The Pandemic Economy: 'Unnecessary Hardship’

The next few months could be rough for the U.S. economy — but better times might not be far off.

The next few months have the potential to be very unpleasant for the American economy.

Many states are reimposing coronavirus restrictions, which will likely lead to new reductions in consumer spending and worker layoffs.

“We’ve got new cases at a record level, we’ve seen a number of states begin to reimpose limited activity restrictions, and people may lose confidence that it is safe to go out.”

As Jerome Powell, the Federal Reserve chairman, recently said.

Adding to the economic risks, several of the government’s biggest virus rescue programs are scheduled to expire next month. It isn’t clear whether Congress will renew them, because congressional Democrats and Republicans disagree on how to do so. Democrats favor a larger rescue package than Republicans do.

Without a new stimulus package, a double-dip recession is possible. In an analysis circulating among President-elect Joe Biden’s aides, the research firm Moody’s Analytics predicted that the economy would shrink during both the first and second quarters of 2021, and the unemployment rate would approach 10 percent next summer, up from 6.9 percent last month.

Many Americans would draw down their savings or struggle to pay medical bills. Some would lose their homes and go bankrupt. Recessions cause permanent damage to people’s lives, which is one reason that Fed officials and many economists support further stimulus.

A lack of government support, Powell has said, may lead to “tragic” results with “unnecessary hardship.” Loretta Mester, the president of the Cleveland Fed, has called the lack of another stimulus package “very concerning.”

The longer-term picture is more encouraging, though. There is reason to hope that the next economic recovery, whenever it comes, will be stronger than the frustratingly weak recovery after the 2007-2009 financial crisis.

Why? After that crisis, many households were coping with large debts. Today, household balance sheets are in better shape. And once a vaccine arrives, many Americans will be feeling a pent-up urge to spend — on vacations, business trips, restaurant meals, clothing, elective medical procedures, concert and sports tickets and more.

“It’s a good guess that we’ll get this pandemic under control at some point next year. It’s also a good bet that when we do the economy will come roaring back.”

writes Paul Krugman, the Times columnist (and Nobel Prize-winning economist).

The bottom line: The forecasts for the virus and the economy have a lot in common. The country is headed into a grim period — one that will involve widespread illness, death and financial suffering (and that government policy has a chance to ameliorate). Yet the second half of 2021 promises better times.