COVID-19: Economic Implications and Policy Response — NEED Presentation, Rotary Club, Albuquerque
Summary
A slide deck titled COVID-19: Economic Implications and Policy Response, presented July 7, 2021 to the Rotary Club in Albuquerque, NM by Doris Geide-Stevenson, Professor of Economics at Weber State University, for the National Economic Education Delegation (NEED). The slides review spending, GDP, the labor market, health policy, monetary policy and inflation. They set out a fiscal policy timeline, including the CARES Act at $2.2 Trillion, H.R. 133 at $900 Billion and a $1.9 Trillion package in March 2021, and discuss questions about the stimulus bill. The deck also asks whether there is a worker shortage and concludes with points on structural changes, long-term effects and government debt. It runs 29 slides and carries a nonpartisan disclaimer.
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7/8/21
COVID-19: Economic Implications and
Policy Response
July 7, 2021
Rotary Club, Albuquerque, NM
Doris Geide-Stevenson, Ph.D.
Professor of Economics
Weber State University, Ogden, UT
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Who Are We?
• Honorary Board: 47 members
- 2 Fed Chairs: Janet Yellen, Ben Bernanke
- 6 Chairs Council of Economic Advisers
o Furman (D), Rosen (R), Bernanke (R), Yellen (D), Tyson (D), Goolsbee (D)
- 3 Nobel Prize Winners
o Akerlof, Smith, Maskin
• Delegates: 500+ members
- At all levels of academia and some in government service
- All have a Ph.D. in economics
- Crowdsource slide decks
- Give presentations
• Global Partners: 45 Ph.D. Economists
- Aid in slide deck development
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Credits and Disclaimer
• This slide deck was authored by:
- Scott L. Baier, Clemson University
- Jon D. Haveman, NEED
- Geoffrey Woglom, Amherst College
- Doris Geide-Stevenson, Weber State University
• Disclaimer
- NEED presentations are designed to be nonpartisan.
- It is, however, inevitable that the presenter will be asked for and will provide their own views.
- Such views are those of the presenter and not necessarily those of the National Economic Education
Delegation (NEED).
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Resources
• Schedules of Major Economic Releases
- Economic Calendars at
o Marketwatch (marketwatch.com/economy-politics/calendar)
o FRBNY (newyorkfed.org/research/calendars/nationalecon_cal)
• DIY Real Time Data:
- Track the Recovery: (tracktherecovery.org)
- Federal Reserve Economic Database (FRED): (fred.stlouisfed.org)
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Guiding Questions
• What is the current state of “the economy”?
• What have been the effects of policy?
• What kind of a recovery are we looking at?
• What about inflation?
• What about the labor market?
• Is progress equitable?
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Spending Collapsed in March 2020
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https://tracktherecovery.org/
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Implications of Reduced Spending
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Where are We ?
Real GDP = Total value of production = Consumption + Investment + Government Purchases + Net Exports
Still a negative Output Gap compared to the start of the pandemic, but a quick recovery.
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What is going on with the labor market?
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Employment Rates by Income
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Where are we now? - Summary
• Household spending on goods and many services has recovered (+),
with ‘whiplash’ in some sectors that contribute to shortages.
• Repeated cash injections from government have increased household
personal income and savings (+)
• Interest rates are at historic lows, but expected to trend up earlier
(+)
• About 1/3 of small businesses have stopped operations (-), but many
new business formations (+)
• Unemployment rolls remain elevated and employment is below pre-
pandemic levels (7 million fewer employed) (-)
• Many Americans – both men and women - have left the labor force
(as of May 2021: All: 3.5 million, 1.7 million men and 1.95 million
women) (-)
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A Tale of Three Policy Efforts
• Health Policy – Addressing the
Pandemic
• Monetary Policy
• Fiscal Policy
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Health Policy – Pandemic
• Moved from various types of ‘social distancing’ and
‘lock-downs’ to living with Covid-19.
• Unlikely to reach full herd immunity in the US –
continued threat from new variants for vaccinated and
unvaccinated persons.
• Uneven global approach to vaccinations.
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Federal Funds Rate and Balance Sheet
Monetary Policy acted quickly and effectively to prevent a financial
market meltdown and keep credit flowing. But the Fed lends and does
not spend; so there is a limited impact on spending.
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Inflation I
Higher temporary inflation because of: 1. Base effect, 2. Pent-up demand for services, 3. Supply-chain disruptions.
