Congress exits with no deal, leaving economists flabbergasted
A wide range of economists are expressing exasperation that Congress would leave town without first finishing work on a new coronavirus relief package they say is critical to the country’s recovery, and to millions depending on help from the government.
More than 28 million Americans on some form of unemployment insurance lost a crucial source of income after a $600 weekly boost to those benefits lapsed last month.
Those households now have far less money to cover basic expenses, including rent and home payments they can no longer forgo after the expiration of federal bans on evictions and foreclosures.
While it could take weeks to see the effects of the lapse in aid, progressive economists in particular are raising alarms about the potential toll on unemployed Americans and those who depend on them.
“Let’s get money back into the economy. Let’s get it back into the pockets of working people in this country. They will pay their bills, they will spend it, and they will keep a roof over their family’s head and feed themselves,” said Michelle Holder, an economics professor at John Jay College.
Democrats, seeking to step up pressure on Republicans to budge, have made similar arguments.
“We can’t wait until Sept. 30,” Speaker Nancy PelosiNancy PelosiPelosi weighing bringing House back from August recess early over USPS issues: reports Battle looms over Biden health care plan if Democrats win big Congress exits with no deal, leaving economists flabbergasted MORE (D-Calif.) said this week of talks on a new coronavirus relief package, “because people will die.”
Lawmakers are feeling little pressure to move from their positions, however.
Democrats have offered to reduce the price tag on their legislation from more than $3 trillion to the neighborhood of $2 trillion, but the White House has refused to go higher than $1 trillion.
President TrumpDonald John TrumpPresident Trump’s brother, Robert Trump, dies at 71 Trump to take part in each day at GOP convention: reports Trump breaks with CDC director on potential for ‘worst fall’ amid pandemic, flu season MORE is behind presumptive Democratic nominee Joe BidenJoe BidenTlaib votes ‘no’ on Democratic party platform Trump breaks with CDC director on potential for ‘worst fall’ amid pandemic, flu season Battle looms over Biden health care plan if Democrats win big MORE in national and swing state polls, and Republicans are in danger of losing the Senate majority. With such a backdrop, Democrats feel little pressure to go lower.
The White House, for its part, also doesn’t appear to be feeling the heat. Markets are high and the unemployment rate dropped to 10.2 percent in July. Trump is taking executive actions meant to extend some of the stimulus, and he and his allies have used their bully pulpit to put the blame on Democrats.
If the lapse in support is having an impact, the first hard evidence may come in the August jobs report. But it won’t be released until Sept. 4. Consumer spending and income data for August won’t come out until Oct. 1.
Foreclosures and evictions can also take months to process, but missed rent payments have risen steadily since the start of the pandemic, according to data from insurance company LeaseLock.
That data suggests the coming problems, say economists who argue it is a mistake for the government to take a pause.
“People do have a disagreement about a likely recovery. I do not share the optimism about a fast recovery that some conservative politicians seem to have,” said Glenn Hubbard, former chairman of the White House Council of Economic Advisors under George W. Bush, during a Friday panel appearance.
Hubbard added that he was “mystified” that lawmakers were unable to strike a deal given the threats facing the economy.
While markets are high, that is partly because they priced in a new relief package they assumed that Congress would pass.
Instead, the Senate left Washington, D.C., on Thursday. Neither chamber will return until after Labor Day.
Alix Gould-Werth, director of family economic security policy at the Washington Center for Equitable Growth, a progressive think tank, said the danger is that as people with less money cut expenses, the pandemic of joblessness will spread.
“Unemployment, just like the virus, is a contagious thing,” she said.
The deep partisan divides over unemployment benefits have made a deal elusive. While Democrats have called for extending the $600 weekly boost with declines scaled to the unemployment rate, Republicans have ruled out anything that could allow jobless workers to earn more than they made at their previous jobs.
The CARES Act’s boost to jobless benefits raised the weekly unemployment insurance payout above the average weekly wage in 38 states, but several studies show that the dynamic has not discouraged the unemployed from seeking jobs.
“It’s important that this does not become a permanent feature of the unemployment insurance system,” said Michael Strain, director of economic policy studies at the right-leaning American Enterprise Institute.
“But there are a lot of numbers between zero and 600 that we could do as a short term.”
Battles over further aid to state and local governments could also weigh heavily on the future of public sector workers. The steep drop in tax revenues and the rising costs of the pandemic could force state and local governments to cut essential services and workers who run them to keep their budgets balanced. State and local governments have already shed 1.5 million workers since the pandemic began, according to the Labor Department, and the toll will likely get steeper without further aid.
Democrats have proposed giving hundreds of millions of dollars for state and local governments, an unpopular prospect among Republicans who see it as a bailout for irresponsible local officials. It appears to be a particular sticking point for Trump, who has repeatedly railed against it.
“Many state and local governments are mismanaged and they’re certainly right to be concerned about the federal government bailing out mismanaged states and local governments,” Strain said.
“But even the best managed states are suffering revenue losses this year and next year,” he added.