Economic Recovery Proposals

As the Op-Ed article states: “We’re seeing soaring unemployment, highly unstable financial markets and governments amassing debt at unprecedented rates.” It then asks a number of prominent economists to propose a single policy government officials can employ to make a difference. The answers are instructive … and perhaps predictable.

Our first response is by Joseph E. Stiglitz, an American economist, public policy analyst, professor at Columbia University and recipient of the 2001 Nobel Memorial Prize in Economic Science. He envisions bankruptcies, the COVID-19 pandemic and the severe shortages in household balance sheets will morph into a deep, prolonged recession. He expresses concern a congress steeped in “as-usual politics” is incapable of solving pressing problems.

As for his solution, he maintains “government must do more to support the economy, including assistance to state and local governments, with assurances that the jobless will continue to get help while unemployment remains elevated.” He expresses particular enthusiasm for “passage of paycheck relief programs that will succeed at keeping workers attached to their jobs and successfully getting aid to the most vulnerable.”

Next in sharing an opinion is Alicia H. Munnell, Director of the Center for Retirement Research of Boston College and a professor of Boston College’s Carroll School of Management. She bemoans the fact that during the coronavirus epidemic the federal government did not adopt a robust program for paying employers to keep workers on the payroll even if they weren’t working. She contends that had they done so, “First, it would put employers in a good position to restart once the virus is subdued. Second, employees would continue to receive wages and so wouldn’t have to apply for unemployment. And third, employees could retain their health insurance.” Unfortunately, she maintains, it’s now largely unfeasible inasmuch as “a rehiring process would be difficult.”

In addition, she believes “the $600 bump in unemployment benefits will make many low-paid workers, who are earning more now than before, reluctant to return to their jobs. Finally, employers have exhausted their resources so the program would have to be very generous for them to participate.” As her final comment, she states: “At least we know what to do when the next pandemic strikes.”

The following commentary is from Anat Ruth Admati, professor of finance and economics at the Stanford Graduate School of Business, listed by Time Magazine in 2014 as one of the 100 Most Influential People in the World: “Allowing the economy to sputter while providing relief which still mostly benefits investors is misguided. Instead, we must address both the public health and the economic crises by making it safer to resume activities.

Our best approach is to invest heavily in increasing the capacity for testing many more people and isolating those infected. Recovery will be slow and halting, and the inequality of income, wealth and opportunities that was already high will only grow.” She stresses the point that merely enforcing sensible safety rules such as masks is a good start, but such measures will be insufficient to ensure confidence. Instead, “we invest in sufficient capacity so all of us, without regard to symptoms, are given accurate tests regularly (say every two weeks) … and methods like group testing could help while testing supplies remain limited. Even better, by protecting rich and poor alike, wide availability of testing and isolation would begin the overdue process of building a more equitable and inclusive economy.”

A somewhat varied view is provided by James Doti, president emeritus and professor of economics at Chapman University, Orange, California. His view is that although the economy is currently in shambles, it’s not a repeat of the Great Depression or even the Great Recession. He acknowledges that although the GDP declined at a frightening rate during the first and second quarters of 2020, “we could see an annualized increase of 15%-20% in the third quarter. While the depth of the drop this spring is unprecedented, so, too, will be the recovery.”

He further declares the economic projections done at Chapman University show a relatively short two quarter COVID-19 recession. By contrast, the Great Recession of 2007-09 lasted seven quarters. The damage this time will be contained because of the fiscal and monetary actions that have already taken place.” His final prediction is “a fast recovery will still depend upon how quickly the economy is allowed to reopen.”

Not to escape a yet untested suggestion for financial recovery, we tune in on the recommendations of Ayse Imrohoroglu, a Turkish economist who is Professor of Finance and Business Economics at the USC Marshall School of Business. Her contention is the current recession is not the result of a shock to productivity or problems with monetary policy, but rather what she labels a “synthetic recession. It happened due to decisions made about a virus, not about the economy. Nonetheless, it could lead to a ‘real’ recession if this shelter-in-place period lasts long enough to cause deeper wage losses, increased bankruptcies and more foreclosures.”

She adds that if older people and others at high risk could be incentivized to stay at home, a second wave of severe illness during the reopening might be mitigated with less economic fallout. As a concluding summary, she declares “What we need is a policy designed to help the elderly and those with preexisting health conditions remain sheltered in place as the economy resumes.”

There is yet a sixth economist who deserves to be listened to: Phillip Lee Swagel. Educated at both Princeton and Harvard Universities, he played an important role in the Troubled Asset Relief Program which was part of the U.S. government’s response to the financial crisis of 2007-08.

More recently a Professor of International Economics at the university of Maryland, he is currently the Director of the Congressional Budget Office (CBO). Under his leadership the CBO reports the U.S. economy may well be $15.7 trillion smaller over the next decade than it otherwise will be if Congress does not mitigate the economic damage instigated by the shutdown and accompanying activities.

In his recent public report, Swagel states “business closures and social distancing measures are expected to curtail consumer spending, while the recent drop in energy prices is projected to severely reduce U.S. investment in the energy sector.” Under his direction, the CBO issued in a separate report recommending Congress approve legislation built around $915 billion in aid to state and local governments, another $1,200 payments to most American workers and additional aid to colleges and local school districts.

We’ve now presented the views of six highly regarded economists describing how the economic repercussions of the COVID-19 crisis can best be remedied. Though we have no unanimous recommendation as to exactly what should be done, the general inference from most members of the group is that a pair of actions be taken.

First, the federal government must allocate substantial sums of money over the next several years to mitigate the horrendous costs irrationally levied on the economy. Secondly, the restrictive rules commandeering virtually every citizen, which were established and continue to be enforced, deserve to be promptly rescinded.

Most distressingly, the misery of the past several months leads me to ask where economics fits in? The dictionary describes economics as “a social science concerned chiefly with description of and analysis of the production, distribution and consumption of goods and services.”

It’s beginning to appear revitalizing the economy isn’t an economic matter at all. What is, instead, a suitable way to return our society to its former prosperity appears to require no economic expertise whatever. All that needs to be accomplished is for taxpayers to subsidize the nation’s expenses while permitting the citizenry to return to its standard way of conducting business.

A final thought. As a simple businessman who never took a single economics course, I’ve often sensed a lack of sophistication. At this moment, with the classical economists on much the same page I am, I’m beginning to feel right at home.

Al Jacobs, a professional investor for nearly a half-century, issues weekly financial articles in which he shares his financial knowledge and experience. Al can be contacted at al@abjacobs.com