Moneybox

Failure to Launch

Donald Trump said the economy was taking off like a rocket ship. In reality, it’s exploding.

Donald Trump raises a fist as he walks across the South Lawn of the White House
Like a rocket ship, he said. Drew Angerer/Getty Images

The Republican Party’s entire response to the coronavirus crisis has been rooted in a magical belief that the U.S. could fix its economy without controlling the pandemic that tanked it. Both Donald Trump and GOP leaders in Congress bet that allowing states to reopen for business would set the country up for a quick, V-shaped economic recovery without causing the pandemic to spiral out of control, sparing lawmakers from having to pass another expensive relief package and saving Trump the hassle of orchestrating a coherent public health response.

That gamble is playing out just as poorly as everyone should have expected. COVID-19 is now blazing across the Sun Belt, with terrifying flare-ups in Arizona, Texas, Florida, South Carolina, and Southern California. On Wednesday, the number of new daily cases in the U.S. hit its all-time high since the pandemic began, while hospitalizations have reached new peaks in seven different states, putting to rest the idea that rising infection counts are simply a result of increased testing. We do not know exactly why the disease has begun roaring across the South and West. But as the Atlantic’s Alexis Madrigal and Robinson Meyer explained in a lengthy piece Monday, “what unites some of the most troublesome states is the all-or-nothing approach they took to pandemic suppression.” In the mad dash to get back to normal life, some of these states allowed businesses and churches to rapidly reopen with loosely enforced capacity restrictions, without pushing for residents to wear masks. Texas and Arizona even went as far as to ban cities and states from enforcing their own, tighter social distancing rules. (To be fair, SoCal is having problems despite a much more cautious approach.)

What does this mean for the economy Republican leaders were so antsy to reignite? It appears to be sputtering.

After the government released a better-than-expected jobs report for May, Trump gave a triumphant press conference where he declared that the economy was lifting off fast. “We’ve been talking about the V,” he said. “This is better than a V. This is a rocket ship.” To anybody paying close attention to the data, the optimism seemed obviously premature. Employment had ticked up as states first began to reopen and small businesses received funds from the Paycheck Protection Program to rehire staff. But with the coronavirus still raging, and many businesses still closed or stuck operating at partial capacity, there was plenty of reason to think that job growth would slow back down. At the moment, that’s what appears to be happening.

On Thursday, the Department of Labor reported that another 1.5 million Americans filed for unemployment benefits. The fact that job losses are still happening this long after states first shut down in March suggests that more businesses expect a long-lasting downturn and may be folding entirely. (Coincidentally, Yelp reported that of the 140,000 businesses on its platform that reported still being closed, 41 percent have been shuttered permanently.) Meanwhile, after falling sharply last month, the share of workers on the unemployment insurance rolls is now barely inching down, from 12.9 percent the week ending May 16 to 12.3 percent the week ending June 13. In short, the rocket ship appears to have made it a few hundred feet, veered off course , and started decelerating while whirling toward the sea because, oh, crap, there wasn’t actually enough fuel in the boosters and the crew all had hacking coughs.

Chart of unemployment claims rising, falling slightly, and then plateauing
Federal Reserve Bank of St. Louis

Why aren’t people returning to work faster? In all likelihood, it’s because even in states that jumped to reopen, the recovery has been losing steam. Take Texas. On measure after measure, economic activity in the state flatlined or began to droop in June. Hours worked at small businesses. Consumer spending. Restaurant bookings and revenues. All stalled out. And on Thursday, Gov. Greg Abbott finally announced that he would “pause” any further reopening of the state in order to slow the coronavirus’s accelerating spread. He tried to put a positive spin on the move. “The last thing we want to do as a state is go backward and close down businesses,” he said. “This temporary pause will help our state corral the spread until we can safely enter the next phase of opening our state for business.” But it underscored the fundamental impossibility of fully restarting the economy when there’s a plague raging. Other Sun Belt governors have yet to take official action like Abbott. But even in those states, the recovery has showed similar signs of slowing, perhaps because there are a limited number of Americans who are willing to risk their lives in order to go get brunch.

When Trump began talking about a quick reopening in March, back when he was fantasizing about church pews full in time for Easter, countless experts and pundits warned that it was a path leading to disaster, a worst-of-all-worlds scenario where the economy would be unable to fully recover because Americans would still be unable to live their normal lives due to the virus. One weak lockdown and trillions of dollars in aid later, the president’s and the Republican Party’s unwillingness to take this pandemic seriously seems to have landed us in exactly that awful position. And if Congress doesn’t act before the end of July, the economy stands to collapse further as crucial unemployment benefits expire and out-of-work Americans see their incomes collapse by more than half, on average. We’re not riding a rocket ship. We’re in its wreckage.

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