Two sentences from the political scientist Michael Robinson stand out as America tries to surge out of the coronavirus crisis: The US economy is the ultimate disproof of the computer programmer’s maxim that if you put garbage in, you get garbage out. Americans make garbage policy all the time, Robinson told a senior seminar I attended during college in 1982, but the US economy is almost always OK.
We’re about to find out if Robinson was right.
A giant pile of economic data came out today, and it’s pretty mixed. On the bad side, unemployment insurance claims rose again, by 10.5 percent from last week, to about 821,000. Consumer confidence was little changed, as improved perceptions of the economy right now were offset by expectations it will get worse soon, since new coronavirus cases are surging.
On the plus side, mortgage applications rose again as interest rates hit an all-time low, with refinancing volumes pointing to more support for consumer spending over the holidays (and the National Retail Federation forecast is pretty bullish, calling for sales gains of up to 5.2 percent from last year.)
Disposable personal income drooped by 0.8 percent thanks to lower government benefits, the Commerce Department said, as stimulus measures passed earlier this year expire. But wage gains were solid. And new home sales in October beat expectations at an annual clip of 999,000.
The bottom line: The Covid economy is a solvable problem — pretty easily so. There’s a lot to like about this economy, which is why stocks have been rising. But it won’t solve itself.
The issue, above all, is that with those cases surging, the weak spots in the economy are likely to get worse. There are a lot of them, but the two in the worst trouble are restaurants and leisure generally — which account for 2.1 million of the 10.1 million jobs the US has lost since February — and government employment, which is down 1.2 million, including more than 600,000 jobs just in local education (mostly teachers).
Restaurants are closing again, especially in major cities, as Chicago gets too cold for outdoor dining and indoor dining is again barred, and Los Angeles County is proposing closing even outdoor restaurants as local Covid-positive testing rates approach 7 percent. That means cooks, bartenders and servers who had been called back to work, or landed new jobs, being on the street again. And since that industry provides 7 percent of the economy’s jobs, mock it at your own business’s peril.
New York is closing in-person school instruction, and the ongoing fiscal wreckage at the state and local level, where officials have to balance budgets, means that something is going to give, and soon, if help isn’t on the way.
Add it up, and Evercore ISI economist Ernie Tedeschi thinks unemployment claims point to a drop of 386,000 jobs in November, enough to push the unemployment rate — now 6.9 percent — up by about two- or three-tenths of a percentage point. Worse is in the pipeline as restaurants cut back and December holiday travel buckles (the 3 million people who passed through US airports last weekend, which everyone tut-tutted about it, were down from 7 million the same weekend last year). “The economy is in trouble,” the University of Michigan’s Justin Wolfers tweeted.
So something has to be done. And that something is a big new stimulus program out of Washington.
We know the dance by now: Republicans want the stimulus to be held to about $500 billion, reflecting Senate Majority Leader Mitch McConnell’s belief that state governments are too big and want Washington to cover their unaffordable pension obligations. Democrats have sought a new stimulus as large as $2.2 trillion.
It should be toward the bigger end of that range. But more important is that it should happen fast, and be targeted to help consumer spending and prop up governments clobbered by low sales-tax collections. That means more souped-up unemployment insurance, and more aid to state and local government. Because those are the weak spots.
There is no threat of the usual bugaboos of running big deficits in a crisis: Inflation for the last 12 months is just 1.2 percent, and wholesale inflation is even lower, pointing to even less price pressure this winter. Interest rates are in the floor, with 10-year Treasuries paying only 0.86 percent, and mortgage rates under 3 percent. There is, as the kids say, mad slack in the economy right now. Pumping demand — for Playstation consoles or steak dinners — won’t bite us in the butt.
We also know food banks are running epic lines we all see on the news. More than 20 million people are collecting some form of unemployment insurance, including aid to self-employed workers who lost income to Covid-19. We know the 7 percent unemployment rate is held down by 2 million-plus workers not counted because they aren’t looking for work until the pandemic cools off.
Which brings us back to the garbage. President Donald Trump had planned to spend Wednesday in Gettysburg, PA, dishonoring America’s most sacred place with a democracy-mocking “hearing” on non-existent voter fraud (he cancelled late). As he has all year, the president isn’t looking out for anyone but himself. He’d fiddle as Rome burned, if only he could concentrate for 10 minutes to learn the fiddle.
That brings us to Congress, which needs not to let the perfect be the enemy of the good.
Covid right now looks like a six-month problem, with vaccine distribution ramping up by May — so it needs a six-month solution, and a three-month deal would suffice. A $1.4 trillion or so stimulus would stave off some of what’s coming, and Democrats can fix it in January, when they will have firm control of the House and likely 49 or 50 Senate seats, depending on Georgia’s two special elections on January 5.
As Robinson said, the economy is strong enough that the solution doesn’t have to be perfect. But it does have to happen, and happen soon.