The economic impact of the pandemic is staggering. The latest numbers on unemployment claims came out this morning: 2.4 million workers filed for unemployment last week, which means 38.6 million Americans – about 23.4% of the workforce – have lost their jobs over the last 9 weeks as the coronavirus pandemic continues to ravage the economy.
(For some context, in normal times, the number of weekly unemployment claims usually hover around a couple hundred thousand.)
Federal Reserve Chair Jerome Powell warned last weekend that U.S. unemployment could reach a Depression-level 25%. Thousands of small businesses are closed and many will remain shut for good after losing all their revenue. The stock market bottomed out in March but has recovered somewhat since then and is now down about 15% from its pre-virus high point.
What officials are trying to do to save the economy:
So what does this mean for the future of the U.S. economy? How will we recover and get people back to work while staying safe and healthy? Ask us anything about the current economy amid the Covid-19 crisis and what lawmakers, the Fed, the Trump administration and other groups are trying to do about it.
Ben White is our chief economic correspondent and author of our “Morning Money” newsletter covering the nexus of finance and public policy. He’s been covering the rapid economic decline and what might happen in the near future. Prior to joining Politico in 2009, Ben was a Wall Street reporter for the New York Times, where he shared a Society of Business Editors and Writers award for breaking news coverage of the financial crisis. Before that, he covered Wall Street for the Financial Times and the Washington Post.
In his limited free time, Ben loves to read history and fiction and watch his alter-ego Larry David on Curb Your Enthusiasm.
Austan Goolsbee is an economist and current economics professor at the University of Chicago. He previously served as the chairman of the Council of Economic Advisers under President Obama and was a member of the cabinet. He is a past Fulbright scholar and Alfred P. Sloan fellow and served as a member of the Chicago Board of Education and the Economic Advisory Panel to the Congressional Budget Office. He currently serves on the Economic Advisory Panel to the Federal Reserve Bank of New York.
Austan also writes the Economic View column for the New York Times and is an economic consultant to ABC News.
Victoria Guida is a financial services reporter who covers banking regulations and monetary policy. She’s been covering the alphabet soup of Fed emergency lending programs pouring trillions of dollars into the economy and explaining how they're supposed to work. In addition to covering the Federal Reserve, she also reports on the FDIC, the Office of the Comptroller of the Currency and Treasury. She previously spent years on the international trade beat.
During the precious few hours she spends not buried in finance and the economy, she’d like to say she’s read a lot of good books, but instead she’s been watching a lot of stress-free TV.
Nancy Cook covers the White House. Working alongside our robust health care team, she’s broken news on the White House’s moves to sideline its health secretary, its attempt to shift blame for the coronavirus response to the states and the ongoing plans to restart parts of the U.S. economy. Usually she writes about the White House’s political challenges, its personnel battles and its domestic policy moves on the economy, taxes, trade, immigration and health care.
Before joining the White House beat, Nancy covered health care policy and the Trump presidential transition for us. Before Politico, Nancy focused on economic policy, tax and business at Newsweek, National Journal and Fast Company.
In her very limited free time, she enjoys trying new recipes, reading novels and hanging out with her family.
Edit: Thanks for the great questions, all. Signing off!
So far we've seen job losses concentrated among retail and lower-paid workers.
As we progress into the end of this year, are more corporate layoffs inevitable? What are economists modeling in unemployment for the different tiers of the labor market?
It's true that layoffs so far have been concentrated among lower-paid workers, and there are crazy stats to back that up. Job losses have now hit 40 percent of low-income homes! And you see that millions of ppl who work in jobs in restaurants, hotels, retail stores, etc. have been laid off, simply because the businesses have shut down. And this summer as Americans continue to hunker down, I expect we'll continue to see hurt in workers employed by the airlines and tourism industry. People who fared ok, so far, are white collar workers who can easily do their jobs from home...But if the economic downturn continues, I'd argue few people will be immune from the economic hardship...Law firms, lobbying shops, corporations will have a hard time keeping their business going indefinitely and at the same profit margins if everything remains pretty closed down and no vaccine seems imminent. I will be watching to see how a wider array of workers are effected in the latter half of this year. -- Nancy
Is all of this government borrowing/printing money going to result in hyperinflation? Basically how is all of this going to affect the US Dollar and why? Thanks!
