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    January 2021 Jobs Report: Outlook for Economic Recovery Dims

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    #masthead-section-label, #masthead-bar-one { display: none }The Coronavirus OutbreakliveLatest UpdatesMaps and CasesSee Your Local RiskVaccine InformationWuhan, One Year LaterAdvertisementContinue reading the main storySupported byContinue reading the main storyAnemic Jobs Report Reaffirms Pandemic’s Grip on EconomyWith a gain of 49,000 jobs in January, and with few of those in the private sector, the labor market offers little relief to the nearly 10 million Americans who are unemployed. More

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    PPP Aid to Small Businesses: How Much Did $500 Billion Help?

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    #masthead-section-label, #masthead-bar-one { display: none }The Coronavirus OutbreakliveLatest UpdatesMaps and CasesSee Your Local RiskVaccine InformationWuhan, One Year LaterAdvertisementContinue reading the main storySupported byContinue reading the main story$500 Billion in Aid to Small Businesses: How Much Did It Help?Some economists say the Paycheck Protection Program has not proved as useful as other aid. The debate could sway the new administration’s plans.Small businesses line a street in Westwood, N.J. A $900 billion federal relief package included $325 billion in small business aid, most of it for the Paycheck Protection Program.Credit…Mohamed Sadek for The New York TimesBen Casselman and Feb. 1, 2021, 3:00 a.m. ETAs Democrats and Republicans spent months last fall arguing over how to rescue the economy, one provision drew widespread support from lawmakers: reviving the Paycheck Protection Program, the government’s marquee effort to help small businesses weather the pandemic.The Senate Republican leader, Mitch McConnell of Kentucky, called the lending program “a bipartisan slam dunk.” House Democrats included an extension and expansion of the program in aid packages in the summer and the fall. And Treasury economists said in December that the program might have saved nearly 19 million jobs.Yet there is dissent from one notable contingent: Academic economists who have studied the program have concluded that it has saved relatively few jobs and that, at a cost of more than half a trillion dollars, it has been far less efficient than other government efforts to help the economy.“A very large chunk of the benefit went to a very small share of the firms, and those were probably the firms least in need,” said David Autor, an M.I.T. economist who led one study.The divergence in views over the program’s economic payoff stems in part from ambiguity about its goals: saving jobs or saving businesses.Using different methodology than the Treasury economists, Mr. Autor says the Paycheck Protection Program saved 1.4 million to 3.2 million jobs. Other researchers have offered broadly similar estimates.Given the program’s cost, saving jobs on that scale doesn’t necessarily qualify as a success. Unemployment benefits also provide income, at far less expense, and programs like food assistance and aid to state and local governments pack a larger economic punch, according to many assessments.And because the paycheck program was designed to reach as many businesses as possible, much of the money went to companies that were at little risk of laying off workers, or that would have brought them back quickly even without the help.“It’s just a really inefficient use of funds,” said Eric Zwick, an economist at the University of Chicago’s business school who has studied the program.Many policy experts on Wall Street and in Washington — as well as businesses and banks on Main Streets across the country — say the program’s merits should be assessed instead on what it did to save businesses. On that basis, they say, it helped prevent a greater calamity and fostered economic healing.“A major goal was to keep these businesses alive so that when the economy started to recover and then the economy reopened, there would be businesses around to hire unemployed workers,” said Michael R. Strain, an economist at the American Enterprise Institute, a conservative think tank. Preliminary evidence suggests that the program has succeeded by that metric, he said.In the short term, the program’s proponents are winning the argument. When Congress approved a $900 billion relief package in December, most of the $325 billion in small-business assistance was for a slightly modified version of the Paycheck Protection Program. Businesses began applying for the aid last month.But the debate over the program’s merits could shape the next round of aid. President Biden’s $1.9 trillion pandemic relief plan includes billions for small businesses, but no new money for the program. His aides are weighing what to do about funds already allocated.Mr. Biden’s proposal includes direct grants for the hardest-hit small businesses and a request for Congress to find new ways to help restaurants struggling with consumer pullbacks and state and local restrictions.Many Democrats on Capitol Hill, along with some advocates for small-business relief in think tanks and lobbying shops around Washington, say lawmakers should move on to a more focused and efficient method for supporting small businesses until widespread vaccination fully reopens the economy.Congress created the Paycheck Protection Program in March as businesses shut down early in the pandemic. The program sought to stem layoffs by providing forgivable, low-interest loans to help pay employees even if they weren’t working.The Coronavirus Outbreak More

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    America’s Next Great Economic Experiment: What if We Run It Hot?

