Economists estimate a new $1.5 trillion coronavirus relief package will be needed to stabilize the U.S. economy, with the most critical funding needed to continue enhanced unemployment and food assistance benefits, which have kept some 10 million Americans out of poverty this year but are set to expire at the end of July.
Moody's Analytics chief economist Mark Zandi and Harvard economics professor Raj Chetty said on a briefing with the Center on Budget and Policy Priorities this week that spending on enhanced Supplemental Nutrition Assistance Program, or SNAP, benefits, as well as increased unemployment assistance will provide the most meaningful boost to the U.S. gross domestic product with a one-year outlook.
As coronavirus cases surge in several states, however, the federal spending needed to support jobless Americans goes up as well.
"That [$1.5 trillion] price tag is going up because of intensification of the virus and damage it's done to the economy," Zandi says. "A week ago, I thought $1 trillion would be sufficient. A prudent policymaker would probably provide more."
The House of Representatives passed a $3 trillion relief package in May, known as the HEROES Act, that would extend the additional $600 a week in unemployment benefits until January 2021, but the bill has stalled in the Senate.
Further discussions of a new round of relief aid will resume when Congress returns from a two-week recess ending July 17.
Senate Republicans are critical of extending the $600 weekly benefit because they believe it could discourage the two-thirds of people who are earning more on unemployment than they did at their jobs from going back to work.
A report from Harvard economists also finds that a general fear of Covid-19 itself, not executive orders that restrict business activity, is the primary cause of reduced economic activity and job loss.
Chetty, an author on the report, explains that as coronavirus infections increased in March, spending from the highest-earning households decreased the sharpest, particularly in their spending on in-person services, which in turn resulted in layoffs concentrated among low-wage service workers.
"The capacity to really restore economic activity without fundamentally addressing the health concern is limited," Chetty says. As far as economic policy goes, "mitigating the hardship of people who've lost the most is likely to be most effective."
Some 33 million Americans were receiving jobless benefits as of late June.
While an extension of the current $600 weekly benefit is unlikely, lawmakers have proposed other ideas, such as tying aid amounts to the unemployment rate or paying a one-time "bonus" to people who return to work.
Those bonuses won't be helpful if workers don't have a job to return to. While the U.S. added 4.8 million jobs in June, growing numbers of coronavirus cases across 40 states threaten whether businesses in new hot spots will be able to stay open. This week, White House health advisor Dr. Anthony Fauci urged that states with severe coronavirus outbreaks should "seriously look at shutting down" again.
As for the idea that boosted unemployment pay is keeping people from returning to work to re-start the economy, "it's not that lots of folks who have jobs to go back to are choosing not to go," Chetty says, "but there's no work to do."
The White House has expressed likely support of another round of stimulus checks in a new relief package, on top of previous $300 billion in funding that provided up to $1,200 for individuals, $2,400 for couples and $500 per dependent distributed in April.
According to Zandi, stimulus checks are among the least impactful forms of fiscal support projected to boost GDP one year out. Chetty adds that April's stimulus payments helped lower-income households recover in the short-term by paying for food, housing and essential bills, though businesses that benefited most were primarily large online retailers such as Amazon. Higher-income households were more likely to save any stimulus funds they received rather than spend it.
"What's the bottom line going forward? We should be focusing on unemployment insurance and expanding safety net programs like SNAP fundamentally because those programs provide social insurance — they mitigate economic hardship in a time of crisis," Chetty says. "Keep in mind what we do here is going to have very lasting impacts on social mobility and inequality."
Nearly one-third of U.S. households missed their July housing payments, and experts warn tens of millions of Americans could face an "income cliff" without an extension of unemployment benefits and will be unable to cover basic needs such as food, clothing and other living expenses during a global pandemic.