The factors that drive the dollar are complex, and the level of printing and borrowing is just one piece. The U.S. currency’s price often appreciates in connection with positive developments in the American economy, and it’s also closely tied to demand for U.S. government debt. The dollar has actually gone up a lot in the past couple of months because there’s big demand for dollars abroad and the Fed has actually been working to ensure there aren’t dollar shortages in other countries because that could really cause the dollar to go up dangerously. So there’s no sign yet that this is hurting the dollar.
Meanwhile, on inflation, the bigger concern is actually disinflation at the moment because so little spending is happening – that’s one reason many economists are saying the government has a lot more space to spend, because it’s filling a huge private spending hole. A lot of people forecasted runaway inflation after the 2008 financial crisis because the Fed was pouring so much new cash into the economy, but not all of that cash immediately goes out and is used and spent, and so that inflation never came. We’ll see whether the dynamics are any different here, but the upshot is, the danger is not as likely as it might seem.
The bad thing about economic downturns is that it really gives workers less leverage with employers -- and that includes unionizing but also asking for basic things like higher wages, better health care or safer working conditions. This pandemic may nudge some types of workers to move more toward unionizing....esp. if they need to demand safer working conditions. We've seen major outbreaks at places like meat packing plants, Amazon warehouses, etc.
In France, for instance, the workers at Amazon warehouses are unionized and were able to demand better safety protocols whereas in the U.S., the Amazon warehouses workers are not...
It will be fascinating to see, post-pandemic, if/how Americans' attitudes towards unions, health care, etc. change or shift....
Thank you for doing this! In your opinions, do you think it’s likely any extended economic downturn would spill over into housing markets? Or do you think the protections put in place after 2008 to prevent another financial crisis would blunt their effects on housing prices?
The expectation would be that housing prices will go down – millions are out of work and the ones who could afford it don’t want to do open houses or are hunkering down. A bigger question is whether there might be structural problems in the housing market. Plug for my colleague Katy O’Donnell, who covers housing, who has written extensively about how the companies that collect mortgage payments are increasingly not banks and so have a much more fragile business model (because they don’t take deposits). That’s been a concern because with some mortgage borrowers getting the ability to put off payments, those nonbank “servicers” are getting squeezed. If a bunch of those companies start to fail, it could cause a huge problem. Here’s some context on that: https://www.politico.com/news/2020/04/21/housing-regulator-bows-to-pressure-to-aid-struggling-mortgage-companies-198651
Looking at the numbers, do we know exactly how many people have been laid off permanently as opposed to furloughed temporarily??
Hi! This is a great question. According to the latest monthly unemployment data we have from the Department of Labor, about 2 million of the roughly 20 million people unemployed as of early May had been laid off permanently, whereas roughly 18 million had been furloughed temporarily. The White House saw that piece of data as very encouraging (if you can be relieved by any of this unemployment data) -- and will be closely watching that figure at the start of June (when the new numbers come out) to see if it has changed at all. -- Nancy
I hear people saying that the economy will bounce back quicker than the recession of 2008 because this unemployment is "temporary" (people will get their jobs back once restaurants and other service industry businesses open back up). Do you think that statement is true in that the recession we are in won't be nearly as long as the one experienced in 2008?
Secondly, do you think there are some jobs that just won't ever come back from this? For example, will cashiers who have been laid off not have a cashier position to come back to because more businesses will move more towards self-checkout and remote forms of payment?
Thank you for doing this AMA! I'm a long time reader of Politico and is my go to place for politics!
I’ll be interested what Austan has to say when he’s here in a bit, but it’s really up in the air as to whether that’s true. Much of it depends on the virus. If, when we start to resume normal activity more broadly, we really have the virus under control, or at least widespread testing, then people will have more confidence to go back to the activities they were doing before, and that’s really what we mean by “bouncing back,” right? That people start spending more and employers feel safe to rehire workers that they’ve laid off or furloughed.
That said, that’s a pretty optimistic scenario. It’s much more likely that people will be hesitant to immediately go back to doing everything they were doing before, and there’s a considerable risk of future outbreaks (from what I understand). Given that unemployment could be as high as 20% already, that’s probably going to leave some long-lasting scars. The thing that the government – Congress, the administration, the Fed – has been focusing on is policies that help make sure those people aren’t unemployed for too long, or that if they are, they have enough money to stay afloat. The problem is, the longer this crisis persists, the higher the cost for the government will be, and that adds political difficulty.
