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2020-10-01
The Limits of American Recovery
: Project Syndicate
While most of the Global North has reached a state of
cautious optimism after confronting COVID-19 head on, the
United States continues to stand out for its persistently high
rates of death and infection. This public-health failure, and
the political dysfunction underpinning it, will remain a drag
on economic performance.
BERKELEY – The United States is home to 4
%
of the
world’s population but 21
%
of confi rmed COVID-19 deaths;
it accounts for 25
%
of the Global North’s population but
50
%
of its excess mortalities (deaths from all causes above
the usual rate) registered during the pandemic.
Moreover, America’s current cumulative cases per million
are almost four times higher than in the European Union
(though the latter itself appears to be experiencing a second
wave). While the US continues to lose around 1,000 people
to COVID-19 each day, the EU’s daily death toll is closer to
300, and Asian countries in the Global North are losing
almost nobody. And no, this is not a continental North
American problem: Canada loses only around ten people per
day to the virus.
After so many months of failure to confront the pandemic,
America’s world-leading fatality and infection rates are no
longer a surprise. The question is what the current trajectory
of the pandemic means for the US economic recovery.
The fi rst thing to bear in mind is that a recovery from the initial
pandemic-induced depression earlier in the year is already around
60
%
complete. After falling from 80.5
%
in February to 69.7
%
in
Yet another cause for fear is the prevalence of the virus itself. The
average of 1,000 COVID-19 daily deaths being recorded each
week implies that there are 10,000 symptomatic cases emerging
every day. That is enough to worry anyone who ventures out of
her house. With such a persistently high risk of contracting the
virus, US consumers will continue to be much more cautious than
their counterparts in Japan, Canada, or Germany when it comes to
returning to semi-normal economic activities like dining out or air
travel.
As such, even if America could stage a rapid recovery and restore
employment to its previous levels, the justifi able fears of US
consumers would pose a signifi cant hurdle to sustained growth, as
would the glaring absence of business investment in today’s
economic climate
.
That leaves only the government to serve as an engine of
recovery. But the US government is currently led by President
Donald Trump, a leader who has consistently failed every test
posed by the pandemic. Making matters worse, his closest
advisers apparently regard high unemployment and waves of
small-business bankruptcies as salutary developments that will
strengthen American’s work ethic in the long run.
As for the Democratic presidential contender, Joe Biden, it
remains to be seen whether he will accept the federal
government’s role as employer of last resort. In the meantime,
while the rest of the Global North is well on its way to recovery,
America will remain mired in political acrimony, economic
malaise, and potentially an even deeper existential crisis after
Election Day on November 3.
April, the employment rate for prime-age workers (25-54 years
old) climbed back to 75.3
%
in August. As of the time of this
writing in late September, it has probably increased to around
76.5
%
. But, for comparison, that is around where prime-age
employment was at the nadir of the 2008-09 Great Recession.
A second point to note is that the recovery experienced so far may
represent all that the US will get for now. Just because the
economy has recovered by 60
%
doesn’t mean that it will get all
the way back to 100
%
. After all, the current recovery is unfolding
in the shadow of the recovery from the 2008 fi nancial crisis and
Great Recession, which was also a period of zero-lower-bound
interest rates.
It is worth remembering that this previous recovery did not
feature a recovery in production, which remained as far below its
pre-crisis trend as it had been when the unemployment rate was at
its peak. As employment recovered slowly after the Great
Recession, productivity continued to lag ever-further behind. But,
because there was a persistent lag in output, too, this lack of
productivity growth allowed for employment eventually to
recover.
One lesson of recent history, then, is that modern market
economies after a crisis seem to require not just the standard
contributions of entrepreneurial capitalism but also an additional
boost from another spending channel to drive production back up
to its previous trend. But when interest rates are already near zero,
such stimulus cannot come from further monetary easing – as
indeed it did not after the Great Recession. Worse, it is becoming
increasingly unlikely that stimulus in the future will come from
expansionary fi scal policy – the obvious alternative to interest-rate
cuts – owing to debt concerns and political gridlock.
