Jacob Jennings is an assistant economics professor at Chico State, and has lived in the area with his family since 2015. He holds bachelor’s degrees in economics and business management, and a master’s degree and PhD in economics. Jennings’ research primarily focuses on macroeconomics, economic history, credit, inequality, and asset price shifts. His research has also crossed over with health disparities and its connection to income and other socioeconomic inequalities. As the COVID-19 pandemic continues and the national and global economies continue to experience the fallout, he shares his concerns and optimism for recovery.
What are your professional concerns about the economic outcome of COVID-19?
My general concerns are that many of what were termed “temporary layoffs” and jobless claims will become more long-lasting or even permanent if we’re not able to take care of the underlying health issues. Spending is significantly down and unlikely to fully rebound until the virus—and our ability to deal with it—is better. The United States, like many other advanced countries, is very reliant upon the service sector, and while some firms and services are returning, most restaurants, tourism, and entertainment are a long way from being back to trend. I’m also concerned about the many indirect costs of the shutdown in mental health, abuse, and lost human capital. Furthermore, I worry that policymakers assume that the recovery will be swift following May’s slight unemployment fall and initial monetary and fiscal policies, and they will care more about the National Debt than the economic collapse caused by COVID-19.
What governmental actions do you think need to be taken to influence the recovery of our current economy?
Broadly, I think we still need another round of large stimulus and potentially smaller rounds following. In analyzing the response to the Great Recession, many economists see that stimulus (itself historically large!) as too small for the size of the economic collapse. Part of the next round that hopefully gains traction will be to transfer funds over to states in order to prevent further cuts to essential programs. Not acting is essentially allowing for state-level austerity plans, which would likely drive the recession deeper. There are many historic examples where societies have started too soon into austerity programs—reducing government spending and programs while raising taxes—that have made the crisis worse. There will be a time to worry about the National Debt, but not during the worst of the recession and when the cost of borrowing is historically low.
How do current unemployment rates compare to past economic downfalls in the United States? Has a virus impacted the US unemployment rate as intensely as COVID-19?
‘Without historic precedent’ is a phrase that I’ve heard a lot recently, and it really applies now. Even with the slight rebound in May, there isn’t a shock and recession that looks close to the present. At the height of the Great Recession, the United States lost 700,000 jobs in a month. In contrast, the second week of May was the lowest loss in employment at just over 2.1 million jobless claims. Granted, there are some similarities to earlier crises like the 1918 Flu and comparable trends to the Great Depression, and much of our macro policy has been akin to the Great Recession. Though, most economists would argue that what we’re facing is very different. Our hope this time around is that since the economic shutdown was primarily voluntary, the fundamentals of the economy remain robust as we continue to fight the virus.
How long do you think the United States will feel the economic impact of COVID-19 and in what ways?
I feel all economists and would-be forecasters need to acknowledge that we’re not epidemiologists and that the virus very much drives our potential economic outcomes. That said, there are a few different views on an eventual economic recovery. They range from the very optimistic Z- or V-shaped recoveries, where pent-up demand and spending could drive a swift recovery and all the temporary job losses are regained. Less rosy routes include a longer U-shaped recovery or even a check-shaped recovery where it takes some time to get back to a pre-coronavirus baseline. These are probably the most likely and would follow the path of the Great Recession and dot-com bubbles. More pessimistic outcomes include a W-shaped recovery where the virus gets worse in the fall and/or winter causing another near economic shutdown or an L-shaped outcome where the economy fails to recover. Our last two economic recoveries were slow and even termed ‘jobless recoveries’ where GDP rebounded before jobs came back. Again, it’s possible for this crisis and recovery to be swift, as there was no underlying housing crisis drag and unemployment got a bit better in May. However, my intuition is that we’re in for a slower recovery.
What are some optimistic and hopeful economic outcomes and actions that you can recognize?
On the bright and more hopeful side, there wasn’t a clear economic illness in this downturn, in contrast to the housing bubble or the run-up in private debt leading to the Great Recession. If health concerns are alleviated by a vaccine, better testing, contact tracing, or herd immunity, then there’s no reason a swift recovery couldn’t happen. Also, macroeconomic policy, at least initially, was very quick and aggressive in a way that we haven’t seen before. The CARES Act was the largest fiscal stimulus in history with loans to small businesses, rebate checks to households, and expanded unemployment insurance, amongst others. The Federal Reserve was even quicker to drop rates to zero and to begin added forms of quantitative easing. Recessions with a financial crisis component to them are significantly worse than those without. The Fed has been as active, innovative, and forceful as its mandate allows in order to strengthen the financial sector through the pandemic.