As for your second question, that seems true, but it’s way too early to be able to identify how widespread the societal changes will be in the wake of this.
How do you see this crisis reorienting business's relationship with the government, and with what eventual consequences on the macro-scale?
Well, businesses are relying on the federal government quite a bit now for loans to keep businesses afloat and employees on the payroll, and this has included everyone from small bizes to hotels, restaurants, airlines, etc. It really has encompassed a wide range of the biz world that has sought help.
I see the crisis reorienting biz's relationship with the government, in that biz leaders who may have looked down on government stimulus or help or argued against running up the deficits now need the government to function. I don't see that changing anytime soon....Congress has approved trillions of $ in stimulus $ and the Fed is loaning companies money too...it is an all-of-government effort right now.
What I will be watching is whether the $ flows to bizes with the best connected lobbyists (who are working overtime right now to influence big congressional packages) or if the money ultimately is spread around more widely and fairly.
Can you explain why continuing to tie health insurance to employment makes any sense when a pandemic exposes how precarious employment during a public health crisis is?
I think the pandemic and huge job losses will def. make some people question the logic of tying health insurance to employment -- and that will certainly help progressives and liberal leaders like Sen. Bernie Sanders argue health care should come from the government, not particular jobs. That said, I am still not sure the pandemic will result in the creation of a single-payer, government-run health care system (even if Joe Biden wins the election in Nov. 2020). Not all Democrats are in favor of it....and there are powerful special interests in Washington who opposes the idea, pandemic or no pandemic. I will be watching to see if the public opinion on this changes at all post-Covid-19. -- Nancy
There was the Great Depression and the Great Recession, so when all is said and done, where do you think our current situation will rank amongst those?
In terms of depth--I think it will be as deep as even the Great Depression, way more than the Great Recession. But in my definition, the thing that makes it a depression is the collapse of the financial system and the extended/can't escape nature of it. And for that, a virus recession hopefully will not have to follow the normal rules and can come back at least much of the way back much more quickly
Thank you for taking our questions.
There has been discussion about how long it may take the U.S. economy to recover.
Could you give some historical comparisons of how long it took GDP and employment to recover to pre-recession levels in past downturns? And how long do we think it may take this time?
It's going to take some time get back to under 10 percent unemployment. Like at least a few months. And perhaps longer. It took a decade to fully recover from the Great Recession of 2008-2009 and we've essentially wiped out all those job gains in a matter of two months. --Ben
this is a "ask me anything" forum; do any of you find amusement or insight from the Politico comment section featured on the Politico web page?
People always say “never read the comments,” but I’ll admit that I often do! It’s always interesting to me what people take away from articles, and it can be instructive if I didn’t do a good enough job explaining something. Unfortunately some of it is just partisan cage matches that don’t have much to do with what I’ve written, but some people do make quite intelligent points. By the way, I love engaging with people on the substance of what I write, particularly on Twitter.
First off, I love you guys, especially your Playbooks! I read all three everyday! Two quick questions: Are there any fun facts or other interesting things that you do as a journalist that we wouldn't know about by reading your Twitters?
Do you have any funny or interesting stories from your years as journalists?
Love you too! I'm not sure any of this is really "fun" right now. It's super hard and challenging for everyone. The economy will bounce back but it's gonna take some time. Right now the most interesting thing I do is try to eat a lunch that not consist entirely of donuts. -- Ben
As people start to fall off the endpoint of their unemployment benefits, do they still get counted as unemployed or are they more or less ignored for that statistic?
Also, does it count into the amount of people that turn to making money on the black market doing basically anything they can do but not paying taxes on? I'm foreseeing a lot of unregulated "bars" coming as an example, the person is employed, not receiving unemployment, but they're still participating in the economy.
The unemployment rate comes from a survey of people and so long as you are looking for work and don't have a job, you count as unemployed. So the people who exhaust their UI will count as long as they are still looking for jobs. If they just drop out of the labor force and don't even look, they won't count in the unemployment rate we normally look at (and this was a big problem in the last recession and might be even worse here, depending how long it lasts).
