Senate Majority Leader Mitch McConnell said Friday that a coronavirus relief bill is not likely to pass before the election.
Negotiations have stalled as President Trump has repeatedly changed his mind about whether he wants Congress to pass a new stimulus package. Meanwhile, new unemployment claims remain relatively steady with more than 800,000 people filing their paperwork each week.
A former chairman of the Council of Economic Advisers during the Clinton administration, economist Joseph Stiglitz says he would initiate a large spending program in response to the country’s economic issues.
“There are many, many people, the bottom half of our population, that are extremely vulnerable,” he says. “They live paycheck to paycheck. And for many of them, the paychecks aren't coming in.”
The national debt is now more than $27 trillion — nearly the size of the country’s entire GDP. It’s on track to exceed the GDP next year.
The country should prioritize spending money to drive economic recovery over concern about the national debt, Stiglitz says.
“We should spend what we need. Not spending that money is going to do an enormous amount of damage, which will be long-lasting,” he says. “When companies go bankrupt, they don't all of a sudden go un-bankrupt when the pandemic is over. The damage is done.”
Without another relief package in the next several months, Stiglitz says the economy will slow down — and the recovery from the initial lockdowns could slow or reverse.
Some people have talked about a W-shaped, double-dip recession and recovery, while others predict a K shape where the wealthiest recover quickly and fully while middle to lower-income Americans don’t. The W shape reflects the potential for a second wave of the virus and subsequent lockdowns, which Stiglitz says concerns him as the pandemic remains out of control.
Instead of a V-shaped economic recovery, the country will see a U or K shape “where people at the bottom particularly are going to be having a really, really hard time,” he says. One consequence of this is long-term damage that will delay a full economic recovery until 2022 or 2023, he says.
“There's data that shows that those at the top have been relatively unaffected. They can continue their work using modern technology,” he says. “It's the workers in the restaurants, people who work in the airline industry, janitors in our schools, lower-income people who have been and their families have been devastated by this.”
Savings rates in the second quarter were “very high” for wealthy Americans, he says, and they aren’t facing the same stress as lower-income people.
For people struggling to make ends meet, Stiglitz says voting in the upcoming election will determine the future of the U.S. economy. The Republicans cut taxes for billionaires and corporations in 2017, but now that low-income people need money, the party is “fixated suddenly on the size of the deficit,” he says.
“Quite frankly, what I would say is this is politics,” he says. “And one of the two parties is really fighting very hard to get money to you. And the other party [has] all of a sudden gotten fiscal rectitude.”
On how he would respond to the country’s economic problems
“I would have a major spending program. … Unemployment insurance usually lasts for 26 weeks. Twenty-six weeks have already passed since the beginning of the pandemic. And so unemployment insurance is coming to an end. And in many states, the level of unemployment compensation replaces only a fraction of their income. There are also large fractions of the population that were left out in previous programs. The most important aspect is help to the state and local governments. Our state and local governments basically, you have a balanced budget framework and the revenues have plummeted as the economy has plummeted. And among the largest group of newly unemployed are the state and local government workers.”
On if another round of $1,200 payments would help Americans
“If it's targeted at the bottom, it does make a difference. We saw it in the previous case that when those low-income individuals received the checks, they actually spend it. And that means it provides a big stimulus to the economy. I think it has to be targeted because we are spending a lot of money. Previous packages were somewhere around $3 trillion. And that makes it all the more important that our money is going where it's most needed, where it will do the most good for the individuals and for the economy as a whole.”
On concerns about the growing national debt
“It took us a decade to recover from the collapse of the stock market in 1929. It was really only World War II, and it took us almost a decade to recover from the onset of the Great Recession of 2008 and 2009. We never got back to the level of government employees that we had prior to that recession. So this is a moment where we really need to do what we can to sustain the economy, no inflationary pressures. And that is usually the one thing that people worry about when they say, 'Oh, we're spending too much.' ”
On if there’s an amount of debt that would be too much for the United States
“Not as long as we can finance it. And, you know, there's a curious thing going on right now. Basically, the Federal Reserve is financing the spending. And so we're borrowing the money. One hand of the government is borrowing the money from the other hand. So the net indebtedness held by the American people is really not going up that much. So, yes, if we were facing inflationary pressures, I would begin to get worried. But we also know that even if sometime in the future there were inflationary pressures, we have the tools to deal with that, both monetary policy that can constrain the economy and tax policies. We have a large capacity to raise taxes, especially on higher-income individuals. And there is scope for more environmental taxes, raising capital gains taxes, actually taxes that would improve the performance of our economy.”
On how the pandemic could change global economic relationships
“Well, I think there are two things that have become very evident. One is the need for global cooperation. It's a pandemic. That means it's a global event. And the scientists around the world have really never cooperated more closely, more strongly in developing vaccines and therapeutics, the test. Unfortunately, some governments have not fully cooperated. And some companies have not fully cooperated. But it does remind us that we share a planet and we need cooperation. On the other hand, the pandemic has also demonstrated the lack of resilience of our global supply chains. That means the global supply chains are going to be rethought and the nature of trade will be rethought. One of the things that bothers me right now, though, is that the developing countries and emerging markets don't have the resources that the U.S. and Europe have to reinvigorate their economy. And that means the recovery in the developing countries and emerging markets may be very, very weak. And we're not going to get a strong recovery until we get a recovery through most of the world.”
This segment aired on October 9, 2020.