We have been told recently that the our presidential election choice is “boom or depression.” That seems on target, but voters might want to think clearly about who is for boom and who is for depression.
Our economy today is in a big hole. As of September, Pennsylvania had lost over half a million jobs since February and our nation 10.7 million.
The initial jobs plunge, starting in March, resulted from deliberate policy. To stem the spread of the virus, governors across the country shut down non-essential industries so that people could socially distance at home. This deliberate economic freezing was unprecedented. It was also successful at reducing infection rates, saving hundreds of thousands of lives, especially in states like Pennsylvania where governors understood the seriousness of the COVID threat.
As social distancing policies took hold, Congress acted boldly to cushion workers and businesses from the economic impact. They enacted the $2.2 trillion CARES Act on a bipartisan basis. Republicans in Washington D.C. chose not to be the second coming of Herbert Hoover. President Hoover’s failure to stimulate the economy after the financial market crash of 1929 helped start the Great Depression.
Federal Reserve Bank chair Jerome Powell also did his part. He leaned in hard to keep interest rates low and to provide credit to keep businesses afloat—again acting very differently than the “laissez-faire” Federal Reserve after 1929.
So far so good. We got part way to a “V-shaped” recovery in which a rapid job rebound would follow a quick, deliberate economic slowdown. But since sometime in May, the wheels have begun to come off. The reasons: indecision and inconsistency—dithering—in two areas.
First, the lack of consistent national policies on reopening has meant that the original slowdown in the spread of the virus has been squandered. Second, as the first tranche of public support for businesses and individuals began to phase out, Republicans in Washington—especially Senate leader Mitch McConnell—began a halting shimmy towards Hoover’s approach.
The clear-and-present danger here is that our deliberate slowdown will turn into a self-reinforcing downward spiral of the economy. Closing businesses, layoffs, and wage cuts could lead to declining consumer demand, more closures and layoffs, and so on. The Great Depression gives us a picture of what that could mean: U.S. unemployment was 14% or higher each year from 1931 to 1940.
The voices who fear another depression are not exactly radicals. John McCain’s former economic advisor Mark Zandi said, “We run the risk of descending into a dark vicious cycle.” Since May, Fed Chair Powell, a Trump appointee and Republican, has been urging “…Congress to consider another ambitious fiscal rescue package, warning that the economy may need further support to avoid a cycle of business failures, job losses and bankruptcies well after the pandemic passes.” In case Congress missed the earlier memos, Powell warned in early October of “the dire consequences” of congressional failure to provide more fiscal relief.
At some moments, President Trump seems to understand the need for more stimulus. But Senator McConnell, accustomed to playing “Mr. Austerity” since President Obama’s two terms, has poured cold water on the efforts by Trump Treasury secretary Mnuchin to negotiate another bold relief package with House Democrats.
Based on this experience, the political dynamic likely from a President Trump second term, plus Republicans retaining a majority in the U.S. Senate, is clear. Dithering might be replaced by disinterest without the press of an election. What you won’t get is the size of economic stimulus that Zandi, Powell, and other knowledgeable macroeconomists of both parties know we need. Therefore, the possibility of a plunge into a deep, long depression is very real.
Vice President Biden supports another large stimulus package. He might also consider wrestling the virus under control part of his job—which would help make aggressive reopening easier. Further, Biden has expressed support for a climate response and infrastructure stimulus to accelerate reduction of carbon emissions. And, he supports a higher minimum wage, union rights, and better funding of Social Security. These measures echo the original New Deal. They could put money in people’s pockets so that their spending power drives the economy forward after another stimulus runs out. Those are the ingredients for shared prosperity and a sustained boom.
So, yes, the choice is clear: boom or depression.