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    AdvertisementContinue reading the main storyUpshotSupported byContinue reading the main storyAmerica’s Next Great Economic Experiment: What if We Run It Hot?Supporters of aggressive stimulus see an opportunity to finally correct the mistakes of the last recession and achieve boom times quickly.Credit…Thomas White/ReutersJan. 29, 2021, 5:00 a.m. ETPresident Biden’s proposed $1.9 trillion pandemic rescue package includes money for many goals: expediting the rollout of coronavirus vaccines; reopening schools; expanding unemployment benefits; sending more cash payments to most Americans.But when you skip the line-by-line details and look at the overall numbers, something striking becomes evident. The administration’s proposal, when combined with the $900 billion in pandemic aid agreed to in December, would amount to a bigger surge of spending, both in absolute terms and relative to the depth of the nation’s economic hole, than has been attempted in modern American history.Mr. Biden’s proposal — or even more limited versions of it that appear to have a better shot of winning congressional approval — would pump enough money into the economy to, in effect, intentionally overheat it. Or at minimum it would push the limits of how fast the American economy can rev.Supporters of aggressive stimulus aid view that as a positive thing, a means to finally correct the mistakes of the last recession and achieve a boom-time economy quickly, rather than muddle along with millions out of work for years.Mark Zandi of Moody’s Analytics, whose work on the impact of fiscal stimulus President Biden has frequently cited, estimates that the United States currently has an “output gap” — a gap between actual activity and economic potential — of 4 percent to 5 percent of G.D.P., and that the Biden proposal would amount to 8 percent to 9 percent of this year’s G.D.P.Even if scaled back somewhat to gain moderates’ support, the Biden plan implies enough fuel to get the economy burning hot.“It’s better to err on the side of too much rather than too little,” Mr. Zandi said. “Interest rates are at zero, inflation is low, unemployment is high. You don’t need a textbook to know this is when you push on the fiscal accelerator. Let’s go.”To skeptics, it would be a risky use of the power of the Treasury, with far-reaching implications for inflation, financial bubbles and the sustainability of the national debt.“We’re already in uncharted territory,” said Douglas Holtz-Eakin, president of the American Action Forum and a former director of the Congressional Budget Office who has advised Republicans. He noted that fourth-quarter G.D.P. was only about $119 billion below its level of a year earlier: “Do we need another $1.9 trillion to deal with that problem? I have an arithmetic problem with where we are.”Traditional fiscal policy to address a recession goes something like this. First make your best projection of how the economy will perform in the months ahead. Then make your best guess at how much smaller that is compared with the economy’s potential if healthy — for example, the value of G.D.P. if everyone who wanted a job was working and factories were running at full capacity.At that point, try to analyze the “fiscal multipliers” of policies under consideration: how much economic activity each dollar of spending is likely to trigger. Then size your fiscal stimulus package accordingly, essentially using federal dollars to replace the economic activity that has evaporated because of the recession.In practice, of course, it’s never that simple. It includes a lot of estimates and projections, and congressional politics will ultimately determine the size and content of stimulus legislation. Constrained by Congress, President Barack Obama’s signature fiscal stimulus program, enacted in early 2009, was a poor match for the economic crisis at hand. It pumped an average of $240 billion into the economy each of its first three years, at a time the “output gap” approached $1 trillion per year.The approach of both parties in fighting the pandemic-induced downturn has focused less on the big picture. It has been more about assembling provisions to help individuals and businesses weather the crisis, whatever the price tag. Under that approach, large bipartisan majorities enacted the $2 trillion CARES Act in the spring and several smaller provisions, including the $900 billion package a month ago.These efforts are less fiscal stimulus in the traditional sense — using government money to replace missing demand in the economy — and more an effort to directly alleviate the problems the pandemic has caused.“This package is sized not simply to fill the hole,” said Wendy Edelberg, director of the Hamilton Project at the Brookings Institution. “It’s trying to do somewhat different things. A lot of people and businesses are desperately hurting right now, so this money is relief aimed at those people, and in order to be really confident you’re reaching them all, you need to send a lot of money.”But that doesn’t change the fact that the aggregate money the government is pumping out adds up to more than the missing economic activity, which could have meaningful consequences for the years ahead. And that is before accounting for other expected proposals from the Biden administration, such as large-scale funding of new infrastructure.“There are pros and cons,” she said. “Running the economy hot might be a good thing, but there also might be a painful adjustment with a period of slow growth on the other side of the mountain.”In an economy running hot, employers face shortages of workers and must bid up their wages to attract staff. This, along with potential shortages of various commodities, can, in theory, fuel a vicious cycle of rising prices.For the last 13 years, arguably longer, the United States has had the opposite problem. Large numbers of Americans of prime working age — 25 to 54 — have been either unemployed or outside the labor force altogether. Wage growth has been weak most of that time, and inflation persistently below the levels the Federal Reserve aims for.Some argue that estimates of potential output by the C.B.O. and private economists are too pessimistic — that Americans should dare to dream bigger. “We don’t really know what the G.D.P. output gap truly is,” said Mark Paul, an economist at New College of Florida. “Economists for decades have erred and been too cautious, thinking that full production is significantly lower than it actually is. We’ve been consistently running a cold economy, creating massive problems for social cohesion.”In a paper published in December, he said a pandemic aid package of more than $3 trillion would be justified based on the scale of job losses that have been endured. The output gap looks worse based on employment than it does when you look at G.D.P., in part because job losses have disproportionately occurred in sectors that generate relatively low economic output per worker, such as restaurants.Still, the scale of the pandemic aid already in train helps explain why Mr. Biden faces a tricky road toward finding a Senate majority for the next bill, even among Republicans who are not dead set against stimulus spending conceptually.“It’s hard for me to see, when we just passed $900 billion of assistance, why we would have a package that big,” Senator Susan Collins, the Maine Republican, said recently. “Maybe a couple of months from now, the needs will be evident and we will need to do something significant, but I’m not seeing it now.”A key case for going large revolves around risk management. With the economy mired in a cycle of weak labor markets and low inflation, a little overheating might be welcome. If, for example, the Federal Reserve needed to raise interest rates down the road to keep inflation from taking off, it could be a positive thing for creating a more balanced economy less reliant on monetary policy and booming asset prices.Jerome Powell, the Federal Reserve chair, has said that ensuring the long-term productive capacity of the economy is a more urgent priority than tamping down inflation.“I’m much more worried about falling short of a complete recovery, and losing people’s careers and lives that they built, because they don’t get back to work in time,” Mr. Powell said in a news conference Wednesday. “I’m more concerned about that than about the possibility which exists of higher inflation. Frankly, we welcome slightly higher inflation.”Put differently: It’s hard to worry too much about getting burned after a decade-long winter out in the cold.AdvertisementContinue reading the main story More