Current market measures of inflation expectations are 2.3 – 2.4% annually (close to Fed goal). Fed measure of inflation
Is below CPI measures – closer to 3% currently.
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TLocal Housing Market – Asset Market 1
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Stock Market Impact – Asset Market 2
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Fiscal Policy Timeline – First Round
Phase I: H.R. 6074 Phase IIIa: CARES Phase III b
Phase II: Family First
3/6 3/18 4/24
3/14
$8 Billion $100 Billion $2.2 Trillion $484 Billion
R&D Paid Sick Leave HHLD Payments (More) Support for Small Firms
Public Health Family Medical Leave Support for Small Firms COVID-19 Testing
Medical Supplies Covid-19 Testing Support for Medium Sized Firms Hospitals
Other Unemployment Expansion Unemployment Insurance
Aid to States
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Who is spending in the US?
Low Income Households
were able to increase
spending in response to
the stimulus programs.
High income households
chose not to spend as
much as before the
lockdown.
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Who is spending in New Mexico?
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Hard Hit Sectors – uneven recovery among
industries
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Fiscal Policy Timeline – Second and Third Round
Phase IV: H.R. 133
12/27 Phase V
03/11/21
$900 Billion $1.9 Trillion
Direct Payments ($600) Direct Payments ($1400)
Small Business Support Aid to State and Local Government
Extension of UI Benefits Pandemic Unemployment
Other School Reopening
Vaccines
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Expected impact of the stimulus bill
• Updated expectations for U.S. economic growth: 5.95% - 7% Q42020
through Q42021 (WSJ survey/Oxford Economics/Fed)
• Updated expectations for global economic growth: +1% because of
vaccination roll-out and US fiscal stimulus (OECD forecast)
• Increase in national debt/GDP ratio to WWII levels (additional debt
financed at negative real interest rates).
• Substantial (temporary) reduction of child poverty as most benefits
from the current bill go to households with incomes below $90,000.
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Questions about the stimulus bill
• Is the bill too big and will it cause inflation?
- Maybe, but unlikely since income subsidies (about $1tn) are temporary,
consumers are likely to spend only about 50% and save 50%. This will not be
enough to close the existing negative output gap. Uptick in the CPI (5% in May
2021 likely transitory).
• Does the bill contain ‘pork’ that is not directly targeting Covid relief?
- Yes, but about 85% of the total spending is pandemic-related (if state and
school aid is included).
• Should the bill have prioritized other types of programs?
- Instead of direct payments to persons unaffected by the pandemic more
infrastructure spending would have created more future economic growth.
https://www.usatoday.com/story/news/factcheck/2021/03/02/fact-check-breaking-down-spending-covid-19-relief-bill/6887487002
Zhao, Chen, Inflation risk from Biden’s stimulus plan is exaggerated, Financial Times, March 9, 2021
Wolf, Martin, Joe Biden’s $1.9tn package is a risky experiment, Financial Times, Feb. 23, 2021
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Is there a worker shortage?
• Unemployment benefits and economic impact payments have created a
financial cushion for many households.
• Ongoing concerns with pandemic affect child care and other caregiving.
• Some early retirements (about 1 million).
• Early recovery reconnected workers with their old jobs – in this phase
new matches have to be made.
• Real average hourly earnings are still lower in May 2021 than they were a
year ago.
• There is room for more workers to enter the labor force – and for wages
to increase.
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K- Shaped Recovery
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Conclusion
• COVID-19 is public health crisis that has macroeconomic implications.
- With enormous built-in inequities.
• Strong policy responses in the US have led to a strong recovery of the US economy.
- Positive growth will return in 2021. Forecast: 6 – 7% for 2021.
• Significant structural changes.
- Telecommuting, telehealth, retail decline, other business failures. Increased concentration of
market power – but also many new business formations.
• Ongoing economic reallocations will create uncertainty.
• Long-term effects: Educational opportunities, labor force participation changes, reallocations
that require retraining, possibly increasing inequality, long-term health challenges.
• Wide agreement that the ‘American Rescue Plan’ was needed, but debate over the size
of additional fiscal stimulus to ‘building back better’.
• Households are in a stronger financial position, but government debt has increased
substantially.
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Thank you!
Any Questions?
www.NEEDelegation.org
Doris Geide-Stevenson
dgsteven@weber.edu
Contact NEED: info@needelegation.org
Submit a testimonial: www.NEEDelegation.org/testimonials.php
Become a Friend of NEED: www.NEEDelegation.org/friend.php
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