Why economists support more stimulus

By The New York Times, Dec 3, 2020

Independent economists overwhelmingly favor the passage of more stimulus money before the end of the year — and the prospects for such a bill seem to be improving.

Democratic leaders in Congress yesterday signaled their openness to a bipartisan $908 billion stimulus package. Democrats would prefer a bigger package, like the $3 trillion bill that the House passed in May. But House Speaker Nancy Pelosi and Chuck Schumer, the Senate Minority Leader, released a statement saying that the bipartisan plan should become “the basis for immediate bipartisan, bicameral negotiations.”

The next move is up to Mitch McConnell and other Senate Republicans, some of whom have previously supported a $500 billion bill. There are political reasons that both sides want to appear responsive to Americans’ economic pain: The Senate runoff elections in Georgia on Jan. 5 will determine which party controls the Senate.

The economy already seems to have slowed in recent weeks, as virus caseloads have risen. And the situation will probably worsen if Congress does not pass another stimulus. Many provisions enacted since the spring are set to end on Dec. 31. Among the effects:

• About seven million freelancers, contract workers and other Americans who don’t qualify for traditional jobless benefits will lose their emergency aid. On average, it now equals $1,058 a month.
• Close to five million more people who have been out of work for at least six months will also be cut off from aid — which now averages $1,253 a month. The usual limit on jobless benefits is 26 weeks, and a provision that extended it to 39 weeks is expiring.
• Several million people could face eviction from their homes, because a federal moratorium will expire.
• About 21 million people will have to begin making student-loan payments again.
• A tax credit that has given more than 125,000 companies an incentive not to lay off workers will expire. Companies will also lose the ability to defer payroll taxes and take deductions for business losses.
• Aid to state and local governments — $150 billion — will expire. Without more aid, those governments will likely need to make cuts to schools, police forces, health care and other programs.

Moody’s Analytics forecasts that without more aid, the economy will fall into a new recession early next year, with the unemployment rate approaching 10 percent. And Jerome Powell, the Federal Reserve chairman, has said that the history of economic crises suggests Congress usually passes too little stimulus, not too much. “Some fiscal support now would really help,” Powell told a Senate committee this week.

Even if the two parties can come to an agreement on Capitol Hill, there is one more hurdle. President Trump would have to sign the bill in his final weeks in office.

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