The first 100 days: we can't open the economy without an economy to return to
State and Federal Governments are building plans to reopen the economy and the new-normal life post-pandemic. Those plans, thus far, only include guidance to phase out social distancing and to reopen non-essential businesses. With so many Americans newly unemployed, the question is not whether we can return to a new normal, but whether there will be a viable economy in which they can participate. Ten years elapsed after the Great Recession before the economy reached pre-recession levels. That means for many of the 30 million Americans who have become unemployed in the pandemic, their jobs will not return immediately. Without a plan to tackle record joblessness, reopening the American economy is a recipe for a rise in extreme poverty and further inequality.
US capitalism relies on the private sector to do the heavy lifting to sustain and grow the labor market. However, the private sector is volatile right now; investors are retreating to safer portfolios and withdrawing investments entirely, sending markets spiraling. Economic recovery on the scale of the Great Depression is something too important to rest on the shoulders of a sector running scared. In the first 100 days, America needs a New, New Deal jobs program to empower states and the Federal Government to get Americans back to work.
The original New Deal was a brainchild of President Franklin D. Roosevelt. His plan directed government spending, at unprecedented levels, to rally a country severely injured, in every sector, by the Great Depression. The program used federal funds to enlist private businesses to complete projects for the public good. It modernized infrastructure, produced historically significant art, gave Americans roles that developed their skills, and reinvigorated the economy, which prepared us for the second World War.
As the nation faces a potential new Great Depression, an insecure private sector cannot be rebalanced without federal leadership to ensure economic stability, which does not begin or end with the stock market or oil prices. A strong economy is vested in the financial health of the people, their ability to buy goods, and participate in the recovery. The US Government should use record unemployment and a private sector slowdown as an opportunity to direct economic stimulus into crumbling infrastructure, public art, modernization of society: a New, New Deal.
Worst economic downtown since the Great Depression
The cause of the Great Depression reflects the age-old disagreement between proponents of large or small governments. Some say policies by the Federal Government led to private market contraction, others the capitalist mismanagement of markets spiraled out of control, causing the market to crash. The real answer is probably somewhere in between.
Whatever the cause, woes similar to the Great Depression are echoing across America right now, and this time the primary reason is unambiguous. The onset of the Covid-19 pandemic has undermined the American economy after years of growth and prosperity. Unemployment numbers make the Great Recession of 2008 look like an unfortunate blip in comparison.
Fear for the country’s financial future is abundant right now. It is so extreme that political leadership is entertaining reopening the economy because “we cannot let the cure be worse than the problem itself.”
The “cure,” references the millions of jobs lost and the multiple trillions of stimulus packages doled out to millions of Americans and corporations, which has only acted as a stopgap measure and is vastly increasing federal debt.
The line is a provocation, using fear to goad states into lifting stay at home orders to prevent further economic catastrophe. It’s a gamble. Even with an expedited opening of the economy, no one knows the length of the road to recovery. If opened too soon, public health and disease experts predict that continued outbreaks of the novel coronavirus could harm the economy to an even greater extent.
How this recession compares
The first 100 days after the easing of physical distancing guidelines could follow many different paths. The one thing experts agree on is that it will stutter.
Economists have been quick to predict that once the economy reopens, the health of the stock market and industry will rebound. However, for the 30 million, and counting, Americans who lost their jobs as a result of the pandemic, rebound won’t be nearly so easy to predict. As the economy stutters through the rest of the year, hiring will likely falter in turn.
Examining unemployment data from the Great Recession, it took nearly a decade for employment to reach pre-recession levels. The current pandemic unemployment rates are already even higher. Without money to spend in the economy, millions of Americans will be excluded from the economic recovery. The vast unemployed population won’t have money to inject into an economic recovery, causing job creation rates to be anemic, giving rise to a protracted recession.
Joblessness isn’t going to be the only crisis that stays with America post-pandemic. Where there is unemployment, homelessness follows. In 2005, the Housing and Urban Development Office estimated that on an average day between February 1, 2005, and April 30, 2005, 334,744 people were homeless. By 2007, that number had almost doubled to 647,258. Even as the economists lauded the economic recovery in 2017, homelessness remained 200,000 people higher than 2005 levels.
