It’s official: The U.S. economy, battered by the sharp economic reaction to the coronavirus pandemic, plunged into recession in February. That’s the bad news. The good news? The economic recovery likely has already begun.
“The unprecedented magnitude of the decline in employment and production, and its broad reach across the entire economy, warrants the designation of this episode as a recession, even if it turns out to be briefer than earlier contractions,” the National Bureau of Economic Research, the group that dates all U.S. recessions, announced Monday.
In short, that means 11 years of recovery and expansion ended in February. Since the average recession lasts about 11 months, the question among economists, as always, is: Will this be a U-shaped (slow) recovery, or a V-shaped (quick) recovery?
We’re not paid prognosticators here at I&I. But given recent economic signs of life, it seems likely we’re now on the verge of a recovery, if we’re not already in one. After three months of mandated economic shutdowns, the economy seems to be roaring back to life, even as the nation is roiled by angry protests over the May 25 death of George Floyd at the hands of Minneapolis police.
Controversial Job Growth
Last week’s stunning May jobs number, which showed 2.5 million new jobs (a record) and a 3.4 point percentage drop in the unemployment rate, implies an underlying resilience to the economy that few expected. After all, the “experts” had all told us to expect a jump in the number of jobless Americans and a rise in unemployment to nearly 20%.
(Yes, we’re aware of the controversy over the miscounts of jobs data during the topsy-turvy pandemic months of April and May. But having followed Bureau of Labor Statistics data releases for decades, we can tell you more revisions are likely coming. Yet, even taking recent shaky data into consideration, unemployment still fell more than three percentage points in May.)
The comeback could be seen in recent weeks as stock market prices, a strong indicator of future economic activity, approached old highs. The growth-oriented Nasdaq, in fact, is now higher than it’s ever been. Since bottoming on March 23 amid the depths of the COVID-19 scare, it has soared 49%.
On Monday, as iconic chain Dunkin’ announced plans to rehire 25,000 workers as it tools up to reopen its nationwide chain of doughnut stores, CNN featured this headline: “Airbnb is making a huge comeback,” as people begin to plan vacations and trips.
More Stimulus? No, Thanks
Not everyone is back, though. And it might take months of struggle, with some businesses failing to get back on their feet. But the economy appears to be healing fairly rapidly, compared to early prognostications that it might take as long as 2022 to return to some semblance of normalcy.
This is important for Congress and other policymakers to know, since it implies there’s little need for further multi-trillion-dollar “stimulus” packages, if indeed there ever was a need.
Right now in Congress, there’s a big debate between the parties over the size, scope and content of the HEROES Act, a so-called stimulus bill. From what we’ve seen, many of the features now proposed by Democrats not only wouldn’t stimulate the economy, but would actually make things worse and possibly even kill the nascent recovery.
Not surprisingly, the model for the HEROES Act, the previous CARES Act, a $2 trillion spending effort, had lots of political favors, payoffs and pork masquerading as stimulus. Rachel Bovard of the Conservative Partnership Institute recently listed some of the questionable stimulus spending in that awful bill.
CARES Act Giveaways
It included, she noted, a gallimaufry of giveaways, including among other things a $10 billion loan to the U.S. Postal Service, $48 million in sex-ed funding, $25 million in “salaries and expenses” for the House of Representatives, another $60 million for NASA, $3 million for “forest and rangeland research” by the U.S. Forest Service, a $78,000 “payment” to the Institute of American Indian and Alaska Native Culture and Arts Development, another $99 million for the Energy Department, $25 million to the John F. Kennedy Center for the Performing Arts, $75 million to the National Endowment for the Arts, $75 million to the National Endowment for the Humanities, $75 million to the Corporation for Public Broadcasting, $7.5 million to the Smithsonian Institution and $50 million to the Institute of Museum and Library Services.
Yes, small potatoes, but it’s just a sampling of that very wasteful bill. The public was bought off by the inclusion of a piddling $1,200 “stimulus” check for most of us. Sadly, this is how business gets done in Washington. And whether you think individual items listed above are worthy, they certainly don’t belong in a stimulus bill.
What concerns us is that the new HEROES Act looks like it will include lots of new wasteful spending. Congressional Democrats are pushing for a $3 trillion bill larded with favors and gifts to special interests, followed by another bill later in the summer. Republicans want a smaller $1 trillion bill, and then be done.
Sorry, But ‘Stimulus’ Doesn’t Stimulate
Either way, it should be noted that the concept of stimulus is dubious to begin with. A 2012 Mercatus Center comprehensive study of 10 recessions after World War II looked at our government’s experience with stimulus, the keystone of post-Depression-era liberal Keynesian economic thinking.
What it found was not surprising. Government stimulus doesn’t work.
“Examination of a large number of data points shows that the economy responds either negatively or not at all to increased government spending, which is to say that GDP growth does not follow stimulus spending.”
Worse, higher spending by government led to declines in per capita GDP growth, the real measure of a nation’s well-being.
This is just one of a growing number of economic studies suggesting stimulus is entirely a political exercise in wasting public money. It’s a jobs program for bad legislators to convince their hoodwinked voters that they “did something” about the suddenly terrible economy.
The other favored form of stimulus, Fed rate cuts, can have a positive short-term impact on the economy. But it doesn’t last. In the long run, below-market interest rates create investment and economic distortions that reveal themselves when interest rates return to normal long-term values. The result: recession.
Our point here isn’t that the government shouldn’t do anything. Rather, it should do things that actually will encourage our nascent recovery. Cut spending. Slash regulations. Lower taxes even further. Stand up for the rule of law. Support innovation. Sign free trade deals with those who actually support the idea.
Aside from those things, government’s best move would be to end the mistaken coronavirus lockdown immediately and just get the hell out of the private economy’s way.
— Written by the I&I Editorial Board.