Moneybox

We Wasted Our Chance for a Quick Economic Recovery

A sign on a glass door says "You must wear a mask to enter" and shows a photo of a woman wearing a face mask.
Such is life. David McNew/Getty Images

Despite a nationwide shutdown of businesses and massive layoffs that left the unemployment rate higher than it has been at any time since the Great Depression, Americans’ personal incomes managed to rise by an astonishing 10.5 percent in April, or $1.97 trillion, the Commerce Department reported Friday, spiking well above their levels before the coronavirus crisis began tanking the economy.

The reason why was simple: The government cut an enormous number of checks (or, if we want to be technically correct, made a lot of electronic deposits). While wages and salaries fell significantly—as you’d expect when tens of millions of people lose their jobs—federal benefits more than made up for it. The vast majority of the bump came from the stimulus payments of up to $1,200 per adult and $500 per child that were included in the CARES Act, though the enhanced unemployment benefits helped too.

While incomes jumped, consumer spending cratered by 13.6 percent. In other words, Americans put a lot of money in the bank last month. The personal savings rate shot all the way up to 33 percent. (Back in January, it was just about 8 percent.)

Because so much of April’s rise was due to one-off cash payments, it’s likely that incomes fell back down a bit in May. But the fact that the government not only managed to stabilize Americans’ finances on the whole but also increase them enough to pad their savings should quiet some complaints about the CARES Act, the rescue bill Congress passed in March that was sometimes caricatured as doing more to help large corporations than actual families. The relief efforts haven’t been perfect—the efforts to help small businesses survive have been a mess, and it’s possible some people have fallen through the cracks. But the bottom line is that, despite early concerns about the speed of the relief effort, the government seems to have actually shoveled an enormous amount of direct aid out the door very quickly.

If the coronavirus were actually under control at this point, it’s conceivable we’d even be poised for a quick economic recovery. After all, the April numbers suggest we’ve managed to keep households whole, on average. And as the crowded beach scenes across the country show, a lot of Americans are eager to get out of quarantine and spend some of the money they’ve been saving away. Unfortunately, the pandemic is still very much with us. Yes, the number of new cases each day is falling, but it’s still high, and we’re seeing flare-ups in a number of states where businesses are back open. And yes, the number of tests per day has risen significantly, but it’s still well below what most experts believe will be necessary for a successful, long-term suppression, and the national strategy to ramp up testing further that the Trump administration finally revealed last week was widely criticized by experts as inadequate (in part because it mostly punts responsibility to the states). As long as this virus is only partially contained, it seems unlikely the economy will return anywhere close to its full potential. Public health rules will continue limiting businesses like restaurants, retailers, and movie theaters. Some customers will still shy away from going out; a lot of families may put off big purchases until they finally see normality on the horizon. In the meantime, we have to hope that Congress’ next support package offers families and businesses enough support so that the economy doesn’t suffer another damaging shock—which is what will probably happen if, say, enhanced unemployment benefits suddenly expire before people can get back to work.

It’s possible that even with better leadership, we’d still be facing a long, wheezing economic slog ahead. After all, plenty of countries not run by Donald Trump have had trouble whipping this virus. But it’s not hard to believe that a swifter national shutdown and a more coordinated national testing strategy at least would have left us in a slightly better position to have the sort of V-shaped recovery the president wants so badly. Congress seems to have successfully bought time by just handing Americans money. Unfortunately, the White House wasted it.

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