A new stimulus package could bring the economy back on track to its pre-pandemic levels by mid-2021 — as long as the price is right.
If the government spent an additional $2 trillion, the economy would return to its projected trajectory before the pandemic by the third quarter of next year. The spending would boost the real gross domestic product by 4% in 2021 and 2022, the Brookings Institution found.
That analysis comes as House Speaker Nancy Pelosi (D-CA) and Treasury Secretary Steven Mnuchin continue talks for a bipartisan stimulus deal. But disagreements on price tag and key provisions, lack of GOP support, and the proximity of the election all lower the prospects of a deal before the election.
“We are making the recovery harder,” Wendy Edelberg, director of the Hamilton Project, the Brookings economic policy arm, told Yahoo Finance. “Every week that goes by, the problems mount. We're going to make the recovery slower, and more painful.”
‘Made our recovery shorter and faster’
The stimulus package that Brookings considered has a similar price tag but contains slightly different provisions than the package Pelosi and Mnuchin have been negotiating in the last two weeks.
The Brookings package includes $400 billion for each of the following provisions: stimulus checks, unemployment benefits, state and local aid, another round of the Paycheck Protection Program (PPP), and other provisions like airline help and testing
A package like the one Mnuchin and Pelosi have been negotiating — worth around $1.9 trillion — would provide a similar boost to the economy, increasing GDP by 3.5% in 2021 and returning the economy to its pre-pandemic path in the fourth quarter of 2021, an analysis by Evercore ISI finds. Around 4 million jobs would be added by the end of 2021, or 260,000 more per month.
“This package definitely would have made our recovery shorter and faster,” Ernie Tedeschi, a managing director and policy economist for Evercore ISI and author of the analysis, told Yahoo Money. “There are still lots of economic risks and we would have been better prepared with this package than without it.”
‘Creating new jobs is a slow, painful process’
Not passing a stimulus deal will hit the job market and spending. Fewer jobs will be added, while those who remain unemployed will receive smaller benefits now that the CARES Act and the Lost Wages Assistance (LWA) program have expired.
“With every passing week, jobs that people previously had are being destroyed. Those jobs are gone,” Edelberg said. “We will have to create new jobs and creating new jobs is a slow, painful process.”
Additional unemployment benefits would have the biggest economic effect per dollar spent because it’s targeted — helping people who are unable to find jobs and suffering financially. Stimulus checks — another popular provision — are another effective relief aid because they are quickly distributed and immediately boost the economy, according to Edelman.
Even if lawmakers can come together for a stimulus package near $2 trillion that would prop up the economy significantly, there is still the cumulative effect of GDP tumbling so much since the spring.
“That is all economic loss. That is gone. That is all pain that people will have absorbed,” Edelberg said. “That is people having lost jobs, and having months and months and months of just feeling incredible financial hardship.”