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    Who Owns Stocks? Explaining the Rise in Inequality During the Pandemic

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    #masthead-section-label, #masthead-bar-one { display: none }The Coronavirus OutbreakliveLatest UpdatesMaps and CasesVaccine InformationTimelineWuhan, One Year LaterAdvertisementContinue reading the main storyUpshotSupported byContinue reading the main storyWho Owns Stocks? Explaining the Rise in Inequality During the PandemicBad economies usually hurt both workers and investors. Only the first part has been true this time.Jan. 26, 2021, 5:00 a.m. ETLast year featured a devastating public health crisis, an imploding job market, a heavy dose of political tumult and — surprisingly — a roaring stock market.Add it all up, and a major consequence was an expansion of inequality in a nation where economic disparity was already on the rise.It boils down to which groups were hurt most by the sinking parts of the economy and which ones benefited most from the rising share prices.In the brick-and-mortar part of the economy, lower-wage workers were disproportionately affected by the job losses. At the same time, Americans benefited from gains in share prices: both people who own individual stocks in brokerage accounts and those who own stocks in personal retirement accounts, like mutual fund IRAs, or in those offered by employers, such as 401(k)s.Yet that’s where even more disparity kicked in, an analysis of data from the Federal Reserve’s 2019 Survey of Consumer Finances shows. Although the distribution of income is unequal in the United States, ownership of financial assets in general and stocks in particular is even more so.
    [embedded content]The survey, conducted every three years, collects exhaustively detailed financial information from a sample of American “economic units” — we’ll call them families — including income, the types of assets they own and what those assets are worth.An analysis of this data shows that in 2019, the top 1 percent of Americans in wealth controlled about 38 percent of the value of financial accounts holding stocks. Widen the focus to include the top 10 percent, and you’ve found 84 percent of all of Wall Street portfolios’ value.Using the broadest definition of Wall Street involvement, which includes everything from workplace 401(k)s to mutual funds, just over half of American families have at least one financial account tied to the market, while just one in six report direct ownership of stock shares. Wealthier people are far more likely to have these accounts than middle-class families, who in turn are far more likely to be in the market than working-class or poor families.And the wealthy, not surprisingly, are more likely to have larger portfolios.A paper-napkin calculation that assumes all market participants averaged last year’s 16 percent gain in the S&P 500 would mean that American families fattened their portfolios by $4 trillion over all last year. But $3.4 trillion of that would have gone to just 10 percent of families, leaving the other 90 percent to split $600 billion.Beyond the gap in holdings between the very rich and the merely affluent, there is also a gap between the affluent and the middle class. Only half of households in the 40th-to-49th percentiles of net worth have any brokerage or retirement accounts that include stocks. But among households in the 80th-to-89th percentiles, 84 percent are invested in at least one holding.Wealth and the Role of Stock PricesWhen the market surged last year, wealthier families benefited more. Not only do they have larger portfolios than middle-class and poorer investors, but they also are far more likely to be invested in the market in the first place.Percent of families with investments by net worth percentile:
    [embedded content] Poorest group includes unsuccessful or highly leveraged investors with low net worth.Source: The New York TimesMoreover, the median portfolio size for households in that middle group was $13,000 in 2019, and so would have gained about $2,000 in last year’s market. The typical family in the wealthier group had $170,000 in the market and would have gained about $27,000 with a similar portfolio.These wealth differences are far starker than the inequality we usually talk about on the income ladder.The Coronavirus Outbreak More

