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Act now to prevent a tragic economic ending

Act now to prevent a tragic economic ending

The writer is a senior fellow at Harvard Kennedy School

The coronavirus crisis is a tragedy in three acts. Act one was the unprecedented economic contraction as the world shut down from March into May. Act two, the rapid rebound as countries began to reopen from late May through July. Now we are in act three, a long, hard slog to get the world’s economies back to where they were when the year began.

Gains from the rebound have clearly slowed. After adding 4.8m jobs in June, American employers brought fewer workers back in every subsequent month. Citing tax data, the UK’s Office for National Statistics says the number of employees on company payrolls was about 695,000 fewer in August than March, and 36,000 lower than in July. Eurozone unemployment increased in August as the number of people out of work rose by 251,000 to 13.2m.

The International Labour Organization estimates the world will lose working hours equivalent to 245m full-time jobs in the final quarter of this year. Many small businesses closed during the shutdown; many more have found after reopening that they are no longer viable. Even multinational corporations, including Disney, Royal Dutch Shell, Continental, Allstate and Raytheon, are announcing staff cuts.

Few sectors are suffering more than air travel. The International Air Transport Association, which represents 290 carriers globally, says it doesn’t see passenger traffic recovering until at least 2024. Global airlines, including Lufthansa and Cathay Pacific, have cut more than 400,000 jobs already. American Airlines and United Airlines began furloughing tens of thousands more as government aid expired this month.

As companies restructure or finally go under, temporary lay-offs have fallen and permanent unemployment has risen. Nearly 80 per cent of US job losses were classified as temporary in April, and 8.5 per cent as permanent.

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The Fed warned of ‘tragic’ consequences if the US didn’t do more to support its economic recovery. Hours later, Trump killed talks about more stimulus.

The Fed warned of ‘tragic’ consequences if the US didn’t do more to support its economic recovery. Hours later, Trump killed talks about more stimulus.



Donald Trump wearing a suit and tie talking on a cell phone: President Donald Trump and Federal Reserve Chairman Jerome Powell. Reuters


© Reuters
President Donald Trump and Federal Reserve Chairman Jerome Powell. Reuters

  • Federal Reserve Chair Jerome Powell on Tuesday made his most pronounced call yet for additional relief spending, saying that the risks of passing too little stimulus far outweighed the risks of overspending and that a diminished rebound would be “tragic.”
  • Hours later, President Donald Trump said in a tweet that he was abruptly ending stimulus negotiations and that he would enact a spending bill if he is reelected in November.
  • The move shocked investors, economists, and even other Fed officials. With millions of Americans still unemployed, the absence of new government support threatens to curb the already slowing economic recovery.
  • Leaving the economy to move forward without help is like “letting the forest fire just rage,” Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis, said on CNBC, adding that the downturn could become “much, much worse.”
  • Some hope remains for near-term aid. Trump tweeted on Tuesday night that he’d still approve standalone measures for emergency airline aid, Paycheck Protection Program funds, and another round of direct payments.
  • Visit Business Insider’s homepage for more stories.

Tuesday morning saw Federal Reserve Chair Jerome Powell make his most pointed call yet for additional relief spending.

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The plea seemed to go unheard, as President Donald Trump said hours later that he was abruptly putting stimulus negotiations on ice. Revived hopes for a new bill were dashed, and investors dumped stocks in preparation for prolonged economic pain.

Experts fear that the absence of a new bill will hinder the US’s economic recovery. With Democrats and Republicans still far from a compromise, Trump’s decision means the nation must push forward without crucial government support.

Powell’s plea and Trump’s surprise tweet

The day began simply enough. Powell gave a

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