Graphics by Jasmine Mithani
Congress is back in session, and it has a weighty task before it — figuring out what to do about the economy as COVID-19 infections spike across the country and states roll back their reopenings. One central point of tension: the $600-per-week supplemental unemployment insurance benefit that was enacted in March as part of the CARES Act and is set to expire on July 31.
Democrats have proposed extending the payment until jobless rates in states fall below a certain threshold. Republicans, meanwhile, are leery of continuing the full payments, saying they will discourage people from returning to work. And it’s true that research has shown that many workers are making more money on the beefed-up benefits than they would be at their old jobs.
But in the latest installment of our regular survey of quantitative macroeconomic economists,1 conducted in partnership with the Initiative on Global Markets at the University of Chicago Booth School of Business, the 33 economists in our study collectively thought there was a 59 percent chance that either keeping the payment steady or increasing it to above $600 per week would be most beneficial to the economy. They said there was about a 33 percent chance that reducing the weekly payment to less than $600 would most benefit the economy, and only a 7 percent chance that letting the program completely lapse would be most beneficial. This makes sense considering that another recent IGM survey found that most economists blamed high unemployment on companies that weren’t hiring — not on people choosing not to work because of unemployment payments.
Jonathan Wright, an economics professor at Johns Hopkins University who has been consulting with FiveThirtyEight on the design of the survey, pointed out that some extension of unemployment insurance is important because many workers are still out of a job. States can continue to offer benefits regardless of what the federal government does, but those don’t last forever, either — and some states are less generous than others.
|Keep the weekly payment at $600||37%|
|Reduce the weekly payment to less than $600||33|
|Increase the weekly payment to more than $600||22|
|Allow federal pandemic unemployment insurance to completely lapse||7|
Of course, the perspectives on Congress’s response are nuanced, and many of the economists think the benefits should ideally be phased out as the economy improves, assuming there are no logistical hurdles. When we drilled into some of the ways that federal policymakers could aid jobless workers, the experts thought there was a 37 percent chance that the best strategy would be to continue paying jobless workers $600 weekly for now but peg federal unemployment benefits to key economic indicators so they become gradually less generous as the economy improves. They said there was a 26 percent chance it would benefit the economy more if the workers were paid less than $600 per week for a fixed period of time, and a 22 percent probability that it would be better to continue paying jobless workers $600 a week even if it meant some would make more than they did while working.
Deborah Lucas, an economist at MIT, said she would opt for temporarily leaving the weekly payment at $600, or even increasing it a bit, although she said the payments should ramp down if the economy improved enough. “The fact that a considerable number of people are making more this way than when they were working seems like a good thing,” she said, adding that this will only be true for low earners, who might otherwise feel pressure to take jobs that would endanger their health. “In effect, it enhances social insurance protections and is a step towards universal basic income, both policies I think would improve social welfare even in the absence of a pandemic.”
Not all of the economists were a fan of expanding or maintaining the $600 weekly payment, though. Annette Vissing-Jørgensen, an economist at the University of California, Berkeley, said it was fundamentally unfair that some essential workers were making less money than nonessential workers who were out of a job. She added that while she’s concerned overall about making it more financially attractive for workers to stay home from their jobs, particularly if hiring starts to pick up again, there “could be a role for continuing some level of extra benefits” in states that are less generous. Others noted that while the extra payment made sense as a short-term stimulus measure, economists might approach the long-term consequences of such a generous supplement differently.
Still, it was notable that the least popular response to the question above was an alternative to the $600-per-week payment that’s been floated by some Republicans, who have proposed a “back to work bonus” for people who return to their jobs instead of continuing to supplement workers’ unemployment benefits. Economists thought there was only a 16 percent chance this would do the most to benefit the economy.
“Continued unemployment support has the twin benefits of alleviating poverty for jobless workers and sustaining consumer demand in the economy,” said Allan Timmermann, professor of finance and economics at the University of California, San Diego. Timmermann has also been consulting with us on the survey. “[It] is viewed as a highly effective tool to prevent the economy from stalling.”