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    How Our Unemployment Benefits System Failed

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    #masthead-section-label, #masthead-bar-one { display: none }The Jobs CrisisCurrent Unemployment RateThe First Six MonthsPermanent LayoffsWhen a $600 Lifeline EndedAdvertisementContinue reading the main storySupported byContinue reading the main storyHow the American Unemployment System FailedA decline in funding and changes in the workplace — and how long people are out of work — have left a program unequal to the 21st-century economy. More

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    How Full Employment Became Washington’s Creed

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    #masthead-section-label, #masthead-bar-one { display: none }The Jobs CrisisCurrent Unemployment RateThe First Six MonthsPermanent LayoffsWhen a $600 Lifeline EndedAdvertisementContinue reading the main storySupported byContinue reading the main storyHow Full Employment Became Washington’s CreedPolicymakers are eager to return to the period of low unemployment that preceded the pandemic and are less concerned than in previous eras about sparking inflation and taking on debt.People wait in line to receive donations at a food pantry in New York City earlier this month. Policymakers agree that a return to a hot job market should be a central goal.Credit…Mohamed Sadek for The New York TimesJan. 18, 2021, 3:29 p.m. ETAs President-elect Joseph R. Biden, Jr. prepares to take office this week, his administration and the Federal Reserve are pointed toward a singular economic goal: Get the job market back to where it was before the pandemic hit.The humming labor backdrop that existed 11 months ago — with 3.5 percent unemployment, stable or rising work force participation and steadily climbing wages — turned out to be a recipe for lifting all boats, creating economic opportunities for long-disenfranchised groups and lowering poverty rates. And price gains remained manageable and even a touch on the low side. That contrasts with efforts to push the labor market’s limits in the 1960s, which are widely blamed for laying the groundwork for runaway inflation.Then the pandemic cut the test run short, and efforts to contain the virus prompted joblessness to skyrocket to levels not seen since the Great Depression. The recovery has since been interrupted by additional waves of contagion, keeping millions of workers sidelined and causing job losses to recommence.Policymakers across government agree that a return to that hot job market should be a central goal, a notable shift from the last economic expansion and one that could help shape the economic rebound.Mr. Biden has made clear that his administration will focus on workers and has chosen top officials with a job market focus. He has tapped Janet L. Yellen, a labor economist and the former Fed chair, as his Treasury secretary and Marty Walsh, a former union leader, as his Labor secretary.In the past, lawmakers and Fed officials tended to preach allegiance to full employment — the lowest jobless rate an economy can sustain without stoking high inflation or other instabilities — while pulling back fiscal and monetary support before hitting that target as they worried that a more patient approach would cause price spikes and other problems.That timidity appears less likely to rear its head this time around.Mr. Biden is set to take office as Democrats control the House and Senate and at a time when many politicians have become less worried about the government taking on debt thanks to historically low borrowing costs. And the Fed, which has a track record of lifting interest rates as unemployment falls and as Congress spends more than it collects in taxes, has committed to greater patience this time around.“Economic research confirms that with conditions like the crisis today, especially with such low interest rates, taking immediate action — even with deficit finance — is going to help the economy, long-term and short-term,” Mr. Biden said at a news conference on Jan. 8, highlighting that quick action would “reduce scarring in the work force.”Jerome H. Powell, the Fed chair, said on Thursday that his institution is tightly focused on restoring rock-bottom unemployment rates.“That’s really the thing that we’re most focused on — is getting back to a strong labor market quickly enough that people’s lives can get back to where they want to be,” Mr. Powell said. “We were in a good place in February of 2020, and we think we can get back there, I would say, much sooner than we had feared.”The stage is set for a macroeconomic experiment, one that will test whether big government spending packages and growth-friendly central bank policies can work together to foster a fast rebound that includes a broad swath of Americans without incurring harmful side effects.