What Happens to the Economy Without a Washington Lifeline?

What Happens to the Economy Without a Washington Lifeline?

Dado Ruvic

A massive dose of government aid has been helping prop up the U.S. economy in the face of the coronavirus pandemic and the shutdowns it forced. But with any additional federal cash infusions now caught up in stalled negotiations between the White House and congressional Democrats — and with the executive actions signed by President Trump this weekend expected to deliver limited relief at best — the U.S. economy faces significant risks, economist warn.

“We are increasingly concerned that this best-they-can do stimulus from the White House will never make it fully to the execution stage and the economy will be left to sink or swim on its own,” Chris Rupkey, chief financial economist at financial group MUFG, told Politico’s Ben White. “Washington is either unable or unwilling to provide a lifeline to those who can't swim like the bankrupt state and local governments and the millions of unemployed who have no jobs to return to.”

Rubeela Farooqi, chief U.S. economist at High Frequency Economics, told Politico that, without further stimulus, the recovery could get rocky: “Expiring support is coming against a backdrop of virus containment that is already slowing down activity. Without additional help, incomes and spending will surely retrench. That in turn will have implications for business profitability and jobs.”

The White House is taking a far rosier view, with Trump and top advisers still predicting a strong V-shaped recovery. “There is no reason why the economy can’t grow at a 20% pace in the third quarter,” Trump said at a Monday press briefing, adding, “It’s going to grow at a very substantial pace, based on all of the numbers we’re looking at, and probably a lot more substantial than we originally thought.”

Economist and New York Times columnist Paul Krugman argues that Senate Republicans and the Trump White House are ignoring the economic lessons of the Great Recession and its aftermath. “We actually have a very good road map telling us which policies are likely to be helpful and which will do great damage,” he writes in his newsletter. Krugman argues that, while the Federal Reserve can’t save us, government spending can — and deficit concerns should be set aside for now since “in a depressed economy deficits aren’t a problem.” Enacting austerity measures, on the other hand, is disastrous.

“But you can probably guess the punchline,” Krugman writes. “Donald Trump seems determined to take advice from people who got everything wrong during the last crisis and learned nothing from the experience. We have a very good road map to guide us, but we’re being led by people dead set on driving us into a ditch.”