It’s Not Too Late to Avoid Another Depression

The government can provide massive relief through a simple means.

Chains and a lock wrapped around door handles.
A shuttered 7-Eleven store in Farmingdale, New York, on April 8. Bruce Bennett/Getty Images

We’re currently facing the highest unemployment rate since the Great Depression. Officially, it’s 14.7 percent. But the Bureau of Labor Statistics says the number could be higher, closer to 19 or 20 percent, because of a data collection error. So, things are grim. People are suffering. The gradual “reopening” of businesses across the country is meant to stanch the economic wound and provide for people’s livelihoods again, but until we have a coronavirus vaccine, things won’t be up to full speed for a while. With limited relief from the government and no immediate end in sight for the pandemic, we could be spiraling toward another depression.

On Tuesday’s episode of What Next, I spoke with Jordan Weissmann, Slate’s senior business and economics correspondent, about the current state of the economy, why relief hasn’t worked so far, and what we can do to hopefully avert an even worse crisis. Our conversation has been edited and condensed for clarity.

Mary Harris: Over the past few months, Washington has spent trillions of dollars trying to shock the economy back to life. Congress has increased unemployment insurance, bailed out the airline industry, and pledged money to small businesses. It hasn’t really worked. Which may be why the Trump administration has been encouraging states to throw open their doors and get folks back on the job. Treasury Secretary Steve Mnuchin even testified in Congress last week that if states don’t reopen, they could “permanently damage” the economy. Are states that are opening up actually seeing economic improvement? Could this be the thing that keeps the economy from falling off a cliff?

Jordan Weissmann: The question is, what’s going to happen going forward now that Donald Trump and the Republican Party are very intent on reopening the economy, even though it’s not really clear the economy or the country is fully ready to reopen? What we’d want to know about a state like Georgia, now that it’s reopened, is: How are things doing now? How are things changing? What we know about Georgia is that it is still getting unemployment claims. People still seem to be losing their jobs. Reopening hasn’t entirely fixed the problem.

You did this deep dive into Georgia restaurants. Why did you want to look at restaurants in particular?

We actually have good real-time economic data on what’s happening at restaurants. We have these companies that run point-of-sale systems or track credit card transactions. So we can kind of sense, with a few days of lag, what’s happening in the industry. In a lot of ways, I think it’s a good barometer for people’s willingness to live a normal life again, because you do have to go in and sit next to people or sit outside on a patio near other people. It’s a little bit like a normal life indicator.

I looked at this group of states I referred to as the “early birds”: a dozen states that all started reopening fairly early, where you were starting to see customers trickling back into restaurants. What I was still seeing a week ago was that revenues were down. They were creeping back up in some states like South Carolina, but for the most part, restaurants are still making 30 percent to 40 percent less money than they were before the crisis.

Georgia was part of that group. It wasn’t doing exceptionally well. To me, what it says is that these states are seeing gradual improvements. Things are gradually getting back to “normal,” but not instantly. We’re not getting that V-shaped recovery. That’s partly because states, even these early birds, are still putting limits on how many people can walk into a restaurant. We’re looking at these pictures of beaches that are very crowded right now, and we’re thinking of reopening as this completely mad dash. But the bottom line is, actually, when it comes to things that people do inside, where the potential for transmission is highest, business owners aren’t just throwing open their doors to everyone, and states aren’t letting them do so.

I remember you saying there’s this massive problem with addressing the economic issues with this disease: You can pump as much money into a problem as you want, but if people don’t want to leave the house, that’s going to get in your way. I saw an economist making a similar point, saying we’re conflating the economic story with the story of the lockdown. They’re related, but they’re not the same thing.

This is the thing Republicans and Democrats are fighting about right now: Is the economy in trouble because we locked it down, or is it in trouble because of the virus? I think the bottom line is it’s a little bit of both. Obviously, states that reopened early are starting to see business creep back faster than states that did not. But is life going entirely back to normal? No, absolutely not. People are afraid of the virus. State officials are still afraid of the virus and aren’t going to allow business to return entirely back to normal because customers don’t want to get sick. Anyone who thinks that reopening or “liberating” the economy—like President Donald Trump likes to say—is a magical fix is wrong.

Are other countries finding themselves in the same spot that we’re in right now when it comes to unemployment, or have they done something better and less messy than what we did?

Other European countries are not seeing the same levels of unemployment. In part, that’s because a lot of these countries have done things where they are directly paying companies to pay their workers. They’re subsidizing wages. The most famous plan is in Denmark, where the government basically said, If you are going to lay people off, come to us and we’ll give you money to cover 75 percent of their salary and keep them as long as you keep them on.

