What will happen to the economy without more stimulus?

“The 360” shows you diverse perspectives on the day’s top stories and debates.

What’s happening

President Trump on Tuesday ordered his administration to halt negotiations over a new economic stimulus bill until after the election. Trump said later that he would be open to signing smaller stand-alone bills that would fund another round of stimulus checks, offer relief to the airline industry and allocate more money for businesses through the Paycheck Protection Program.

But his announcement essentially ended the short-term hopes that Democrats and Republicans might come to an agreement on another comprehensive trillion-dollar aid package to prop up an economy that continues to struggle due to the coronavirus pandemic.

Congress passed a $2.2 trillion coronavirus relief bill in March after the initial outbreak of the virus forced business activity across the country to grind to a halt. Many economists credit that stimulus package for helping the U.S. avoid a true economic collapse and fueling the steady recovery that took place over the summer. Many of the key provisions of the coronavirus aid bill — like the enhanced benefits it provided to the unemployed — have expired.

House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin had both expressed optimism recently that there may be room for compromise between the $2.2 trillion package passed by House Democrats and the $1.6 trillion bill supported by the administration. The sides were still a ways apart on specific issues, particularly on aid to struggling state and local governments, before Trump shut down the negotiations.

Why there’s debate

Most economists believe additional stimulus is needed to keep the economy on a path to recovery and avoid a “double dip” recession in the coming months. Things have improved significantly since the worst days of the crash. The unemployment rate dropped from a high of 14.7 percent in April to 7.9 percent in September. But there are still 10.7 million fewer people with jobs, and major companies have laid off thousands of workers in recent weeks. Without the $600 weekly boost from enhanced unemployment benefits — which expired in July — many families have seen their incomes drop dramatically. Without additional aid, the country could face an eviction crisis or mass defaults on mortgages.

Many of the temporary job losses caused by lockdown measures could become permanent, others fear, if businesses don’t see reason to believe that more relief funds might be on the horizon or are forced to close. The risk of a “K-shaped recovery” in which the well-off see their prospects steadily improve while low-income people fall deeper into crisis is much greater without provisions to prop up the most vulnerable Americans, some argue. State and local governments might be forced to cut as many as 4 million public sector jobs unless their budgets are bailed out by Congress, one analysis found.

Some experts argue that these fears are overblown. Many fiscal conservatives believe that a massive relief package that adds trillions to the deficit would be worse for the long-term economic outlook than no deal at all. Passing individual bills to address specific needs is a more efficient way of providing the help people need, they argue.

What’s next

Pelosi and Mnuchin have reportedly opened discussions on a bill to offer relief to the airline industry. It’s unclear, however, whether an airline bailout would have enough support from Senate Republicans or whether there would be room on the calendar since confirmation hearings for Trump’s Supreme Court nominee, Amy Coney Barrett, are expected to dominate the Senate’s focus in the near future.

It’s possible another stimulus bill could be taken up after the election. But the political incentives to do so could shift dramatically depending on who wins control of the White House and the two houses of Congress.


People struggling to get by will fall apart without help

“We had a bridge which took us till about September, and now the question is do we complete the bridge or don’t we? [Without more aid] basically anybody who was on that bridge falls off a cliff.” — Economist Raghuram G. Rajan to New York Times

Stimulus would be unnecessary if lockdown measures were lifted

“The main current economic problem isn’t a lack of demand-side stimulus. It is the continuing restrictions on business and commerce in many states. … The solution is to reopen the economy while protecting the most vulnerable from Covid.” — Editorial, Wall Street Journal

Temporary job losses could become permanent

“The danger is that another delay in relief payments will prompt companies to throw in the towel and make layoffs permanent, and small companies to give up and close. Once such actions have been taken, it takes that much longer for the economy to spring back.” — John Authers, Bloomberg

There could be mass layoffs if businesses lose hope that relief might be coming

“Corporations were holding off on laying off employees in the hopes of further stimulus. With [Tuesday’s] news, I expect that we will see businesses capitulate and begin to announce large scale layoffs," — Economist Peter Atwater to Washington Post

Economic inequality will continue to grow

“Absent another stimulus check or more supplemental unemployment benefits, there will be a widening difference in quality of life between those who’ve managed to hold on to work and those who haven’t.” — Taylor Tepper, Forbes

Even more small businesses will be forced to close

“Without a new relief package, small businesses hoping for another round of forgivable loans will be left in the dust. The travel, leisure and entertainment sectors, in particular, may face closures and additional layoffs as colder weather makes dining and entertaining outdoors difficult.” — Niv Elis, The Hill

Millions of public sector workers, like teachers, will lose their jobs

“We're going to go through larger class sizes, failure to do repairs — just like we did coming out of the Great Recession. That's why you saw all those teachers striking,” — AFL-CIO’s chief economist, William Spriggs, to Politico

Promising top-level economic data will mask the pain felt by working-class Americans

“When financial markets are displeased but not distressed by congressional failure to pass another relief package, that may be because of a reasonable expectation that the affluent will get the macroeconomy through this. ... But that effect won’t put food on the table in low-income households, nor will it address the impairment to public services that will come from state and local government austerity if those governments do not receive extensive federal support to avoid budget cuts.” — Josh Barro, New York

The recovery will take longer and be more difficult without financial relief now

“What they are doing now, or rather what they are not doing now, is raising the risk that large bits of the economy will be a wasteland by the time a [COVID-19] vaccine comes through. That doesn’t mean it can never recover, but it does mean that the recovery will be longer and harder and more painful and there’ll be a lot more misery in the meantime. It seems very counterproductive to me.” — Economist Ian Shepherdson to Financial Times

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Photo illustration: Yahoo News; photo: Noam Galai/Getty Images