As the world adjusts to the new realities of the coronavirus pandemic, the global economy remains in freefall. The United States continues to stagger with more than 20 million jobs lost and a forecasted second quarter GDP loss of over 30 percent—the biggest quarterly decline ever. The worst news may be yet to come: The Congressional Budget Office (CBO) recently warned that the virus could plague the U.S. economy for a decade. The latest CBO report predicted a $16 trillion reduction in economic growth—a 3 percent loss of inflation-adjusted GDP—through 2029.
Is there a blueprint for an economic recovery? Associate Professor of Economics and International Affairs Tara Sinclair spoke with CCAS Spotlight about the devastating toll COVID-19 has taken on the economy—and what the new economic normal will look like.
Q: We all know this is a desperate time for the American economy. Can you frame for us just how bad it is?
A: It’s hard to come up with a clear context that explains the gravity of our situation. We’re talking about a magnitude of economic changes in just the space of months that we thought were completely impossible. For example, we had never seen a million unemployment claims in a week. But suddenly we saw over three million in one week—followed by over six million the next week, eventually adding up to over 40 million claims since the middle of March. These numbers are almost impossible to wrap our heads around, both in terms of their sheer size and how quickly our economy shifted from being relatively healthy to barely on life support. We've basically seen all 10 years of our recovery from the global financial crisis and the Great Recession completely wiped out.
Q: Short of finding a vaccine or a way to get the virus under control, what is the biggest obstacle to an economic recovery?
A: Without public health confidence, there will not be consumer confidence. So a lot of this comes down to uncertainty. If people know what the parameters are—if they know it will be X-number of months or years until a vaccine comes—then businesses and households will start preparing and planning. If you tell us it’s safe, we may not rush out and buy everything that they we didn't over the last few months, but there is enough pent-up demand that we are probably going to dine out at restaurants more. I'm pretty sure hair salons would have a line out the door for weeks to come. But this hovering uncertainty needs to be resolved in order to make better forward-looking decisions.
Q: Do you see us returning to something like a normal economy?
A: I don’t think there will be a return to normal, just like there won’t be a return to normal in terms of our health risks. But let’s look at, for example, unemployment claims. They are still horrifically bad each week, but things seem to have settled. They’re much smaller than they were at the peak. Economists like to say, “Recovery starts at the trough.” If we’re already at the worst point, then it’s only up from here. It might be a very slow process, but I’m an optimist. I don't see any reason we can’t eventually see the economy recover to something as strong as back in January or February. But also, hopefully, we can make it a better economy.
Q: A better economy in what sense?
A: Even back at the beginning of the year, the topline numbers looked great—like 3.5 percent unemployment—but economists were concerned about the underbelly of the economy. The COVID crisis has laid bare cracks like economic inequality; its impact has been so profound on the people who can least afford it. As we move forward, it’s very possible we will continue to need policy interventions to support the economy. That gives us an opportunity to think about big policy changes that might not have been possible if we hadn't been in this position.
The other opportunity we have is to encourage individuals and businesses to promote the kinds of innovation that we will need as we go forward. Do we need to develop new forms of PPE, for example? Will we see businesses adopting new technology? Even at home, we’re exploring new forms of entertainment, new forms of interrelating with our families. How do we create markets to incentivize creative entrepreneurs and even long-existing businesses to shift toward creativity and innovation?
Q: For the consumer, now is the time to do what?
A: It varies so much from household to household. People who are trying to keep their jobs and care for their children are in a very different place than people who are desperately looking for a job. For a lot of people, I’d tell them now is the time to give yourself some grace and do what you need to do to survive. But for people who do have some space to think, I’d say now is the time to invest in education. Having a degree links directly to lower unemployment rates. The more education you have, the more you can help yourself and help the economy.