“The thing about the Fed is that it really is the tide that lifts all boats,” said Nela Richardson, chief economist at the payroll processor ADP, explaining that the labor-focused central bank can set the groundwork for robust growth. “What fiscal policy can do is target specific communities in ways that the Fed can’t.”The government has spent readily to shore up the economy in the face of the pandemic, and analysts expect that more help is on the way. The Biden administration has suggested an ambitious $1.9 trillion spending package.President-elect Joseph R. Biden Jr. has appointed top officials with a job market focus.Credit…Amr Alfiky/The New York TimesWhile that probably won’t pass in its entirety, at least some more fiscal spending seems likely. Economists at Goldman Sachs expect Congress to actually pass another $1.1 trillion in relief during the first quarter of 2021, adding to the $2 trillion pandemic relief package passed in March and the $900 billion in additional aid passed in December.That would help to stoke a faster recovery this year. Goldman economists estimate that the spending could help to push the unemployment rate to 4.5 percent by the end of 2021. Joblessness stood at 6.7 percent in December, the Bureau of Labor Statistics said earlier this month.Such a government-aided rebound would come in stark contrast to what happened during the 2007 to 2009 recession. Back then, Congress’s biggest package to counter the fallout of the downturn was the $800 billion American Recovery and Reinvestment Act, passed in 2009. It was exhausted long before the unemployment rate finally dipped below 5 percent, in early 2016.At the time, concern over the deficit helped to stem more aggressive fiscal policy responses. And concerns about economic overheating pushed the Fed to begin lifting interest rates — albeit very slowly — in late 2015. As the unemployment rate dropped, central bankers worried that wage and price inflation might wait around the corner and were eager to return policy to a more “normal” setting.But economic thinking has undergone a sea change since then. Fiscal authorities have become more confident running up the public debt at a time of very low interest rates, when it isn’t so costly to do so.Fed officials are now much more modest about judging whether or not the economy is at “full employment.” In the wake of the 2008 crisis, they thought that joblessness was testing its healthy limits, but unemployment went on to drop sharply without fueling runaway price increases.In August 2020, Mr. Powell said that he and his colleagues will now focus on “shortfalls” from full employment, rather than “deviations.” Unless inflation is actually picking up or financial risks loom large, they will view falling unemployment as a welcome development and not a risk to be averted.That means interest rates are likely to remain near zero for years. Top Fed officials have also signaled that they expect to continue buying vast sums of government-backed bonds, about $120 billion per month, for at least months to come.Fed support could help government spending kick demand into high gear. Households are expected to amass big savings stockpiles as they receive stimulus checks early in 2021, then draw them down as vaccines become widespread and normal economic life resumes. Low rates might make big investments — like houses — more attractive.Still, some analysts warn that today’s policies could result in future problems, like runaway inflation, financial market risk-taking or a damaging debt overhang.In the mid-to-late 1960s, Fed officials were tightly focused on chasing full employment. As they tested how far they could push the job market, they did not try to head inflation off as it crept up and saw higher prices as a trade off for lower joblessness. When America took its final steps away from the gold standard and an oil price shock hit in the early 1970s, price gains took off — and it took massive monetary belt-tightening by the Fed and years of serious economic pain to tame them.Many politicians have become less worried about government borrowing thanks to historically low interest rates.Credit…Erin Schaff/The New York TimesThere are reasons to believe that this time is different. Inflation has been low for decades and remains contained across the world. The link between unemployment and wages, and wages and prices, has been more tenuous than in decades past. From Japan to Europe, the problem of the era is weak price gains that trap economies in cycles of stagnation by eroding room to cut interest rates during time of trouble, not excessively fast inflation.And economists increasingly say that, while there may be costs from long periods of growth-friendly fiscal and monetary policy, there are also costs from being too cautious. Tapping the brakes on a labor market expansion earlier than is needed can leave workers who would have gotten a boost from a strong job market on the sidelines.The period before the pandemic showed just what an excessively cautious policy setting risks missing. By 2020, Black and Hispanic unemployment had dropped to record lows. Participation for prime-age workers, which was expected to remain permanently depressed, had actually picked up somewhat. Wages were climbing fastest for the lowest earners.It’s not clear whether 3.5 percent unemployment will be the exact level America will achieve again. What is clear is that many policymakers want to test what the economy is capable of, rather than guessing at a magic figure in advance.“There’s a danger in computing a number and saying, that means we are there,” Mary C. Daly, the president of the Federal Reserve Bank of San Francisco, said at an event earlier this month. “We’re going to learn about these things experientially, and that to me is the right risk management posture.”AdvertisementContinue reading the main story More

