Study Finds Correlation Between Economic Recovery And $2 Trillion Stimulus Deal

Even before the first round of federal aid implemented in the CARES Act expired, experts stressed the need for more stimulus to keep the economy afloat. In the months since supplemented unemployment benefits and other relief measures ended, recovery has slowed, and experts have renewed the push for more federal funding.

According to a recent study from the Brookings Institution, another stimulus bill could put the country’s economy at pre-pandemic levels by the middle of next year. Research showed that a $2 trillion package could increase GDP by 4% between 2021 and 2022 and mend the coronavirus recession’s effects.

The Brookings Institution published the study as stimulus talks between House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin continue. However, several points of contention remain, including funding, measures, minimal Senate backing, and even the upcoming election.

In an interview with Yahoo Finance, Wendy Edelberg, Hamilton Project director, said, “We are making the recovery harder. Every week that goes by, the problems mount. We’re going to make the recovery slower, and more painful.”

The legislation Brookings analyzed was a comparable amount but diverged somewhat from Pelosi and Mnuchin’s version. The Brookings bill allocates $400 billion for additional stimulus checks, enhanced unemployment, funding for local and state governments, Paycheck Protection Program (PPP) funding, airline bailouts, and testing resources. 

On the other hand, Pelosi and Mnuchin’s legislation has a price tag of about $1.9 trillion and would also give the economy a much-needed lift. A study from Evercore ISI found that this package would raise GDP by 3.5% next year and help the economy return to its pre-pandemic state by the fourth quarter. Additionally, the jobs market would see nearly 260,000 new jobs added every month, or an estimated 4 million annually.

Ernie Tedeschi, Evercore ISI’s managing director, policy economist, and author of the report, told Yahoo Money, “This package definitely would have made our recovery shorter and faster. There are still lots of economic risks and we would have been better prepared with this package than without it.”

The absence of any government aid would only result in a prolonged recession, a weaker labor market, and a drop in consumer spending. Not only will the US see the creation of fewer jobs, but the expiration of the Lost Wages Assistance program (LWA) will leave the unemployed with limited federal aid.

“With every passing week, jobs that people previously had are being destroyed. Those jobs are gone,” Edelberg continued. “We will have to create new jobs and creating new jobs is a slow, painful process.”

Resuming the supplemented unemployment insurance program would contribute the most to economic recovery. The $1,200 stimulus checks would also have a substantial impact on economic growth. Edelman notes that both of these measures would have rapid results since they act as a direct financial lifeline to the most vulnerable. 

However, there is still a chance that the GDP may not fully recover even if a $2 trillion stimulus passes. “That is all economic loss. That is gone. That is all pain that people will have absorbed,” Edelberg maintained. “That is people having lost jobs, and having months and months and months of just feeling incredible financial hardship.”

 

Source

  • Tsekova, Denitsa. “Coronavirus Stimulus: A $2 Trillion Bill Would Bring the U.S. Economy Back to Pre-Pandemic Path in 2021, Brookings Finds.” Yahoo!, Yahoo!, 13 Oct. 2020, money.yahoo.com/coronavirus-stimulus-a-2-trillion-bill-would-bring-the-us-economy-back-to-prepandemic-path-in-2021-brookings-finds-210605554.html.

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