economists warn that reopening efforts will not remove the need for additional assistance since consumer traffic will be slow to come back until Americans are confident they can venture out with a degree of certainty they will not contract the virus.

A variety of real-time measures show that even in states that have recently eased restrictions, like Georgia and South Carolina, business activity has been slow to recover.

A prolonged recovery could effectively kill a wide range of businesses across the country and sideline millions of American workers. Data from the human resources company Homebase suggests 40 percent of the businesses that use its software have closed their doors since the crisis began. Economists from the ADP Research Institute, the University of Chicago and the Federal Reserve, using data from the private payroll firm ADP, reported this week that 40 percent of the nation’s lost jobs so far are in companies that appear to have stopped operating amid the crisis.

If there was any good news in the employment report released Friday, it is that nearly 80 percent of newly laid-off workers described their layoffs as temporary. That suggests the potential for a quick rebound but could portend danger if policymakers allow firms that have only briefly closed their doors to fold for good instead.

Democrats have pushed to tie continued help for laid-off workers to economic conditions, leaving enhanced benefits in place until the unemployment rate falls. Republican lawmakers have criticized the extra $600 a week as a disincentive for workers who might otherwise go back to work, suggesting they will not approve another round.

“There is so much uncertainty about how things will unfold that an arbitrary end date doesn’t make any sense at all right now,” said Heidi Shierholz, a former chief Labor Department economist now at the liberal Economic Policy Institute in Washington. “Lawmakers must be willing to provide fiscal support until the unemployment rate is at a manageable level.”

While the economic pain is nowhere close to ending, Republicans seem disinclined to renew huge spending programs, particularly as November looms. Activist groups that have led marches on state capitals pushing for economic restrictions to be lifted are poised to refocus on calling for an end to government spending, said Stephen Moore, an informal adviser to Mr. Trump who has been a vocal proponent of reopening states.

“All government can do right now is make things worse, not better,” Mr. Moore said.

Still, some Republicans on Capitol Hill have expressed openness to continued spending, particularly on small business assistance, despite pressure over the deficit.

Michael R. Strain, an economist at the conservative American Enterprise Institute who has advised congressional Republicans on economic policy, acknowledged that there was “real bailout fatigue among Senate Republicans.” But he added, “The economy is going to need support from fiscal policy for a long time. So I just can’t imagine a scenario where they don’t pass something else.”

Inside the White House, some officials are hopeful that the Fed, rather than Congress, can take up the work of helping companies through the crisis. But many economists warn that is asking too much of the central bank, and the Fed chair, Jerome H. Powell, has warned that its tools are limited to lending, not spending, and that more fiscal support is likely to be needed.

“Quickly, we have to pivot to think about how to support businesses and workers in what could be the lengthy period of the economy reopening,” said R. Glenn Hubbard, a Columbia University economist who was a top economic adviser to President George W. Bush. “You can’t just let the Fed handle it.”

Ben Casselman contributed reporting from New York, and Emily Cochrane and Jeanna Smialek from Washington.

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