Should we be scared by the 5.2 million new jobless claims filed Thursday? This brings the four-week total to more than 22 million, more than 14 percent of the people who were employed before the pandemic hit.
This is a far bigger hit to the economy than anything we have ever seen. Even in the worst four weeks of the Great Recession, claims were just over 3.1 million. There is no doubt that we are seeing an unprecedented plunge in economic output.
But these numbers really should not be a surprise. We are quite deliberately shutting down large segments of the economy. In much of the country it is now illegal for people to eat at restaurants, get a haircut, and shop in a large number of stores selling items that are not considered necessities. Given this reality, it is not surprising tens of millions who work in these businesses have lost their jobs.
This is in direct contrast with the Great Recession and all prior slumps, where people stopped spending, either because they no longer had money or were fearful of losing their jobs in the future. In those cases, the jumps in jobless claims we saw at the start of the downturns were giving us new information.
Unlike in prior downturns, in this one we literally do not want the people who have been laid off to be working. That is why the legislation passed by Congress is mislabeled when referred to as a “stimulus” package. We don’t especially want people to spend money right now, we want to make sure that they have the money needed to buy food, medicine and other necessities, and to pay the rent. These bills are better described as rescue packages or disaster relief.
The economic question at the moment is how well are we ensuring that people have the money to survive a period of shutdown of indeterminate duration. If the period is relatively short, the legislation passed by Congress does a reasonably good job of keeping most workers whole.
“As it became impossible to deny the severity of the crisis, Trump took to denying the things he previously said and done.”
The major exception is undocumented workers, who are mostly not going to be able to receive either unemployment benefits or the $1,200 checks going to most citizens. (This assumes that Congress acts quickly to replenish the funds in the small business lending program.)
The other key economic question is how quickly we will be able to recover and get people back to work. This clearly depends on the extent to which we can control the spread of the coronavirus and ensure that businesses can operate safely.
In this respect, we are far behind not only countries like China and South Korea, which have now managed to largely contain the virus, but also several countries in Europe, which are relaxing quarantine measures. Our ability to follow their lead will depend on the extent to which we can make testing more widely available and have monitoring of people who have contracted the disease. We also need protocols for safe business operation. California and other states seem to be taking the lead here, as the Trump administration has done little to date.
One key issue that will determine our capacity for an economic rebound is the extent to which businesses have kept workers on staff, so that they can resume operations quickly as the shutdown period comes to an end. Many European countries have managed to do this to a large extent, effectively paying businesses the money needed to cover the bulk of their workers’ wages through the shutdown period.
The small business loans effectively replicate this structure. Unfortunately, the fact that more than 22 million people have filed for unemployment insurance means that many workers are not being kept on the payroll. Although one encouraging item here is that an independent survey of the newly unemployed finds that more than half report being furloughed, meaning that they should be able to return to jobs when the shutdown periods are over.
If anyone had hoped for a well-designed strategy for re-opening from the Trump administration, they would have been disappointed by the latest plan from the White House released on Thursday. On the positive side, it does recognize the differences both within and between states. Some areas will be ready to open up much sooner than others. It also leaves the call on what to reopen, and when, to the governors of the individual states. But it doesn’t seem to contain much by way of specifics, and most importantly, it does not provide a plan for widespread testing.
This will apparently be left to the states, which is probably a good thing, given the competence to date of the Trump administration in dealing with the pandemic. California Governor Gavin Newsom has already outlined some specific measures that he intends to take as his state reopens. For example, people will still be required to wear face masks in public places, and restaurants will have to limit capacity, as well as using disposable menus. He also is committed to having a system of testing and tracking in place before widespread reopening is allowed.
Newsom and other responsible governors recognize that health and economic concerns go hand in hand. People will not be prepared to conduct business as usual until they can be reasonably well assured of their safety. A premature reopening that leads to a flood of new infections and deaths could set back a fuller reopening by many months.
There have been a number of reports indicating Donald Trump’s eagerness to reopen the country, regardless of the health concerns, and his effort to try to force the hands of governors who resisted. For now, it seems that the more informed voices at the White House have carried the day, and the key decisions will be left to the governors, albeit without the support from the federal government that they might have wanted.
Trump has ignored and marginalized people who knew what they were talking about at every step in this crisis. In spite of Trump’s firing Obama’s pandemic prevention team, we know he still had clear warnings from the top levels of his administration in January, in the form of very explicit memos from Peter Navarro, his trade representative. Trump instead trivialized the threat.
As it became impossible to deny the severity of the crisis, Trump took to denying the things he previously said and did. His main focus now is to find others to blame for his failure. That is probably best for all of us. He will do far less harm with his scapegoating than he would likely do if he was actually directing the country and the economy’s recovery from this completely avoidable disaster.