'We're going to get a package,' we just have to figure out how much and what's in it: Economist

Moody's Analytics Chief Economist Mark Zandi joined Yahoo Finance Live to break down how much money he believes will be in the next stimulus deal and how it'll impact Americans and the economy.

Video Transcript

ADAM SHAPIRO: And right now, there is the potential showdown between the $1.9 trillion stimulus deal or the $600 billion-- I'll call it the skinny stimulus deal. You say let's meet in the middle-- $1.2 trillion. What's going to happen?

MARK ZANDI: Well, I don't know. It needs some negotiation. But I do know we're going to get a package. I think it's just a matter of what the number is and exactly what's in it. As you pointed out, you know, my preference would be for lawmakers to come to a bipartisan agreement. Compromise come somewhere in between, so something north of a trillion dollars. I think that would be sufficient to help the economy get from here to the end of the pandemic, say, mid-year under the most likely scenario.

And then, you know, after that, we can see where the economy is, how it's performing, what's going on with the pandemic, see what more help the economy needs to get back to full employment as quickly as possible, and have another piece of legislation at that point, which may be bipartisan or it may be under reconciliation. But one way or the other, I think at this point, I'm confident that we're going to get more fiscal support. And that's a good thing.

SEANA SMITH: Mark, I'm curious to get your thoughts on the direct payments because this is something that's a sticking point between the GOP and the Democrats, just in terms of, I guess, how helpful do you think it is for the economy, or do you think that some of these stimulus-- some of these initiatives need to be a little bit more targeted?

MARK ZANDI: They should be targeted. I mean, it's very helpful, particularly for lower income households that have been hit very hard by the pandemic. That's where the unemployment is. That's where the underemployment is. That's where people who still have jobs have suffered pay cuts. Those are the renters that are struggling to make their rent payments. So I think it's a very helpful, very quick, a very straightforward way to help people. But I do think it should be targeted.

You know, the discussion-- the previous stimulus checks were up to $75,000 in income. And then they got phased out up through 100, and then it went away. The current discussion or the proposal from Republicans is $50,000 in income and then phase that out after $75,000. And, you know, I think that's probably-- would be better designed and more targeted to the people that really do need it. And then use that money that you save for other more targeted types of support, like unemployment insurance, rental assistance, food assistance, that kind of thing.

ADAM SHAPIRO: Mark, a lot of economists talk about the productivity gains that we're seeing in the last year for different companies. And some of us here, that is, oh, people are out of work. We'll find out the numbers actually on Friday with the Labor Department's jobs report. But is there a danger that these productivity gains are people out of work, and that's going to be permanent?

MARK ZANDI: Well, you know, I think that we have seen a level shift higher in productivity. And part of that is just compositional. A lot of low value added, lesser productive industries, like retail, leisure hospitality, have been hit hard, while higher value added, high productivity industries, like technology, financial services, have navigated through well.

Part of the level shift in productivity is businesses that have invested heavily in labor saving technologies during the previous expansion and are now fully incorporating the benefits of that in their business practices. It's hard to make the kind of wrenching changes necessary to take advantage of those things when things are really going well, when you're middle of an expansion. Much more straightforward-- it sounds a little weird, but it's much more straightforward to do it when times are tough, and you'd have to make big changes anyway.

So we have seen a level shift. You know, there's still an open question as to on the other side of this, on the other side of the pandemic, whether the growth of productivity goes back to where it was pre-pandemic, about 1% per annum, or whether it settles in at a higher rate. I mean, in the longer run, you want higher rates of productivity, right? Because that goes right to our standard of living. That goes to income growth. That goes to growth and profits, housing value, stock prices. Think tax revenue, our fiscal situation.

So we want that stronger productivity growth. But it does complicate things in terms of getting back to full employment more quickly. But what I would say, give me the productivity gains, but then I would also have a very fulsome aggressive fiscal policy package to get us back to full employment as fast as possible.

SEANA SMITH: Well, Mark, speaking of full employment, I guess, what are your expectations at this point? Because a lot of things have happened over the last several months. When we take a look at the December jobs report, clearly, that was a big miss. So have you-- I guess, do you expect it to take a little bit longer then for us to get back to that full employment number?

MARK ZANDI: Well, I think if everything sticks to script-- and script means the pandemic starts winding down, say, somewhere between July 4th and Labor Day. Hopefully by then, we will have enough people that are vaccinated, and we're achieving some form of herd immunity. And sticking to strict means we do get more fiscal support. And I think, one way or the other, we're going to get a couple of trillion dollars in support this year.

So if all of that comes together-- and obviously, there's lots of ifs there-- I do think we'll get all the jobs back that we lost the pandemic recession back a year ago by the spring of 2023, so a couple of years from now. So I think that would be-- I think that would be good news if we could achieve that. And I think that's well within our grasp of achieving. I mean, it'd be nice to get there faster, but I think given all the things that we've been through and all the things that we're still going to have to navigate through here, that would be quite an achievement, but one we can achieve.