U.S. needs estimated $4.5 trillion in stimulus to recover, analysis argues
According to a new analysis, the economy may need up to five times more money than legislators are considering to return to pre-pandemic levels.
The Groundwork Collaborative, an advanced economic think tank, noted that a stimulus package worth $ 3 to 4.5 trillion would be needed to help American businesses and workers reach their full potential and bring the real unemployment rate to 3.5% can sink.
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"We need incentives and we need them fast," New College of Florida political economist and co-author Mark Paul told Yahoo Money. “With each day we wait, we risk disenfranchising more people from the economy. Every day that we wait, more people are displaced and falling back on bills. "
The $ 3.4 trillion HEROES bill was passed by the Democratic-controlled House on October 1 but was never considered by the GOP-controlled Senate after Majority Leader Mitch McConnell (R-KY) called the legislation a "socialist manifesto." "had designated.
House Speaker Nancy Pelosi (D-CA) speaks during her weekly press conference at the U.S. Capitol on April 30, 2020 in Washington, DC. (Photo by Chip Somodevilla / Getty Images)
The latest bipartisan stimulus proposal would cost $ 908 billion, despite a mess of negotiations as House Democrats, Senate Republicans and the White House continue to disagree on key issues like economic reviews, aid to state governments and corporate liability rules amid the pandemic are .
Democratic leaders support the $ 908 billion proposal, McConnell stands by an approximately $ 500 billion proposal, and the White House tabled a $ 916 billion proposal that was quickly rejected.
"Congress is currently debating a stimulus package where our estimate of actual unemployment is still in the double-digit range," said Paul. “We have the tools to get the economy going again. Unfortunately, Congress lacks the political will to act. "
The analysis is based on an estimate that the current unemployment rate in November is 13%. While the official unemployment rate in November is 6.7%, economists warn that the real figure is much higher when you factor in the decline in labor force participation since February.
“If you consider 3.5 percent as the full employment level of unemployment and 13 percent as a better estimate of actual unemployment, the result is an unemployment gap of 9.5 percentage points,” the analysis says. "Coupled with a current November GDP estimate of nearly $ 21.3 trillion, that translates into a potential GDP of more than $ 25.7 trillion, or an output gap of $ 4.5 trillion, that fiscal policy is closing got to."
Source: "How Much Emergency Aid Will It Take to Revitalize the US Economy?"
"The cost of too small ... far outweighs the cost of too big"
The highest price for a Republican stimulus proposal was the $ 1 trillion proposal as of July, while the highest pre-election White House proposal was $ 1.9 trillion. Both suggestions are no longer considered.
"The most frustrating part of this is that, in essence, macroeconomic policymakers fully believe that the cost of incentives that are too small far outweighs the costs of over-incentives," Paul said. "The worst that can happen is that we end up having some extra public parks or giving out a few extra dollars to low- and middle-income Americans who haven't seen a raise in a generation."
And the risk of spending less than necessary on incentives is higher than more, warn economists.
"The risk of exaggeration is less than the risk of exaggeration," US Federal Reserve chairman Jay Powell told the Senate Banking Committee last week. "The financial assistance at this point will really propel the economy forward to protect itself from these downside risks."
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"Too small is better today than no incentive at all"
If a business cycle agreement is not made by the end of the year, up to 12 million Americans are expected to lose unemployment benefit coverage when two programs passed under the CARES bill expire on December 26th. The federal eviction moratorium, paid sick leave, state aid and local governments, among other things, will also become obsolete.
"We're looking at critical programs that will run out of money," said Paul. "These are just simple policy decisions that can be avoided entirely."
Both the Unemployment Pandemic Support Program (PUA) and the Pandemic Unemployment Compensation Program (PEUC) will expire on December 26, unless Congress enters into a business cycle agreement.
Both McConnell and House Speaker Nancy Pelosi (D-CA) have said that once President-elect Joe Biden is inaugurated, they can continue discussing another stimulus package if they can reach an agreement now.
But the packages offered by Republicans have shrunk as the economy appears to be recovering despite the financial margins of millions of Americans.
"I am deeply concerned about the current offering," said Paul. "But I think a stimulus that is too small today is better than no stimulus at all."
Denitsa is a writer for Yahoo Finance and Cashay, a new personal finance website. Follow her on Twitter @denitsa_tsekova.
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