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America's COVID lessons 2020-21
Read more on - Polity | Economy | Schemes | S&T | Environment
- America's 3 lessons: Since the coronavirus pandemic hit the American economy like a bulldozer, last spring, it has learned three important lessons.
- Getting the policy response right matters enormously.
- Aggregate economic statistics can disguise a great deal of individual hardship.
- The most effective remedy for reviving the economy is defeating the virus.
- GDP impacted: By Jan end, the Commerce Department reported that the gross domestic product, which is the broadest measure of the economy’s output, fell by 3.5 per cent in 2020. That was the biggest decline in a single year since 1946, but it was a considerably better outcome than many economists were forecasting last spring, as many factories, stores, and other businesses were forced to close. When members of the Federal Reserve’s main policymaking committee met in June 2021, their median prediction was that G.D.P. would fall by 6.5 per cent in 2020 as a whole, and that the unemployment rate at the end of the year would be 9.3 per cent. The actual decline in G.D.P. was barely half of what was projected, and the jobless rate also undershot the Fed’s projections: in December it stood at 6.7 per cent.
- Why not as bad: A big reason for this better-than-expected performance was that policymakers—Congress and the Fed itself—provided an unprecedented amount of support for the economy when it needed it most. The $2.2 trillion CARES Act, which Congress passed on a bipartisan basis in March, “delivered the most extensive fiscal relief in U.S. history. Moreover, it was targeted primarily to vulnerable families, workers, and small businesses,” the White House Council of Economic Advisers noted in a recent report. On the monetary side, the Fed rolled out a series of emergency lending programs, cut interest rates to near-zero, and pumped trillions of dollars into the bond markets.
- Downward spiral prevented: Taken together, these programs prevented what policymakers feared most at the time: a downward spiral, in which layoffs caused by the pandemic would lead to big falls in income and spending, which, in turn, would prompt further layoffs, and so on. This feedback process is what turns recessions into depressions. By sending cash to households, jobless workers, and small businesses, and making it easier for large corporations to raise money (through the Fed programs), the federal government propped up aggregate income and spending, which otherwise would have cratered. In fact, these programs were so successful that over-all personal disposable income—the total amount of income that Americans have left to spend after paying taxes—didn’t fall at all.
- Supporting households: This unprecedented operation to prop up household incomes helped to support spending by consumers, which accounts for about two-thirds of the gross domestic product. In April, as many people were stuck at home and many stores closed, consumer spending collapsed. However, it then recovered strongly for six months, before falling slightly again in the final two months of the year, as the second wave of the virus kicked in.
- The sad stories: To repeat Lesson 2, these aggregate figures don’t capture the fate of millions of Americans who have suffered greatly during the past eleven months. Many of these people work in the industries hardest hit by the closures—hotels, restaurants, and hospitality or leisure businesses. Others have been forced to give up work to look after their children or other family members. According to the Labor Department, the official jobless total was 10.7 million in December, of whom four million had been out of work for twenty-seven weeks or more. Even these dire numbers fail to give a full picture, however.
- Missing them: They don’t count Americans who have dropped out of the labour force. Thanks to population growth, the workforce usually grows every year, but between December, 2019, and December, 2020, it declined by four million people. The jobless figures also don’t tell us about workers who have had their hours cut or have experienced a cut in their wages.
- Worst hit: The burden of the pandemic has fallen hardest on members of minority groups and low-paid workers—including undocumented workers—who can’t work from home and don’t have the financial reserves to weather an extended recession.
- Continuing pain: Despite the expansion in jobless benefits, which Congress allowed to lapse briefly before renewing the program in December 2020, the pandemic is continuing to cause a great deal of anxiety and hardship.
- New support: The coronavirus spending bill that Congress passed in December, which was worth about nine hundred billion dollars, is already providing some additional support to hard-hit households, and the $1.9 trillion package being pushed by the Biden Administration, if it gets enacted, would provide a good deal more. However, virtually all economists agree that the real key to reviving the economy, and alleviating hardship, is to defeat the virus. Given the resistance to strict lockdown measures in the United States and other Western countries, that equates to vaccinating most of the population in the next few months.
- Vaccination: According to the Centers for Disease Control and Prevention (CDCP), 22.9 million Americans (6.9 per cent of population) had received at least one vaccine shot. That puts the United States ahead of many countries, but far behind Israel, where 52.6 per cent of the population has been vaccinated, and quite a bit behind the United Kingdom, where 12.3 per cent has been immunized. President Biden has pledged to raise the vaccinated figure to a hundred million by the end of April 2021, which would have a big impact.
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