The White House Gave Up On The Key To Economic Recovery

Congress sprung into action this spring to deal with the coronavirus pandemic, and economists generally agree that the massive $2 trillion legislation they passed in March actually worked to keep millions of Americans afloat.

But the relief from the CARES Act is gone. Enhanced unemployment payments ended this summer and those $1200 relief checks were spent. And though economic growth has picked up considerably since the depths of March ― GDP numbers out later Wednesday morning are expected to be very good ― the economy certainly hasn’t bounced back to pre-Covid levels. 

With coronavirus cases again rising, hitting new records in the U.S. over the weekend, the question is: Now what? Republican senators are dithering on passing another relief package, which economists say is absolutely necessary as millions face unemployment, eviction and hunger.

White House chief of staff Mark Meadows made a startling comment on a weekend talk show about the Trump administration's appr



White House chief of staff Mark Meadows made a startling comment on a weekend talk show about the Trump administration’s approach to the coronavirus pandemic. The U.S., he said, is “not going to control” the virus, an attitude that undercuts the prospects for an economic rebound.

But fiscal relief, as crucial as it is, is a Band-Aid. The key to economic recovery during a pandemic is, as it’s always been, to fix the public health crisis. This is something the Trump administration and its Republican allies seem not to understand. Indeed, the White House seems to have given up on containing the virus, pinning its hopes now on a vaccine.

Economic policies can “ameliorate and clean up a little of the mess left from inadequate public health measures,” said Jason Furman, an economics professor at Harvard University and former economic adviser to President Barack Obama. “But they can’t make up for, and give you, a good economy when public health has failed.”

Furman and most other economists say Congress must act again, as a third COVID-19 wave bears down, to help struggling Americans get through it and to set the U.S. on a path to recovery with a mix of payments, unemployment aid and help to small businesses.

But those measures alone will not fix this mess. The economic downturn caused by the health crisis is unlike any other recession we’ve seen, economists told HuffPost, and requires a different kind of approach.

The Pandemic Recession Is Different

Typical recessions are always harder on lower-wage earners. But the economic fallout of the pandemic has significantly widened the disparity between the rich, who’ve been relatively unscathed over these past months, and the poor and working-class.

Using data from payroll companies that can see day-to-day who is actually working in America and from marketing firms that track consumer spending, a team of economists at Harvard have been able to pull together a clear look at why that is. The findings of this team, called Opportunity Insights, illustrate the unique problems with a virus-fueled economic downturn.

Bottom line: The people with a lot of money aren’t spending it as much as they used to. That’s caused the people without a lot of money to lose their jobs, and helped shutter businesses across the country.

How that played out: In March, as businesses shut down and people stayed home to avoid getting sick, high-income households stopped spending money at any place that required face-to-face interactions. Think restaurants, bars, hotels, air travel, etc. The spending slowdown happened everywhere, not just in places with official business closures, and continues. Even in Iowa, which never had a lockdown, businesses are struggling, The New York Times reported last weekend. People don’t want to go out to crowded places and risk getting sick.

Spending by high-income households declined 7.3% from January to October, according to Opportunity Insight’s data

High-income households didn’t completely stop spending because they were in financial trouble. Employment rates for those making more than $60,000 a year have held relatively steady. But these workers spent money on different things, and instead of eating out and traveling, they stayed home. Money went to things like new appliances and home renovations.

This hunkering down of the upper classes has been an absolute catastrophe for low-wage workers, particularly women and people of color. Employment among low-wage workers is down about 19% since January, according to Opportunity Insight’s data.

That was terrible for the economy and for small businesses. 

The saving grace had been that money from the CARES Act, which was fairly progressive ― handing out stimulus checks and extra unemployment benefits to low-income workers. So, despite widespread unemployment, spending in low-income households hardly budged, even ticking up by 1% from January to October.

However, low-income folks also didn’t spend that money on face-to-face services. And so businesses hit hard by the downturn didn’t get much benefit from the stimulus, according to the Opportunity Insights data.

The CARES Act “helped families but it didn’t get the economy going again,” said David Williams, the policy outreach director for Opportunity Insights. He noted that the team’s data found that the small business assistance in the CARES Act didn’t actually flow to the struggling face-to-face stores that needed help the most. 

“A disproportionate amount of loans went to industries that did not have unemployment due to the pandemic,” he said. “Professional services received a lot of loans, but these were companies that went remote and weren’t going to be laying anyone off.”

Williams recommends more targeted relief in a new legislative package to help those who are truly struggling.

People Do Need Money, Though

Now that the CARES Act money is gone, all of the economic indicators are flashing red for lower-income Americans. People are unable to pay rent, worried about homelessness, going hungry ― and getting sick.

Thirty-two percent of U.S. households said they were having difficulty paying for usual expenses, according to a Census survey conducted over the first two weeks of October. Rates of food insecurity are skyrocketing. The number of families that need food this fall surprised some who thought that need would decrease in the fall. 

“We thought it would be short-lived, but the reality is it’s been growing,” said Stacey McDaniel, an anti-hunger initiative specialist for the YMCA of the USA.

Before COVID-19, the YMCA was focused on attracting members to its branches for fitness and other community activities. Now, many branches have turned into de facto food banks, she said.

It just keeps growing,” she said. “I just don’t think the general public realizes how long this is going to last. When you talk about it taking six years to recover from the rate of hunger in the Great Recession, this is worse.”

Stimulus Still Really Matters 

One of the reasons Congress has dragged its feet recently on passing another stimulus may be because the economic slowdown has been so concentrated among low-wage earners, said Wendy Edelberg, director of the Hamilton Project, a Brookings Institution’s economic policy initiative.

“Maybe if the pain were felt more broadly, maybe we’d take more responsible action,” she said.

Indeed, at least some politicians seem unaware that Americans are suffering in this economy right now. Sen. Chuck Grassley (R-Iowa) recently said he believed Democrats would want to wait until the inauguration of the next president to pass a new stimulus bill because, in his view, the economy is fine.

“Unless the economy would take a bad turn between now and let’s say Dec. 1, and there doesn’t seem to be a sign that’s going to happen … we’d say the economy’s taking care of it,” he said.

But the point of passing stimulus now isn’t only to address the urgent needs of low-income workers who are struggling and the small businesses in trouble. Edelberg pointed out that once COVID-19 is behind us, the U.S. economy will recover at a glacial pace unless Congress passes some kind of fiscal stimulus.

If the pandemic ends at some point next year and Congress doesn’t act, the projections are “depressing,” she said. “It will take us years to return even to the strength of the economy just in February.” 

With each passing month that goes by without stimulus, the path to recovery becomes steeper, she said. The problems intensity, as increasing numbers of parents drop out of the workforce to deal with haphazard school schedules, others lose their jobs and small businesses fold. And once you leave the workforce, it’s harder to get back in.

“With each week those problems get bigger,” Edelberg said. “And the more those problems mount, the more challenging it will be to recover even once the pandemic is behind us.”

Igor Bobic contributed reporting.

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