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Without more federal aid, U.S. economy could take years to recover from pandemic

The coronavirus relief package Congress and the White House are negotiating over has a dual purpose of easing financial hardship for the unemployed and putting more money into the hands of consumers to keep the economy running. What happens when that aid doesn’t materialize? The Brookings Institution’s David Wessel joins Judy Woodruff to discuss why years of economic growth are at stake.

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  • Judy Woodruff:

    So, we know the intended purpose of any COVID relief package is to ease the financial hardship of workers who've lost jobs in the shutdown, but, at the same time, to put more money into the hands of consumers.

    What happens when that relief money disappears? And who most the pain the most?

    We turn once again to David Wessel. He's the director of the Hutchins Center on Fiscal and Monetary Policy at Brookings Institution.

    So, David, welcome back to the "NewsHour."

    Tell us what the overall projections are right now about what happens to the economy overall if we don't see any sort of relief package in the next — in the foreseeable future.

  • David Wessel:

    Well, the economy was fueled by the CARES Act, which passed in March.

    And so the third quarter, which ended at the end of September, is going to show up big — when the government comes out with the numbers next week, a big increase in growth. But, without some stimulus, that's going to really level off. And we're going to level off with far fewer people working than were working before the pandemic.

    A couple of my colleagues at Brookings, Wendy Edelberg and Louise Sheiner, estimate that, with a $2 trillion package, which is roughly where Mnuchin and Pelosi are talking, we could get back on the pre-pandemic growth path by the end of 2021 or early 2022.

    But without any more fiscal stimulus, they estimate that it could be several years, perhaps a decade, before we return to the pre-pandemic growth path. So this is really a moment where it really matters.

  • Judy Woodruff:

    Help us understand, David, what sectors of the economy — we heard some of this from Lisa in talking about the states that are hurt more than others.

    But what sectors of the economy seem to be in the greatest need right now and which ones seem to be sort of coasting along?

  • David Wessel:

    Well, I think we know that industries that depend on personal services, airlines, restaurants, hotels, resorts, all those places are really suffering. And that makes this recession somewhat different than those in the past.

    It used to be that services held up well in a recession. But this time, it's those people, those that are getting really hurt. There's also some really interesting disparities. People who are tracking this very closely say that service industries that serve rich people are actually suffering more, because those people are staying home, not going to restaurants, where, in lower-income neighborhoods, where people are on about, perhaps because they have essential jobs, the businesses actually, small businesses have done somewhat better.

    It's interesting.

  • Judy Woodruff:

    Really, really interesting.

    And, David, what about other sectors, I mean, agriculture? We have a story coming up later tonight on the beef industry, but just in terms of manufacturing, different kinds of manufacturing, the financial services industry.

  • David Wessel:

    Right.

  • Judy Woodruff:

    What do we see? Yes.

  • David Wessel:

    Actually, it's interesting.

    So, for instance, housing seems to be doing OK. Mortgage rates are low. We have seen an increase in housing sales and new home construction. In manufacturing, it's depressed, because the world economy is depressed.

    But, in industries where people are able to go to work, the manufacturing is doing better than the service industries. And, of course, one place that has been hit hard and will be hit harder without aid is the state and local government sector. Thirteen percent of all Americans work for state and local government.

    And their revenues are down because people are working less, people are shopping less, people are driving less, people are taking the mass transit less. And although their revenues didn't get hit as hard this year as some people had feared, looking ahead, it's going to get worse.

    And we're going to — and because states, unlike the federal government, can't borrow to cover a deficit — for the most part, they have to have a balanced budget for operating budgets — without some federal aid, I think we're going to see some serious layoffs in the state and local sector in the months to come.

  • Judy Woodruff:

    But in understanding why that's a tough argument sometimes to make politically, people hear the word government, and maybe they're not so sympathetic to people who work in the government.

    But, I mean, remind us who these — these are firefighters. These are police officers.

  • David Wessel:

    Right.

  • Judy Woodruff:

    These are other folks who are essential to the functioning of our society.

  • David Wessel:

    Exactly. They run the prisons. In many cases, they run the hospitals. They are — local education is a huge employer.

    So, that we will — we will get less service from our local government if they have to cut back. And I don't think people really want that. They just don't see the connection yet between what's going on in Washington and how it's going to affect them directly.

  • Judy Woodruff:

    I'm asking you all this, David, because, I mean, there does seem to be this disconnect.

    I mean, we see, we read about long lines for food banks, people in — who need help, who are really hurting. And then you just — you see the paralysis in the Congress. And people are asking, what's — why isn't there a connection?

  • David Wessel:

    Well, I think it tells us that there's a certain dysfunction in our political system, where partisan politicians seem to be more worried about positioning themselves for Election Day and what follows beyond than doing what's needed.

    There are some people, some Republicans, who have suddenly discovered that they're worried about deficits, and that's led them to — particularly in the Senate, to say that they don't want to do this.

    But I think one of the things you have to keep in mind is that there's a lot of talk about this being a K-shaped economy, which means that some people are doing OK. People who make more than $60,000 a year, those jobs are almost completely back from the worst of the spring.

    People who make less than $28,000, their jobs are much — are not — have not come back. Many more of those jobs have evaporated. And at the moment, there seems to be — I think some people are complacent. The CARES Act provided a lot of juice to the economy. It made the recession a lot less worse than it was. And people are not quite seeing that.

    We're like Wile E. Coyote running off the cliff. The bottom is about to fall out unless we get some more help.

  • Judy Woodruff:

    Well, so important to try to understand what is underneath all this.

    And, David Wessel, we thank you, as always, for joining us.

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