Kellogg Public-Private Initiative Executive Director & Former Chief Economist and Chief Economic Advisor to Vice President Joe Biden Ben Harris joins Yahoo Finance Live to discuss what to expect as lawmakers near a stimulus deal.
AKIKO FUJITA: Let's begin the conversation there today with our first guest for the hour. We've got Ben Harris. He is Kellogg Public-Private Initiative Executive Director and former Chief Economist and Chief Economic Advisor to Vice President Joe Biden, now president-elect, of course.
Ben, it's great to have you on today. Love to kick off the conversation on this front by talking about the economic data we got out today. I know weekly we talk about what that uptick or the decline means. In this case, we're talking about two straight weeks of increases in terms of initial unemployment benefits. Give me your sense of the state of the economy right now and where the recovery is.
BEN HARRIS: So the economy right now has been driven by two major sources of uncertainty. The first is that with the vaccine dissemination, we didn't know for a long time when it would be ready, how effective it would be. That source of uncertainty seems to be as though it will be resolved quickly.
The second big source of uncertainty has been in the hands of Congress and whether or not Congress will pass a second relief package. That looks like it's coming to an end. It could come to an end today or tomorrow if Congress goes ahead and passed that $908 billion relief package.
But looking over the economy in 2021, it's really a two-part economy. One, it looks pretty dark until there's widespread vaccinations and people can go out into the economy again. And then beyond that, it actually looks pretty good. There was enormous amount of saving in the second and third quarter of 2020, in part because people didn't spend their stimulus checks and in part because they had nowhere to spend their money.
But what's really concerning is the fact that you just mentioned, our unemployment and the labor market, which has just been decimated. We've got 20 million people collecting unemployment insurance. We're still down 11 million jobs. So the real question is how much pain are we going to ask those people to endure until we get to a healthy economy in the second half of 2021?
ZACK GUZMAN: Yeah, and Ben, we heard that-- we heard as much, at least, from Fed Chair Powell yesterday kind of talking about the bifurcation between people who have a bridge to get to the other side in this recovery, and there are plenty of Americans who don't have that right now. Stimulus checks I assume are part of the plan here to address that. We're still waiting to see what might come through here. Sounds like maybe $600 direct payments again this time.
But when we've heard President-elect Biden talk about the plan, it sounds like he's looking at this $900 billion proposal as a down payment with much more expected once he comes into office. When you look at the economic data here, what are you seeing and what would you push for in that second maybe stab here to fix things and what you would want to see come through to address some of those insecurities we're seeing on the part of Americans immediately?
BEN HARRIS: Yeah, so if you want to take a longer-run view, we've really got three different eras with the economy. We've got roughly the first half of 2021, which is going to be painful and a lot of people out of work. The second half, which should be this big bounce back when you see there's a lot of spending and the pent-up demand and we can actually go out into the economy again. And then we sort of will settle into this long-run 2% growth that we've been in for so long. That's what we've seen over the past four years or so and even before that.
So when President-elect Biden laid out his campaign agenda, a big part about that was getting us out of sort of the shackles of 2% growth and putting forward a big progrowth plan. A lot of that had to do with renewable energy. A lot of that had to do with labor supply and child care, and a lot of that had to do with research and development. So that's the third part. That will get us into 2022 and beyond. We just have to decide if Congress wants to come together and actually pass a big infrastructure package or address child care or address access to capital for businesses. But that's really a 2022 question.
AKIKO FUJITA: Ben, when you look back to the stimulus checks that went out in spring, $1,200, they did end up being very supportive. You saw a lot of Americans actually go out and spend some of that money as well. If we're talking about the $900 billion package right now, to Zack's point, the stimulus checks, the amount that's being discussed, appears to be about half of what went out in the spring. How supportive do you think can that be of the economy this late in the game when we're several months removed from the last CARES package?
BEN HARRIS: Well, the really important part of that $908 billion package is the more targeted part, which is the support for unemployment insurance. So as you know, at the end of December right now, 13 plus million people are scheduled to lose their benefits. That is really-- that's really painful. I mean, we're talking about going all the way down to zero for people who want to work but it's just not safe for them to do so or they can't find a job.