Can we talk about how that differs from what the U.S. did? Because I feel like the U.S. did a version of that: We offered businesses these loans to keep their workforce on. But then we also did the unemployment insurance.

So, the U.S. did something a little different. We tried to attack the problem from lots of different angles. With the Paycheck Protection Program, we gave small and medium-size businesses forgivable loans to keep their workers employed, sort of like the Denmark plan but with private banks involved. We also had these $600-a-week unemployment benefits for people who did lose their jobs. Part of the reason we took that approach was that we were late in getting started. People were already losing their jobs by the time we passed the CARES Act. We needed to act quickly to help them. But nothing in America works. No one was quite sure what would be most effective. State unemployment systems already looked like they were buckling. We also had $1,200 checks going out, but no one was sure how fast the IRS could deliver those.

D.C. is talking about fixing this mess partially because it’s on a deadline. The unemployment insurance is set to run out in July. And there’s no guarantee people will actually be back to work by then. But when I look at the debate that’s going on, it looks like people are mostly going back to their corners. Republicans are worried about too much spending, a huge deficit, and an unemployment benefit giving people an incentive not to work. And then you have Democrats saying we need to give people unemployment because they don’t have jobs yet and things might not be safe. I’m curious what you think about this debate.

A lot of the rhetoric is a little disconcerting because it’s Mitch McConnell and Trump saying, We’re not going to do unemployment insurance anymore, we just want liability protections so that businesses don’t get sued, and we don’t think we need to pump that much more money into the economy. Democrats are on the side of more money printing. But I think if you look a little more closely at what’s happening, there actually are signs of the two sides negotiating and maybe being able to hash out an agreement. Some of them are encouraging.

There’s been this idea floating around since the very beginning of this crisis that we should just have the IRS directly pay businesses to pay their workers. That would be the simplest thing to do—to have our own version of the Denmark plan. We actually had a very small version of that in the original CARES Act: the employee retention tax credit. But it was tiny and limited. Not a lot of people paid attention to it. And in the months since, we’ve tried everything but this idea of just paying businesses to pay their workers. So you’ve seen members of both parties come back to this idea: Should we just directly pay businesses? Should we subsidize wages and not worry about it?

There was this Wall Street Journal article with one quote that gave me hope, from Rep. Kevin Brady of Texas, the ranking Republican on the House Ways and Means Committee and one of the architects of the Republican tax cut bill of 2017. He actually said he’s interested in this concept. You’re starting to see mainline Republicans say this is a real possibility. Part of it is because they see it as a way to support the economy without giving people these unemployment checks. It is a way to encourage companies and businesses to reopen.

Some people are really worried about the public health aspect of this. I don’t think they’re wrong to be worried—do we really want to encourage businesses to reopen and yank support away from people who don’t want to go back to work? But I think we’re sort of at a point where businesses are going to have to reopen. We’re not going to see a repeat of April’s shutdown at least anytime soon.

I think it’s the fact that people want to get out because it’s warm, and it’s the economic pressure. People want jobs.

If you’re worried about what’s going to happen to businesses in this half-functioning economy, if you’re worried that businesses won’t be able to survive the recovery, this is the kind of fix you want to see, because it’s going to cover a lot of expenses as things gradually return. It’s the kind of support that actually could prevent a mass die-off of neighborhood restaurants. That gives me some reason for optimism.

But here’s my question about that: Is it too late? We’re already at somewhere between 15 and 20 percent unemployment. Those jobs are gone, and people are saying a lot of them might not come back.

I don’t think it’s too late. There’s so much uncertainty because we don’t know that those jobs aren’t necessarily gone. It’s better to think of a lot of those jobs as being on ice, which was intentional. We wanted people to stop going to work. We wanted businesses to shut down for a bit while we tried to contain the virus. The question is, how many of them will come back? That depends on how many of these businesses disappear. If enough businesses can welcome people back, then they can rehire their workers, especially if there are some subsidies from the federal government to help pay their wages. We might be stuck for a while closer to something around a 10 percent unemployment rate. Or we could see a pretty quick bounce back.

But if a lot of businesses just go bust, then those jobs are gone. Someone else is going to have to open new businesses to hire people. And that’s going to mean it takes more time. That’s why I’ve been obsessed with this idea of keeping businesses alive through this period of economic hibernation. We need to keep them alive and fed while they go to sleep. Otherwise a lot of those jobs are gone for good.

Listen to the full episode using the player below, or subscribe to What Next on Apple Podcasts, Overcast, Spotify, Stitcher, or wherever you get your podcasts.