Along similar lines, we asked economists how they would allocate $1 trillion in a hypothetical COVID-19 stimulus package if they wanted to do the most good for the entire economy (with the assumption that the health crisis itself would be addressed with a separate bill). The economists ranked their top three priorities and gave unemployment insurance the highest share of No. 1 responses. But though that benefit was in the top three of priorities for a majority of the experts, at 67 percent, it didn’t see the highest share of overall top-three responses. By that measure, the clear priority according to economists was funding state and local governments — which is consistent with a previous survey in which they thought one of the most likely causes of economic disaster would be an unwillingness to bail out those governments. In this week’s survey, 85 percent of respondents thought that should be among lawmakers’ top three priorities, and 36 percent said it should be No. 1.
|Share of economists who ranked it as priority …|
|Category||No. 1||No. 2||No. 3||In Top 3|
|State and local governments||36%||21%||27%||85%|
|Jobless workers (via unemployment insurance)||39||15||12||67|
|Public K-12 schools||12||15||18||45|
|Individuals (via stimulus checks)||3||21||12||36|
|Health care institutions||0||6||9||15|
“State and local is going to be a huge drag on the economy because they are a sizable share of spending, cannot really run much in the way of deficits, their tax revenue is badly hit and Congress has done little to help so far,” Wright said. So cushioning states and localities could do a lot to support the economy, he said.
Other areas of focus that frequently came up among the economists’ top three priorities were funding for small businesses (48 percent) and public K-12 schools (45 percent) and another round of individual stimulus checks (36 percent). None of our economists, however, thought funding either large corporations or colleges and other institutions of higher learning was a priority.2
In addition to our usual questions about gross domestic product in the second and fourth quarters, we asked the economists to forecast third-quarter real GDP growth in this installment of the survey. The results shed some light on just how much the prospect of a true “second wave” of coronavirus in the winter could slow down economic growth.
On average, economists thought real GDP in the second quarter of 2020 — which ended June 30, with an advance GDP estimate set to be released later this month — declined by an annualized rate of 27 percent compared with the first quarter. They also thought real GDP would grow by about 8 percentage points quarter-over-quarter in the third quarter, with an upper-bound estimate of 17 percent and little chance of negative growth again. But their forecasts looked bleaker for the fourth quarter, with a median forecast of 3 percent growth, a 90th-percentile forecast of 9 percent and a 10th-percentile forecast in the red again (at -3 percent) — all more pessimistic than in the third quarter.
Some of that reflects the increased economic activity of the summer (relative to the early spring), even with the virus circulating around the country; the likelihood of some kind of third-quarter bounce back was high, given how bad economists think second-quarter GDP will end up. But the forecast also speaks to the uncertain course that the virus — and therefore, the economy — might take over the rest of 2020.
Robert Barbera, an economist at Johns Hopkins University, said part of the problem in forecasting quarterly shifts is that month-to-month change can be so extreme. His forecast for the third quarter was less optimistic because he expected most of the initial bounce back to happen in May and June, which are both part of the second quarter. The third quarter might see an uptick in August and September and look quite a bit better than the second quarter, he said, but that’s partially because the second quarter was so bad. Predicting the fourth quarter is even more difficult — in part because a bounce back in the economy is so dependent on Americans’ willingness to resume ordinary life.
However the course of the recession plays out, our economists think America could be due for a massive wave of personal bankruptcies in the second half of the year. During the first half of 2020, total bankruptcy filings — the vast majority of which were by individuals — were actually down 23 percent relative to the first half of 2019, according to court data from Epiq AACER. But don’t be fooled: That was almost certainly because of the heavy use of grace periods and extensions by creditors, which will eventually expire (if they haven’t already). In our survey, 67 percent of economists thought total filings would increase significantly in the second half of 2020 relative to the second half of 2019; only 6 percent thought they would see the same kind of year-over-year decrease in the second half of 2020 that they saw in the first half.
Taken as a whole, the economic picture painted by this week’s survey is no brighter than in previous installments. The panel’s predictions for future GDP have scarcely budged over the past two weeks, and the experts remain wary that whatever gains the economy is making over the summer could be wiped out by the virus before year’s end. But they also clearly think Congress has a few tools at its disposal to avoid making the recovery harder than it needs to be. The big question is — will policymakers use them?