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    Even With $900 Billion Stimulus, Biden Faces Fragile Economy

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    #masthead-section-label, #masthead-bar-one { display: none }The Presidential TransitionliveLatest UpdatesElectoral College ResultsBiden’s CabinetInaugural DonationsAdvertisementContinue reading the main storySupported byContinue reading the main story$900 Billion Won’t Carry Biden Very FarDespite new pandemic aid, he confronts an economic crisis unlike any since he last entered office in 2009. And political headwinds have only stiffened.The challenges greeting President-elect Joseph R. Biden Jr. rival those of the Great Recession, when he became vice president.Credit…Amr Alfiky/The New York TimesJan. 4, 2021Updated 5:48 p.m. ETWith his presidential inauguration just weeks away, Joseph R. Biden Jr. is confronting an economic crisis that is utterly unparalleled and yet eerily familiar.Millions of Americans are out of work, small businesses are struggling to survive, hunger is rampant, and people across the country fear getting kicked out of their homes. The moment was similarly perilous exactly 12 years ago, when Mr. Biden was the vice president-elect and preparing to take office.“I remember the utter terror,” said Cecilia Rouse, who was an economic adviser in the Obama White House and has been chosen to lead Mr. Biden’s Council of Economic Advisers.The $900 billion pandemic relief plan that moderate lawmakers powered through Congress last month provides the incoming administration with some breathing room. This second tier of aid will deliver $600 stimulus checks, assist small businesses and extend federal unemployment benefits through mid-March.But as Mr. Biden has made clear, it is simply a “down payment” — a brief bridge to get through a dark winter and not nearly enough to restore the economy’s health.Roughly 19 million people are receiving some type of unemployment benefit, and many business owners wonder whether they will be able to survive the year. The coronavirus crisis has worsened longstanding inequalities, with workers at the lower end of the income spectrum — who are disproportionately Black and Hispanic — bearing the brunt of the pain.At the same time, bottlenecks in the Covid-19 vaccines’ rollout as well as fears about a much more transmissible variant of the virus could further delay the revival of large swaths of the economy like restaurants, travel, live entertainment and sports.“We are in for some choppy waters, even as we continue to get to the other side of the pandemic,” Ms. Rouse said.Yet despite the scorched earth left by the coronavirus, the economy is on a more stable footing in several ways than it was at the start of 2009.Instead of hurtling down a hole with no clear view of the bottom, Mr. Biden is taking office when the economy is on an upward trajectory. However anemic the growth, most analysts predict that 2021 will end better than it began even if there are stumbles along the way.While this pandemic-related recession was larger in terms of initial job losses and closings, it is what Ms. Rouse labeled “collateral damage” from a health emergency and not a crack in the underlying global financial system.“Now we know what to do: Provide the kind of social safety net for households, businesses and communities so they can get to the other side of the pandemic intact,” Ms. Rouse said.The Biden administration will also focus on attacking the deep-rooted inequalities that this crisis aggravated, she added.Volunteers distributing food donations in Bradenton, Fla. Four million U.S. workers have been unemployed for at least six months.Credit…Eve Edelheit for The New York TimesA closed flower shop in Tampa, Fla. The pandemic has shut down more businesses than the Great Recession did.Credit…Eve Edelheit for The New York TimesAdding to the positive side of the ledger, many households have socked away money, lifting the savings rate to a 40-year high. In contrast, the Great Recession razed storehouses of wealth, in retirement accounts and homes, virtually overnight.