The second most important part about that are access to capital for small businesses and a second round of funding for PPP. That looks like it'll be in there. What looks like what's happening is that they're taking out that funding for state and local governments, $160 billion which was initially reported to be in there, and replacing it with $600 billion-- $600 stimulus checks.
To me, that's not-- that's not a good swap. There are a lot of cities and states that have lost revenue over the past year. Sales taxes are down. Income revenues-- income-tax revenues are down, and they're just out of money, and they're being asked to administer the vaccine. So, look, I'm all for $600 stimulus checks but not at the expense of that money for cities and states who really need it.
ZACK GUZMAN: Yeah, and that's been one of the key contentious pieces of all this we've seen in the negotiations back and forth.
But looking ahead to what kind of appetite might be there at a larger package next year, I think it's important to kind of highlight the fact that we're still not entirely sure, can't say with 100% certainty, but looking like Republicans might be able to maintain control in the Senate here. We'll see how those Georgia Senate runoffs go.
But when you look at that, I guess it seems like it's going to be rather key to getting through maybe some of the more progressive changes that President-elect Biden might be pushing for, particularly on the tax front. When you look at what might need to be tossed from some of those changes, what are you looking at maybe some of the first things to go if Republicans do control the Senate and Biden's tax proposals?
BEN HARRIS: Well, it depends on the appetite for deficit financing. And, you know, there has been a change, an evolution in economics where I think economists are increasingly in favor for deficit financing, particularly in times where we're in slow growth or when interest rates have been locked in at really low levels for a long period of time, like we're seeing now.
So that's the first question, which is is Congress willing to pass, say, a $700 or $800 billion infrastructure package and not pay for it? If the answer is no, if the answer is, look, we need offsets for that, I think some of the offsets might be more appealing. I think we could see a few-percentage-point increase in the corporate tax rate. Of course, Biden during the campaign wanted to split the difference between the 35% where we're at going back to the 1980s and the 21% that we have now, and he wanted a 28% rate.
So could we go up to 23%, 24%, 25%? Maybe. Could we see a bump up in the top rates from income tax rates from 37% up to 39.6%? Maybe. I just don't know where senators are at, particularly on the Republican side, if they want to go ahead and pay for a midsized infrastructure package.
I will say that infrastructure does feel like one area where you could see some agreement. About a month ago, you saw reauthorization of the highway spending. So that expires in September of next year. That may be the opportunity to reach some bipartisan agreement.
AKIKO FUJITA: And, Ben, if I can bring the conversation back to the labor market, it feels like, depending on the data you look at, there's a bit of good news/bad news that's playing out right now. On the one hand, some would argue that wages and salaries have bounced back much quicker than what we saw during the financial crisis. The other side of this is also the number of long-term unemployed. That number has increased. And we've also seen the cracks in the workforce, whether it is the number of unemployed Black Americans as well as the number of women who have dropped out of the workforce.
When you look at all of that data, what concerns you the most? What do you think is the biggest pain point?
BEN HARRIS: So you hit on all the key points there. You know, I think the way that I would characterize the labor market right now is it is really good unless it's bad. And so one of the situations in which it's bad-- I mean, it is just heartbreaking, honestly.
So you're seeing-- A, you're seeing long-term unemployment get to dangerous levels. We're at about 4 million for people who have been unemployed for 27 weeks or longer. That is a massive concern. That was one of the worst things to come out of the Great Recession.
You're seeing a decline in Americans participating in the labor market at all. So the employment-to-population ratio is down about four percentage points. Look, that is a real concern. We're seeing people just drop out of the labor market. That obviously has long-term effects.
And then on wages-- I mean, the trend in wages has been very different. So if you're looking at people making more than $40 an hour, they're pretty much back to where they were before the pandemic started. But you're looking at the lower wage buckets, people making less than $15 or people making between $15 and $22 an hour, and they're still down 5% or more.
So, you know, right now people who are looking for work for a long time and can't get a job, really worried about them. People who have dropped out, obviously really worried about them. And these low-wage workers who have no leverage right now in this economy and are seeing their wages decline, really worried about them.
So it really is-- I mean, you've heard this before, but it really is a K-shaped recovery.
AKIKO FUJITA: Ben, it's good to get your insight today. Ben Harris, former chief economist and chief economic advisor to then Vice President Joe Biden, now president-elect. Good to talk to you today.
BEN HARRIS: Thank you.