Congress hasn't approved a coronavirus relief bill, putting the US at risk of repeating a critical mistake from Obama's 2009 stimulus. Democrats want to avoid it.

Drew Angerer/Getty Images; Zach Gibson/Getty Images; Congress.gov; Samantha Lee/Business Insider
  • Congress adjourned without passing another stimulus bill at a moment many experts say it is critical to prop up the economy.
  • “With each passing each week, the ditch we’re gonna have to crawl out of digs deeper,” economist Wendy Edelberg said.
  • Democrats appear eager to avoid repeating what many economists say was a key mistake from 2009, pulling back government spending too soon.
  • “If I’m the chairman of the finance committee, [we] make sure everybody learns the lesson from 2009. You don’t take your foot off the gas in the middle of an economic recovery,” Sen. Ron Wyden said in an interview.
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Congress pumped more than $US3 trillion in emergency federal spending into the economy this spring, as the pandemic caused millions of layoffs and small business bankruptcies. The largest portion came from the $US2 trillion CARES Act passed in March, and experts say it led to a stronger rebound than expected.

Yet the federal cash has stopped flowing, severing a critical lifeline for millions of unemployed Americans and small businesses as virus cases surge across the country. It threatens to hammer a shaky recovery.

Unemployment claims still exceed the highest figures seen during the last recession, and the US economy has recovered only half the jobs it lost in March and April. Many small businesses are on the brink of failure. Around 40% of restaurants in the US said they would close within the next six months without more support, per a survey released from the National Restaurant Association.

But no help appears to be coming from Washington anytime soon, though many economists and Federal Reserve officials are urging Congress to quickly pass another coronavirus relief package to keep individuals and companies afloat. Curbing federal spending now, they say, could cause a protracted recovery with high levels of unemployment for years to come — similar to the underpowered government response to the recession a decade ago.

More people are leaving the labour force and the number of permanent layoffs is rising, according to Wendy Edelberg, the director of the Hamilton Project at the Brookings Institute.

“Without additional stimulus, it will take years for us to get back to the path I would have projected pre-pandemic,” Edelberg, the former head of the Congressional Budget Office, told Business Insider. “With each passing each week, the ditch we’re gonna have to crawl out of gets deeper.”

Democrats are pressing for $US2.2 trillion in further aid, and President Donald Trump supports another stimulus plan. But Senate Republicans diverge from the White House. Many oppose more spending that could further grow the national debt and they favour targeted measures instead.

“They learned the lesson from 2008, going big and moving fast” in March, Claudia Sahm, a former Federal Reserve economist and expert on recessions, told Business Insider. “Now, all those lessons are out the door because they’re doing the exact same thing, saying the economy will take care of itself. “

Many Republicans — including Trump — argue the government doesn’t need to do more to bolster the recovery. On Thursday, they touted the release of a new report showing the economy expanded by 7.4% during the third quarter of the year, or 33.1% at an annualized rate.

Yet experts said the recovery still has a long way to go and some of the positive statistics omits the hardship many Americans are experiencing.

“Anything that takes an average across the economy isn’t gonna place proper weight on the extreme suffering of those at the very low-end,” Michelle Evermore, an unemployment expert at the National Employment Law Project, told Business Insider. Up to 22.6 million people are receiving some form of unemployment benefits, according to the Department of Labour.


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How stimulus can send the economy “off to the races”

The White House and Democrats have negotiated on a roughly $US2 trillion package for more than a month. It would likely include $US1,200 stimulus checks, federal unemployment benefits, small business aid, and government assistance for airlines.

But evidence of progress has been scant in recent weeks and many disagreements remain. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin criticised each other on Thursday in a sign the talks are reaching a new low ahead of the election.

It may push the passage of another stimulus package until early next year, depending on the election’s outcome.

In February 2009, Congress and President Barack Obama approved an $US830 billion economic aid package to extend unemployment benefits, cut taxes, and strengthen infrastructure. But Obama was unable to draw additional support — particularly from Republicans — for more stimulus initiatives as the deficit grew.

The pullback in government spending, experts say, led to a grinding recovery. It took seven years for the economy to recover the jobs lost during the financial crisis, according to the Centre on Budget and Policy Priorities.

Edelberg and Louise Sheiner, another economic expert at Brookings, released an analysis this month indicating a $US2 trillion package would restore the pre-pandemic trajectory of economic activity by the end of 2021. Without further action, it could take a decade to repair the damage.

“It doesn’t make all the pain go away,” Edelberg said of stimulus spending. “But if you keep small businesses viable, if you can keep state governments from pulling back on activities and becoming a headwind for the recovery, if you can preserve spending power for unemployed people, doing all those things can provide a great deal of support for the economy.”

The aim, Edelberg said, should be to keep the economy on life support until the pandemic is over and social distancing measures are no longer needed. Then, she said, “the underlying momentum of the economy can take over and now you’re off to the races.”


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“You don’t take your foot off the gas”

Democrats appear eager to avoid repeating the mistakes from a decade ago. Pelosi said in a Bloomberg interview on Thursday she anticipates moving fast on another relief package should Democratic nominee Joe Biden win the presidency, modelling it after the Obama stimulus plan. “We’ll have to have something like that from the start,” she said.

If Democrats retake the Senate and Biden defeats Trump, the odds of a sizable economic aid package increase substantially.

Earlier this year, Biden called for a stimulus “a hell of a lot bigger” than the $US2 trillion spent under the CARES Act. He’s also previously supported the $US3.4 trillion HEROES Act that Democrats passed in May.

Biden has unveiled a coronavirus relief plan as well. It includes another possible round of stimulus checks, paid sick leave for workers, a fully refundable child tax credit, as well as boosted unemployment benefits.

The Committee for a Responsible Federal Budget, a nonpartisan group, released an analysis this week putting the likely price tag on a Biden stimulus plan at $US3 trillion.

Sen. Ron Wyden, the ranking Democrat on the Senate Finance Committee, said in an interview that Democrats will attempt to press forward with ambitious plans to put the US on a fast-track to recovery.

“My view is that you come in on day one and you say, ‘Look, what do we need to do to get an economic recovery that’s driven from the middle class?'” Wyden said. “If I’m the chairman of the finance committee, [we] make sure everybody learns the lesson from 2009. You don’t take your foot off the gas in the middle of an economic recovery.”


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