The economic woes resulting from the great recession and now the pandemic are disproportionately falling on the same low-income Americans. According to the National Bureau of Economic Research, 25% of people who lost full-time jobs in the Great Recession did not regain full-time work in the subsequent decade. Those same Americans are hit in the new downturn, according to Mckinsey & Company, who report part-time and low-income Americans are the first and worst hit by job losses.
For those making less than 75 thousand dollars, 54 percent of people reported layoffs. For those making over 75k, only 20 percent report layoffs. Today, the wealthiest 20 percent of families in the US earn more than half of all earned income in the United States. Their jobs have completely rebounded since the Great Recession and continue to be the least affected by the pandemic.
Before the pandemic, 31 percent of Americans reported that they couldn’t afford a $400 surprise bill. Now 30 million have lost their jobs, and 30 percent didn’t pay rent on time in April; by April 26, that number fell to 4 percent, likely due to government stimulus checks. During the pandemic, in some places, rents are halted for those who cannot pay, but those rents will come due, and people need jobs to pay them.
How many times can these same economically vulnerable Americans bear the brunt of the economic downturn?
Despite the grand economic revival of the two-thousand-tens, the pace and compounding effects of the recession excluded countless Americans. If the Great Recession left behind so many, the post-pandemic financial situation could be worse. Significant intervention will be needed to stem further fallout from this crisis.
Crisis management is not the private sector’s role
We can thank the private sector for the majority of job growth and innovation in the modern world. Capitalism is the global economic driver, and in America, it employs about 71 percent of the workforce.
But the private sector has one goal: to make money. As the pandemic rages, and crawls, investors are worried about not meeting that goal. They are pulling their money out of the stock market and other projects around the world. The stock market and employment rates oscillate on their whim, but also on the leadership of Congress.
The initial stimulus package is a prime example of this phenomenon. As Congress moved closer to a deal, markets ticked upward, and as an agreement was further delayed, markets fell. The Federal Government leading boosts the economy, and as they flounder, markets fall.
In ordinary times, reliance on the private sector allows capitalism to help the world flourish. It has not and has never been the role of capitalism to create equality or stability. In a crisis, the breakdown of traditional market growth, the private sector’s compulsion to make money, and grow at all costs won’t realign the economy.
When capitalism is not up to the task, the antidote is a prolonged and remunerative government response not driven by personal profit, wide-reaching injections of support to kick start different sectors of the economy: a New, New Deal.
The New, New Deal
Fear will become the biggest enemy in the economic recovery, to which the best antidote is government intervention. Every American knows the quote, “The only thing to fear is fear itself.” The preeminent line in President Franklin D. Roosevelt’s first inaugural address in 1933, four years after the start of the Great Depression. He knew the private sector alone could not bring the state of the Union back to pre-great recession levels. The same will hold for the post-pandemic recovery.
Critics slam the New Deal, and other government programs, as debt monsters that catapult the country further and further into the red, but taking on debt to realign the economy isn’t the same as an increase in year on year debt. Temporary increases in government spending can help GDP grow; government intervention and spending were the sparks that turned the ashes of American life back into a roaring flame.
The New Deal employed millions of Americans; every state has a major road, dam, or project funded by the New Deal. While scholars disagree whether the second World War or the New Deal ultimately brought the American economy off the brink, the point is that it took massive government organization and borrowing to turn the country around.
Today, millions of Americans are without work. For the first time in a century, there are unprecedented numbers of workers available to participate in public projects. The Federal Government can let them fall further into poverty, such as after the Great Recession, or it can fold them into a Federal jobs package. We have the opportunity to direct public efforts toward the universal good, including modernizing infrastructure, maintaining and establishing parks, and implementing green energy, all needed projects that have rested on the back burner in favor of private growth.
The time to act is now. Opening the economy while stimulus checks are the only income for millions of Americans allows uncertainty and fear to rule the markets. A jobs program would insure the resumes of the 30 million with public sector jobs so they can pay their bills, maintain their careers, and reenter the private sector as the pandemic wanes and growth returns. In a time of economic crisis, pundits across the political spectrum support intervention, as is apparent by the trillions already spent on financial relief. As the famous sentiment from Milton Friedman and Richard Nixon goes, “we are all Keynesians now.”