I read recently that 68 percent of current unemployment recipients are earning more on unemployment than they did working, thanks to the federal supplement passed as part of the stimulus plan. Will this cause major incentive issues as employees are called back to work?
The extra UI payments are only short-lived and job vacancies are at unprecedented lows. The problem is that tens of millions of people lost their jobs (hopefully temporarily) and we wanted to send them relief. The argument that people are paid a replacement rate higher than what they earned before for a couple of months is a red herring. When employers are expanding, then we want to think about the hiring incentives and yes, it would cause problems if we stayed at the levels we have now. In a moment of free fall, though, we need to get money to people quickly and this was a way to do it.
Thank you for taking our questions.
Objectively, out of all the proposed stimulus programs (some coming from Yang's school of thought and others coming from trickle-down proponents), what does your team see as the best way to stabilize economic for the long-term (5- 10+ years)?
I ask because a lot of stimulus programs don't seem to have a long-term development program in mind.
It all depends on how long the health shock lasts. If a vaccine came out next month, I think stabilization would be totally straight forward. I think the tying of health care to employment is especially problematic in a health crisis and that long-term thinking that through as a component of the 21st century social contract, if you will, is first order important.
You are right about the current "stimulus" program. It's really just about short term relief not about long-term development
Rising senior in college here!
In a year from now, what do you think the economy/availability of jobs will look like ? I've heard from a couple of people claim there will be no jobs for a while. I've also heard claims that the job market is going to bounce back harder than ever so there might actually be more jobs for college grads. What's your insight on the situation ?
It's gonna get better! There will be jobs available for you. But it does depend on what you are studying and what your major is. So let me know. -- Ben
In you’re educated opinions, why does the stock market continue to rise even though it seems there is constantly poor news for businesses (slow reopening, no virus treatments, high unemployment, low earnings etc.)?
Hey Reddit! Stocks have been going up mostly on the massive amount of cash being pumped into the system by the Federal Reserve but also on hope that the re-opening will go well and we won't see further virus breakouts. But I'm not sure it will last -- Ben
In some ways most crises are similar but a lot of things were different here from 2008/9.
That this came from a virus not from anything in the economy itself means that the most important thing we can do for the economy is slow the spread of the virus.
One lesson I took from 2008/9, though, that seems totally relevant to today is that one of the critical things in crisis response is to keep popular support and money going to the wrong people or being wasted deeply undermines public support. That big REITs or the Los Angeles Lakers or friends of the president are getting government money while thousands of businesses go under and did not is a big problem for the future of more relief money.
Why the hell are stock indices doing as well as they are if so many Americans are unemployed?
Either they think it's not going to last as long as we fear or they think government money can save the day. But it's not a good look when the worst jobs numbers of all time make the market go up, that's for sure.
How much of these layoffs are opportunistic? I have a theory that a lot of companies were running at false levels and this gives them the opportunity to trim back to a level that is more indicative of their “real” market opportunities or local community support.
Additionally, how low can mortgage rates go and is their any macroeconomic dangers to their continued drop?
It's an interesting theory. Personally, I didn't see most businesses before COVID as having more people than they needed as a form of charitable contribution to the community. I think of it more like the question of whether something happens during this shutdown that changes their ideas about how to run their business going forward. Like if you used to do tons of business travel before covid and then during lockdown you realize that 80% could be done online so even after things return you change your business and require fewer people in the travel department or whatever.
I asked this question in askeconomics and although it was a very helpful I only got one answer, so I would love some more perspective. Is it possible for unemployment funds to “run out” like the PPP funds did? I know people were asking the same questions a decade ago but I couldn’t find anything following up as to why they did or didn’t run out. I’m currently in between apartments and need to find something ASAP but I have no idea what to commit to if I can’t rely on this income. Thanks
At a high-level, unemployment benefits are “entitlements,” which basically means that anyone who is eligible is entitled to that money (though the expanded unemployment insurance – the extra weekly $600 – will end July 31). PPP is a finite pool of money and who gets it is basically at the discretion of lenders and the government.
How do you see the service sector trending in the future? If the psychological effect of caution persists past the end of the lockdown orders, how are restaurants and movie theatres expected to return to prior levels?
Yeah, face-to-face services and services in confined spaces seem likely to face a long-term hit from this crisis (at least until there's a vaccine) in a way that other industries might find to be only short-term. It will change the service sector a lot.
