Coronavirus forecasts worsen as experts say trillions of dollars needed to stimulate economy back to health

  • Published on March 22nd, 2020

As noted here, nobody really knows how far down the economy is headed or what it will take to head it in a different direction. But some analysts are taking a stab at what we’ll be dealing with and what it will take to repair the damage from shutting down all but essential bits of the economy for weeks or months. Not knowing whether it will be weeks or months (or worse) is one of the many factors hampering reasonable forecasts.

Coronavirus COVID19

By Meteor Blades

Some were predicting two weeks ago that the government would need to inject hundreds of billions of dollars of fiscal stimulus into the economy in addition to the monetary spur provided by zero interest rates. Senate Republicans are pushing what chief White House economic adviser Larry Kudlow calls more than a $2 trillion injection. But that huge amount—$1.3 trillion more than the 2009 Obama stimulus that only three congressional Republicans supported—won’t be enough if the COVID-19 plague takes longer to conquer than a few months, which many health experts say is possible, and even likely. Said Yale’s Andrew Metrick, a leading expert on economic crises: “If it lasts a year, it’s going to be several trillion they have to spend to keep people from starving.”

Michael Feroli, chief U.S. economist at JPMorgan Chase, forecast Wednesday that the economy will shrink 4% this quarter and 14% next quarter, but spring back in the third and fourth quarters, ending the year with a 1.5% contraction. Meanwhile, Goldman Sachs’ economics team predicted a “probable” recession with a 5% decline in the second quarter. “This takes our 2020 GDP forecast down to +0.4% (from 1.2%). The uncertainty around all of these numbers is much greater than normal.” But the team projects growth of 12% in the third quarter and 10% in the fourth, with GDP at the end of 2020 around 4.9% smaller than it would have been if the coronavirus hadn’t struck.

No expert I, but that sounds optimistic given what we’re hearing every day. And apparently, the Goldman Sachs team agrees. It released a new projection Friday predicting a 6% contraction in the first quarter and a 24% contraction in the second.

One key indicator of how bad things are going to go appeared Thursday in the form of the weekly report of new unemployment claims for the second week of March. In pre-Great Recession days, the 281,000 new claims wouldn’t be considered particularly high. But the 70,000 rise last week from 211,000 new claims filed in the first week of March is higher than at any time during the Great Recession. And far, far worse are the figures for next week. While the national total won’t be released by the Department of Labor until next Thursday, The New York Times reported this Thursday that 15 states had already tallied their total new claims at nearly 630,000. When the figures for the other 35 states come in, that total will almost certainly exceed 1 million. And the week after that?

The Trump regime’s response to this news? As my colleague Laura Clawson wrote earlier today, he wants states not to give out their numbers until the Department of Labor releases them all next week.

At the left-leaning Economic Policy Institute, Josh Bivens offers a new assessment of what level of stimulus might be needed. His take: $2.1 trillion. “But, again,” he writes, “the real number needed could be more, and fiscal policy should be conditions-based and deliver more if targets aren’t met. Is it possible that the economy could remain weak even with that much stimulus? Absolutely.” His conditions for stimulus:

  • The stimulus package to deal with the coronavirus economic shock should be as big as economic conditions dictate.
  • The package to restore the nation’s economic health should spend at least $2.1 trillion through the end of 2020. This amount could increase even this year, and aid should continue past this year if conditions warrant.
  • The fiscal response should continue until we reach full employment.
  • The stimulus should be well-targeted and not squandered on unconditional giveaways to business that don’t spur the needed growth.
  • The risk of going too small on stimulus is large and scary, while the risk of going too big is almost nonexistent.

How successfully we emerge from this catastrophe depends on whether we can find the political will and skill to persuade elected politicians who oppose the idea of such stimulus that they’re wrong, while we steamroll the stubborn unpersuadables.

(Crossposted with DailyKos. Image CC from Pixabay)

About the Author

Meteor Blades is a writer and contributing editor at DailyKos. He believes there is something profoundly wrong with our system. - the unchecked accumulation of wealth and power into the hands of a very small group of corporate business interests has contributed to the wholesale corruption of our political system. For an understanding about the level of corruption in our country, he encourages you to view these two PBS documentaries: (1). ,The Untouchables; (2) The United States of ALEC.
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