As Congress scrambles to prepare a package of $1 trillion or more to help counter the vast economic destruction of the coronavirus pandemic, a growing chorus of economists is warning that much more will be needed.
“They should be doing much more than they are thinking about and doing it much quicker, at least $2 trillion with the promise of more to come,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, tells Politico’s Ben White.
He adds: “This will be the biggest economic hit that any developed economy has ever seen outside wartime.”
The risk of doing too little: The economic toll of the pandemic is growing by the hour as efforts to prevent the spread of the virus force more and more businesses to cut back or close altogether. California Gov. Gavin Newsom on Thursday ordered the state’s nearly 40 million residents to stay home except for essential purposes. Illinois Gov. J. B. Prtizker issued a similar order to take effect Saturday. And New York Gov. Andrew Cuomo on Friday ordered all non-essential workers to stay home. New York City’s typically bustling Times Square now resembles a ghost town.
Economists expect jobless claims to quickly soar into the millions.
“Given the sharp rise in unemployment we will likely see in coming weeks, there is an enormous risk that our fiscal policy response will be too small to cushion the blow to individuals and families or to significantly affect the downward trajectory of the economy,” the left-leaning Center on Budget and Policy Priorities said in a report published Thursday. “The risk of an inadequate response — resulting in significant hardship to families that can’t make ends meet and a considerably deeper and longer recession — vastly exceeds the risk of doing ‘too much.’”
Expecting the pandemic to persist: The concern isn’t just the size of the hit, but how long it may last.
Torsten Slok, chief international economist at Deutsche Bank Securities, tells Politico that a $1.2 trillion stimulus would only cover about two to three weeks of economic activity — not a more protracted economic downturn in which small businesses are forced to shut down and mass layoffs from companies small and large leave millions of workers without income.
Former Minneapolis Federal Reserve President Narayana Kocherlakota warns in a Bloomberg column that the economic drag from the pandemic could last well into next year.
“Responding to this kind of protracted slowdown will require a bigger stimulus than the 6% of gross domestic product proposed by the administration. Instead, policy makers should be planning for two years in which, in the absence of a fiscal intervention, the output gap will be significantly negative -- possibly as much as 6% of GDP, or on the same scale as the recession caused by the 2008-09 financial crisis. It’s going to take a much larger fiscal infusion to make up for that shortfall -- something more on the order of $2.5 trillion rather than $1.2 trillion.”