• January 28, 2023

The Three Biggest Lessons of the Coronavirus Economy

Since the Coronavirus pandemic We hit the American economy like a bulldozer. Last spring we learned three important lessons. The right response from politics is extremely important. Aggregate economic statistics can mask a lot of individual difficulties. And by far the most effective means of revitalizing the economy is to fight the virus. Developments over the past few days have confirmed all of these lessons.

On Thursday, the Department of Commerce reported that gross domestic product, which is the broadest measure of economic output, fell This was the largest drop in a single year since 1946, but it was a far better result than many economists had forecast last spring as many factories, stores, and other businesses were forced to close. When the members of the Federal Reserve’s main policy-making committee met last June, their median forecast was that GDP would do so fall in 2020 by a total of 6.5 percent and the unemployment rate by the end of the year by 9.3 percent. The actual decline in GDP was barely half of what was forecast, and the unemployment rate also fell short of the Fed’s forecasts: in December stood up at 6.7 percent.

A big reason for this better-than-expected performance was that policy makers – Congress and the Fed itself – provided unprecedented support to the economy when it needed it most. The $ 2.2 trillion CARES Act, passed bipartisan by Congress in March, “provided the most comprehensive tax relief in US history. In addition, it was primarily aimed at vulnerable families, workers and small businesses, ”said the White House Economic Advisory Council written down in a recent report. On the money side, the Fed has a series of emergency loan programs, cut interest rates to near zero and pumped trillions of dollars into the bond markets.

Taken together, these programs prevented what policymakers most feared at the time: a downward spiral in which layoffs caused by the pandemic would result in a sharp drop in income and expenses, which in turn would lead to more layoffs, and so on. This feedback process turns recessions into depression. By sending cash to households, the unemployed, and small businesses, and making it easier for large businesses to raise funds (through the Fed programs), the federal government propped up total revenue and spending that would otherwise have fallen into the crater. In fact, these programs have been so successful that total disposable personal income – the total income Americans have to spend after paying taxes – has not decreased at all. On Friday the trade department reported Disposable personal income rose slightly to $ 15.5 trillion on an inflation-adjusted basis in December. That’s about three hundred billion dollars more than last February before the pandemic.

This unprecedented move to support household incomes helped support consumer spending, which accounts for around two-thirds of gross domestic product. In April, when many people were stuck at home and many stores were closing, consumer spending plummeted. However, it then rebounded strongly for six months before declining slightly in the last two months of the year when the second wave of the virus set in. In December, total personal spending was approximately $ 12.9 trillion. That’s a $ 400 billion decrease from last February, but that decrease was much smaller than many economists feared.

To repeat Lesson 2, these aggregated numbers do not capture the fate of millions of Americans who have suffered badly over the past eleven months. Many of these people work in the industries hardest hit by the closings – hotels, restaurants, and hospitality or leisure businesses. Others had to quit their jobs to take care of their children or other family members. According to the Ministry of Labor, the official is unemployed overall In December the number was 10.7 million, of whom four million were unemployed for twenty-seven weeks or more. However, even these dire numbers do not give a complete picture.

For one thing, they don’t count Americans who have retired from the labor force. Thanks to population growth, the workforce usually grows every year, but between December 2019 and December 2020 it decreased by four million people. The unemployment figures also tell us nothing about workers whose hours have been cut or whose wages have been cut. “There are now 26.8 million employees – 15.8% of the workforce – who are either unemployed, unemployed due to the virus or have to work or pay fewer hours due to the pandemic,” says the economist Heidi Shierholz Institute for Economic Policy, wrote earlier this week. “We also started losing jobs again in December.” On Thursday, the Labor Department reported that an additional 1.3 million people had applied for unemployment benefits last week. Two thirds of these new applicants applied for regular state unemployment benefit; The other third sought benefits under a program that Congress introduced for gig workers in March last year.

The burden of the pandemic is hardest for members of minority groups and poorly paid workers – including undocumented workers – who cannot work from home and do not have the financial resources to weather an extended recession. Last month, for example, when colder weather and the spread of the virus led to it more layoffsThe Latino unemployment rate rose from 8.4 percent to 9.3 percent, and the unemployment rate for workers with less than a college degree rose from 9.2 percent to 9.8 percent. In comparison, the unemployment rate among whites was six percent and among people with a university degree was only 3.8 percent.

Despite the expansion of unemployment benefits, which Congress scandalously phased out shortly before the program was renewed in December, the pandemic continues to be a matter of great concern and hardship. To assess the impact, the Census Bureau has one new survey last April when people were asked about their living conditions. The last survey was carried out in early January. “Almost 24 million adults – 11 percent of the total – said their household sometimes or often did not have enough to eat in the past seven days,” said Claire Zippel, an analyst at the Center on Budget and Policy Priorities blog entry about the results of the survey. “An estimated 15.1 million adults who live in rental apartments – one in five adult tenants – have not been covered by rent.”

The coronavirus spending bill passed by Congress in December, valued at around $ 900 billion, is already providing additional support to affected households, and the $ 1.9 trillion package promoted by the Biden administration if it comes into effect this would provide for much more. However, virtually all economists agree that the real key to revitalizing the economy and alleviating difficulties is to defeat the virus. Given the opposition to strict lockdown measures in the US and other western countries, this equates to vaccinating most of the population over the next few months. In this case, many economic forecasters are forecasting a strong economic upturn in the second half of the year. Goldman Sachs, for example, predicts that the USGDP will rise 6.6 percent in 2021 largest increase since 1984.

From Saturday, according to At the Centers for Disease Control and Prevention, 22.9 million Americans, or about 6.9 percent of the population, had received at least one vaccine. That brings the United States in front of many countriesbut far behind Israel, where 52.6 percent of the population were vaccinated, and well behind the UK, where 12.3 percent were vaccinated. President Biden has pledged to increase the vaccine count to a hundred million by the end of April, which would have a big impact. Of course, this presupposes that the vaccines offer adequate protection against the virus strains that have prevailed up to that point. Based on the latest scientific studies, including the results of clinical trials with a new Johnson & Johnson vaccine, this seems a reasonable assumption. Although the tries showed that the J. & J. vaccine was only fifty-seven percent effective in preventing infections in South Africa, where almost all infections in the study were caused by a particularly virulent variant of the coronavirus; the vaccine was more than eighty-nine percent effective at the prevention of serious diseases. That is encouraging. But economic policy makers like epidemiologists and all of us will be watching closely what course the virus will take next.

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