“Walking in this time, there is at least a cushion,” said Jason Furman, who led President Barack Obama’s Council of Economic Advisers and is now an economist at Harvard University’s John F. Kennedy School of Government.The Presidential TransitionLatest UpdatesUpdated Jan. 4, 2021, 6:43 p.m. ETSenator Kelly Loeffler of Georgia says she will join the vote to overturn Biden’s electors.The leader of the far-right Proud Boys was arrested in Washington.In Georgia, Jon Ossoff warns Trump not to ‘mess with our voting rights.’But if the Biden administration will have a bit more running room on the economy, it is likely to have a lot less politically than Mr. Obama did in the first two years of his presidency, when his party controlled both houses of Congress.If the Democrats retake control of the Senate by winning both seats in the Georgia runoff election on Tuesday, Mr. Biden’s path will be much easier. Otherwise, the new president will have to deal with a Republican Senate led by Mitch McConnell of Kentucky, who has stymied legislation from the Democratic-controlled House.In that case, the administration will have an uphill slog persuading lawmakers to approve more aid when this round ends. With a Democrat headed for the Oval Office, many Republicans who put aside their concerns about debt when it came to cutting taxes in 2017 have rediscovered their inner deficit hawk.Mr. McConnell successfully resisted President Trump’s calls — echoed by Democrats — to increase the latest stimulus payments to $2,000 from $600.The failure to extend or expand federal aid when it expires this spring not only would cause significant hardships and needless suffering but could seriously scar the economy, said Joseph Stiglitz, a Nobel Prize-winning economist.Even though economic activity will most likely be on an upswing, the economy will remain weakened, Mr. Stiglitz said. Eviction moratoriums and mortgage forbearance have prevented families from losing their homes, but their housing debt has been accumulating even if it has not yet shown up on household balance sheets.Covid-19 vaccinations are crucial to getting the economy back on track.Credit…Alex Welsh for The New York TimesA coronavirus testing site in Los Angeles. Cities and states also have a big role to play in distributing vaccines. Credit…Alex Welsh for The New York TimesMany small businesses, particularly in the hard-hit service sector, which has been a source of low-wage jobs, will not survive. Economic inequality will increase.“There’s been a lot of long-term damage,” Mr. Stiglitz said.At the same time, the ranks of workers who have been unemployed for six months or longer have swelled to more than four million, increasing the chances that they may never find another job. Growing numbers of men and women are also dropping out of the labor force altogether.None of those problems can really begin to be addressed without widely distributing the vaccines and reopening the schools so that parents, particularly mothers, can return to the work force.That is why economists say that funneling direct aid to state and local governments is so crucial.“That sector has been gutted,” said Abigail Wozniak, a labor economist at the Federal Reserve Bank of Minneapolis, but it “is the sector that allows all the other sectors to operate.”States and localities will play a critical role in the vaccine rollout and in providing emergency medical personnel. They will also be responsible for sending teachers back to classrooms that are safe, and helping disadvantaged students regain lost ground.Senate Republicans have been dead set against providing that kind of direct aid. Mr. McConnell has criticized it as a “blue-state bailout,” even though many red and blue states — and rural areas in particular — have lost revenues and public sector jobs.Senator Mitch McConnell, the Republican majority leader, has opposed direct aid to state and local governments.Credit…Stefani Reynolds for The New York TimesEconomists say Congress and the White House must recognize the differences as well as the similarities between the pandemic and the Great Recession.Credit…Stefani Reynolds for The New York TimesEconomists on the right and left agree that while there are echoes from the Great Recession, there are also important distinctions. Restoring the economy this time, they warn, will require a kind of economic serenity prayer: recognizing the similarities, identifying the contrasts, and having the wisdom to know the difference.For Michael R. Strain, an economist at the conservative American Enterprise Institute, the economy has repaired itself more quickly than expected. He worries that some aid proposals, particularly those that prop up specific industries, would keep some dying businesses alive and “slow down the process of adjustment to a new post-virus economy.“The faster that process happens, the faster the economy heals,” Mr. Strain said.Many liberal economists, though, including those on the Biden team, warn against ignoring a crucial lesson from the last recession: Failing to move quickly to provide sufficient money to the people and businesses that need it can damage the economy far into the future.Brian Deese, whom Mr. Biden has picked to lead the National Economic Council, where he worked as an assistant during the Obama administration, said making public investments was necessary to ensure economic growth.“We’re in a moment where the risk of doing too little outweighs the risk of doing too much,” he said.AdvertisementContinue reading the main story More