Why is there seemingly so little appetite amongst Senate Republicans for further stimulus, particularly when any boost to the economy would seemingly improve their chances of keeping the White House and Senate in November? Is it just fiscal conservatism or is there something else going on?
Good question! Senate Republicans are worried that they have approved packages worth trillions of dollars in such a short period of time and are worried about continuing to spend "like Democrats," as they would call it. It's like a sudden realization of fiscal conservatism....
They want to slow walk the next stimulus package to see if it is necessary to continue to spend so much $$...but they also want to make sure the next package includes things like no-liability for companies who bring back workers who get sick. So part of the delay is to political -- to try to gain leverage over the Dems.
There is also disagreement among the two parties over the need to bail out state and local governments. If state tax revenue continues to decrease (as we've seen in places like California), then states will have to lay off workers -- just as the Trump administration has basically left the coronavirus response to the states. -- Nancy
Do you believe that the economy would survive an indefinite shutdown, or a shutdown lasting a year or more?
“Do you believe that the economy would survive an indefinite shutdown?“ No.
“a shutdown lasting a year or more?“ It would take a massive amount of government spending that might not be politically feasible.
My questions is...
When will i wake up?
I don't know man. I'm wondering the same thing. It's a long, bewildering nightmare.
was shutting down the service economy seriously considered during the Obama H1N1 response?
Not really. There wasn't nearly as much fear because there was a flu vaccine, two major flu treatments available and the infection rate was about 1/3 the COVID rate and 1/10th the death rate.
And who pays back that $3T in debt? Sounds like another scheme to delay hard choices so the current generation and the Owners can live in comfort at the expense of people who will be paying taxes for the next 50 years.
Just for some context, when the U.S. government borrows money, it does that by selling bonds. So the government is literally in debt to anyone who owns a U.S. government bond, also known as a Treasury security. These bonds are a promise to repay with interest, and it’s a super safe investment because it’s guaranteed money (the U.S. government has never defaulted on its debt). The reason it’s never defaulted on its debt is because it can always borrow more money to pay off its debts today! Handy, right?
Anyway, so Treasuries are a super safe investment not just for normal people, but also for businesses, financial firms, investors and even foreign governments. They’re also very convenient for people around the world to own because so much of international trade is denominated in dollars and so many countries/businesses have savings in dollars because it’s a pretty stable currency, which makes it handy to have other investment denominated in dollars. Essentially, the fact that the dollar is the world’s reserve currency helps keep demand for U.S. government debt super super high. So, we can run much higher deficits than any other country.
The potential downsides to too much debt would be a) if we issue more Treasuries than the world has demand for, b) if interest payments get to be so large that it saps a lot of govt money away that could be better used, and/or c) if too much government spending leads to a lot of inflation. None of those are of particular concern right now. Another potential concern would be that private investors are buying government debt instead of some other more productive thing like investing in building a factory or something, but that’s a more ideological question.
Tl;dr It could be a problem down the road, but the U.S. government’s finances are not at all the same as your standard household or business, or even necessarily other goverments.
What do you think is the best thing for young, aspiring journalists to be doing right now? Do you recommend any habits people in that position should start developing as soon as possible?
Develop your BS detector! Most people tend to read things through a lens of what looks and feels true. But when you read or hear things, think, do I actually know this is true? What facts is this person using to back up that statement? This skill is actually really helpful for anyone, but especially so for a journalist.
Also, I would recommend honing your internal ethics. There’s not really a standard or “right” way to do journalism, and so you need to have your own North Star to drive what kind of journalistic principles to live by.
Why are you the way you are?
I don't know. It's one of the better questions we have on here. I just try and do the best I can on a daily basis to write about our economic situation. But in terms of why I am the way I am I'd really have to defer to psychologists. I'm a mess, in general. -- Ben
Fiscal question: Is there any chance of austerity measures in the recovery with MMT on the rise on the left (dubious as it may be) and the "party of fiscal conservatism" gutting tax revenues on the right?
That's kind of a political determination and I'm just the policy guy. That said, I do not think austerity should be on our minds while we are in the middle of this crisis response. The time to sort that out is once we have stopped the virus.
Thanks so much for doing this AMA!
