With the US Congress set to tackle the next phase of economic relief this month, Thursday’s jobs report provided more evidence of how much permanent damage is being done to the labor market by the coronavirus pandemic. The number of workers being permanently laid off continues to grow even as millions of Americans who were furloughed have gone back to work.
Expectations for how long it will take to get the labor market back to where it was at the beginning of the year are fluid, but some, such as San Francisco Federal Reserve President Mary Daly, are saying it could take the economy a half-decade to recover even after the public health crisis ends.
If it does take that long, that would represent a failure by the US Congress and fiscal policymakers to learn the hard lessons of the past decade. In an environment of low inflation and low interest rates, fiscal stimulus can and should be used much more aggressively to support workers and the economy.
The job of economic policymakers during the next year should be two-fold. First, to keep households, businesses and state and local governments afloat for the duration of the crisis. Thanks to the Coronavirus Aid, Relief and Economic Security Act, the US has done a good job of that so far for households. The results are more mixed for businesses, while state and local governments need much more support than they’ve gotten so far.
After the pandemic is over and it’s safe to fully reopen the economy, which may be during the next presidential term, more aggressive fiscal policy will be crucial.
The end of the COVID-19 crisis, which is at best an early 2021 story, might sound like a long way off, but we’re at the point in the election cycle when both political parties are coming up with their agendas.
The country’s 17 million unemployed workers deserve to know that this president or his successor and Congress will mount a robust response to unacceptably high levels of unemployment. That’s why it’s dangerous and wrong for Daly and others to put forth the low expectations of a prolonged multiyear recovery for the jobs market.
If there’s one lesson we should have learned from the Great Recession and the slow expansion that followed, it’s that budget deficits, growth in the national debt and monetary expansion undertaken by the Fed did not create runaway inflation or dollar debasement as pessimists feared. There was scope for both fiscal and monetary policy to be used more assertively to support the labor market and the economy.
The Fed does seem to have learned its lesson. Unlike in 2009, when the yield on 10-year Treasurys was more than 3 percent as investors anticipated an eventual tightening of monetary policy, there’s no such expectation today. Fed Chairman Powell said last month that the central bank isn’t “even thinking about thinking about raising rates.” Fed policymakers have also talked about the value of using fiscal policy to support the labor market, recognizing that monetary stimulus has its limits.
Fiscal policy doesn’t have the same limits. An extreme example would be World War II, when the US government increased its head count by 50 percent between 1940 and 1942. We’ve seen with the CARES Act that when Congress is sufficiently motivated it can approve trillions of dollars in spending, send checks to households and supplement the income of workers who have been furloughed or laid off as a result of the pandemic. The constraints are political, not economic.
Assuming there’s a vaccine sometime between the end of the year and the spring of 2021, which still seems plausible, a goal for the next administration should be to restore employment to early 2020 levels by the 2022 midterm elections through payments to households, government spending and hiring directly.
Since the onset of the pandemic we’ve seen companies such as grocery chains, Target, Walmart and Amazon recruit tens or hundreds of thousands of workers quickly, driven by rising demand. There’s no reason other employers wouldn’t do the same amid a strong economic rebound.
It’s possible the US will fall short: Maybe too many small businesses will fail during the next six months or inflation makes an unexpected return that calls aggressive stimulus plans into question. But the reason for falling short shouldn’t be that the US Congress didn’t try hard enough or didn’t appropriate enough money.
There’s no moral hazard here that demands a cautious approach by policymakers. This should be about the government pumping as much money into the economy as it takes to make workers whole for a crisis that wasn’t their fault. Resigning the US to a recovery that eats up a half-decade isn’t acceptable.
By Conor Sen ---
Conor Sen is a Bloomberg Opinion columnist. -- Ed.
(Bloomberg)