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    Most Americans Are Expected to Save, Not Spend, Their $600 Check

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    #masthead-section-label, #masthead-bar-one { display: none }The Coronavirus OutbreakliveLatest UpdatesMaps and CasesThe Stimulus PlanVaccine InformationF.A.Q.TimelineAdvertisementContinue reading the main storySupported byContinue reading the main storyMost Americans Are Expected to Save, Not Spend, Their $600 CheckWhile lawmakers debate increasing the stimulus payments to $2,000, experts say it would make far more sense to give more money to the unemployed.Galen Gilbert, a 71-year old lawyer who lives in a Boston suburb, plans to deposit his stimulus check into savings. “I’m not really suffering financially,” he said.Credit…Katherine Taylor for The New York TimesNelson D. Schwartz and Dec. 30, 2020Updated 4:49 p.m. ETGalen Gilbert knows just what he will do with the check he gets from Washington as part of the pandemic relief package, whatever the amount: put it in the bank.“I’ve got more clients than I can handle right now and I’ve made more money than I usually do,” said Mr. Gilbert, a 71-year-old lawyer who lives in a Boston suburb. “So I’m not really suffering financially.”Cheryl K. Smith, an author and editor who lives in Low Pass, Ore., isn’t in a rush to spend the money, either. She plans to save a portion, too, while donating the rest to a local food bank. “I’m actually saving money right now,” Ms. Smith said.President Trump’s demand to increase the already-approved $600 individual payment to $2,000, with backing from congressional Democrats, has dominated events in Washington this week and redefined the debate for more stimulus during the pandemic. Mitch McConnell, the Senate majority leader, said on Wednesday he would not allow a vote on a standalone bill increasing the checks to $2,000, dooming the effort, at least for now.Whatever the amount, the reality is that most Americans right now are much more likely to save the money they receive.Of course, the money will be a lifesaver for the roughly 20 million people collecting unemployment benefits and others who are working reduced hours or earning less than they used to. Yet, for the majority of the estimated 160 million individuals and families who will receive it, spending the money is expected not to be a high priority.After an earlier round of $1,200 stimulus checks went out in the spring, the saving rate skyrocketed and remains at a nearly 40-year high. That largely reflects the lopsided nature of the pandemic recession that has put some Americans in dire straits while leaving many others untouched.Economists on the right and left of the political spectrum said that when otherwise financially secure people receive an unexpected windfall, they almost invariably save it. The free-market economist Milton Friedman highlighted this phenomenon decades ago.Many experts said a truly stimulative package would have earmarked the payments for those who need it most — the unemployed.“We know where the pockets of need are,” said Greg Daco, chief economist at Oxford Economics. “Putting it there would be a much more efficient use of the stimulus.”And because the money will immediately be put to work — the jobless don’t have the luxury of saving it — it would also have a much bigger impact on the overall economy, through what experts refer to as the multiplier effect. In essence, each dollar given to a person in need is likely to benefit the economy more because it would be used to pay for, say, groceries or rent.“Providing $2,400 to a family of four in the same financial situation as they were at the end of 2019 doesn’t do much to boost the overall economy right now,” Mr. Daco said. “It’s not whether it’s a positive or not. It’s their potency that’s in question.”Individuals with an adjusted gross income in 2019 of up to $75,000 will receive the $600 payment, and couples earning up to $150,000 a year will get twice that amount. There is also a $600 payment for each child in families that meet those income requirements. People making more than those limits will receive partial payments up to certain income thresholds.A more effective approach, experts say, would have raised unemployment insurance benefits to the jobless by $600 a week, matching the supplement under the stimulus package Congress passed last spring, rather than the $300 weekly subsidy the new legislation provides. Democrats had pushed for larger payments to the jobless and included it in legislation that passed the House, which they control. But the measure met stiff resistance from Republicans, who control the Senate, and was not included in the final compromise bill.The Coronavirus Outbreak More