First off: Not an American (European). I'm wondering how the people inside the US are currently viewing the situation. Seeing as from the outside, to me, the Corona crisis is a raging dumpster fire (this is my totally biased opinion btw, fueled by 'last week tonight' and what I can catch on the news), especially in the US, the UK and Brazil. Is there any indication that the people of the US will now decide against polarisation in the next election? And how do people see the declining position of the US on the world stage?
This is a great question! You'd think a public health crisis would unite Americans and remain a nonpartisan issue....but sadly, that has not been the case! The polarizations of the politics in the U.S. has carried over to the coronavirus -- in terms of how seriously Americans view the threat of the virus as well as the response of the federal government.
What I have noticed as a political reporter over the last 4 years is that Americans can not even agree on the facts of a situation...and that has played out during this crisis as well. --Nancy
That’s definitely an option that you hear from the “just get money out” crowd. The idea is essentially that we’ll have much less economic pain if you prevent lots of consumers from getting into a financial hole so deep that it scars them – and by extension, the economy – in a more permanent way. The issue, as you mention, is the deficit. Right now, the conditions for running up the deficit are pretty good – interest rates are extremely low, inflation is less of an immediate risk because people are spending less not more, and demand for Treasury securities (the asset that people buy to lend to the government) is really high because U.S. government debt is such a safe investment bet (we never default). (You can read a bit more here: https://www.politico.com/news/2020/04/29/economists-urge-republicans-ignore-deficit-216491)
There’s a larger question as to when, if ever, the U.S. will hit its limit on sustainable spending (if any of the above factors change for the worse). There’s also an ideological argument you hear from conservatives about how much of a role you really want the government to play in the economy if you want to have a healthy economy over the long run. But this type of intervention is more in the conversation than it would be otherwise because this is a unique and dire crisis.
Why does the media report on the unemployment numbers like it's somehow inexplicable? And, they double down by also implying that these job losses are permanent. You are aware that once businesses are allowed to re-open those jobs will be back, right?
Yes I am aware that some of these jobs will return! I hope it's sooner rather than later. But the scale of the decline is really staggering so it's not gonna be super fast. -- Ben
Do you think we should adopt Universal basic income? Would that help us in the long run?
The thing about UBI is that it's a key policy for a world where mass numbers of people can't get jobs. That describes right now from COVID but long-term it's not as clear. Most of the economists don't believe that robots/AI/machines are going to make work obsolete or replace people forever. If you have $2 trillion to spend on helping people, it seems like we could design a better system for distributing it than giving donald trump the same amount of money as a homeless person.
Can we expect a depression at this point? Similar to the caliber of the great depression?
No I don't think so. We are not at the point where the financial system is collapsing which is what would cause a Depression-like scenario. We can bounce back if we have the health answers right, which we actually don't have right now. -- Ben
Question for Austan- over the past few years you have developed a significant cult following on the internet, in no small part due to your witty responses to the IGM Economics Expert panel surveys. Has this been at all strange for you?
it was really strange to get recognized in restaurants all the time with "Hey, you're the IGM survey guy!" but the shelter-in-place orders have reduced that to only the people walking their dogs and seeing me through the window.
What does COVID change about what’s possible, politically?
Among the people that I know, there's a widespread understanding that the United States is in the process of failing. And with that looming threat, it seems that everyone understands that change is necessary. Obviously there's a wide gulf between the change that different constituencies believe is needed, but this certainly changes the scope of possibilities. In what direction do these new imperatives move us, and to what purposes is the political obstruction likely to steer us?
Well, Covid-19 may vastly change the trajectory of the presidential race for starters. Recent polls have shown President Trump trailing former VP Joe Biden in some key swing states, and many of Trump's allies now see the presidential election as a referendum on his administration's slow and somewhat ad hoc response to the virus. Republicans are also worried about holding the Senate -- so just the fact that both the WH and Senate seems up for grabs is huge political news, and if either flipped parties, that would really change the trajectory of politics for the next 4 years.
Beyond which party controls what, it will be interesting to see how this changes Americans attitudes toward the size of government, public health and health care, government preparedness for pandemics and natural disasters. Will people demand more of a safety net? I don't know the answers to any of these things, but I will be watching to see how this crisis shapes attitudes moving forward. -- Nancy
What is the likelihood of student debt forgiveness on a mass scale?
watching c-span doesn't make me optimistic
Are you guys hiring?