The pandemic brought on the most quick and severe recession that the United States has ever experienced. The economy shed over 22 million jobs in just two months, and contracted at an annualized rate of 32 percent in the second quarter.
While the trillions of dollars in relief from the CARES Act, passed in March, softened the blow at first, most of its crucial support to jobless people and businesses has now ended. Democratic congressional leaders are now locked in a stalemate with the White House and Senate Republicans on a follow-up measure.
It may be easier, politically, to give up and devolve into partisan blaming as Election Day nears. However, it is imperative that a new deal is reached to avoid suffering and to keep the economy from further slowing.
The coronavirus still kills thousands every week, requiring people and businesses to take precautions that limit economic activity. Emergency federal unemployment benefits have expired for tens of millions of unemployed Americans. State and local governments are facing extreme budget distress; food insecurity is at its highest level in decades. We’ve regained only about half the jobs lost in the spring. More money from Congress is both fiscally affordable and deeply needed.
House Democrats passed a sizable relief package of over $3 trillion in May as an opening offer. They told the White House they would be willing to compromise. But conservative pressure meant the negotiations instead moved farther apart. The Republican-controlled Senate voted 52 to 47 largely along party lines on a relatively small “skinny bill” that failed to receive the 60 votes needed to pass.
Amid the stalled momentum, a bipartisan group in the House made up of 25 Democrats and 25 Republicans put forth a proposal on Tuesday that, while not perfect, may open prospects for a deal. The sprawling proposal, worth as much as $2 trillion, includes several measures that are worthy of widespread support.
The compromise plan extends unemployment insurance bonus payments. It provides more disposable income to Americans in the form of another round of $1,200 checks to most households. Some of that money will go to those with steady jobs, but so many people have lost sources of income in different ways (whether losses in wages, hours, tips or gig work) that unemployment insurance alone will not be a sufficient cushion for many households.
The plan also provides $500 billion in relief to states and localities to help them keep paying essential government workers such as teachers, firefighters and sanitation workers.
The deal also provides more funds to combat hunger through the SNAP program. Formerly known as food stamps, it is one of the most effective ways to bolster consumer spending and prevent suffering.
This package, perhaps most crucially, provides for automatic extensions of aid after January based on apolitical data, primarily the degree to which the virus has been suppressed. This ensures that regardless of the outcome of the elections, vulnerable households and the economy receive needed support. If the pandemic is controlled and the economy bounces back quickly, spending would be phased out.
All together, the compromise is larger than the stimulus package in 2009 (it also provides needed assistance for the beleaguered Postal Service).
All of its proposals could be improved, as House Democratic leaders noted in a statement after the bipartisan group, the Problem Solvers Caucus, announced the plan. The package provides for an initial $450 per week federal unemployment insurance supplement that will be reduced in phases to cover only 100 percent of a worker’s prior wages. In addition to hurting those who had their hours limited before losing their jobs, it may be administratively impossible. And many economists (including me) see a good case for restoring the $600 per week payments that expired in July.
Many early calculations also suggest that state aid will need to be larger than the $500 billion provided in the plan.
And finally, while automating some fiscal policy based on triggers is important, the current proposal ties triggers strictly to public health measures. It would be wise to make them keyed to employment rates — so that if unemployment rates remain elevated, crucial aid for those on the edge will remain intact.
It’s true that the White House and Senate Republicans have been inconsistent in outlining what type of bill they might accept throughout the squandered summer.
And it may awkward to head into the final days of an election while hashing out a deal that both parties can call decent. But the Federal Reserve has been explicit that its monetary policy — keeping interest rates near zero, subsidizing debt markets — cannot support the economy alone.
The tens of millions of people who remain out of work, the countless small businesses hanging by a thread, the one in five families who report their children don’t have enough to eat this week and the panicked states already forced into firing workers cannot wait until after the election for a deal. They need meaningful action now.
Jay C. Shambaugh, a professor of economics and international affairs at George Washington University, was the chief economist at the White House Council of Economic Advisers from 2010 to 2011.
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