There is a need to provide support and if it's not there, the economy will do poorly: Fmr. OMB Chief Economist
Joseph Minarik, former OMB Chief Economist, joined The Final Round to discuss his outlook for the US Economy as the $600 weekly unemployment benefit end with no replacement plan or extention set in place.
Video Transcript
MYLES UDLAND: For a little bit more on everything going on in the economy right now and what's happening down in D.C., we're joined by Joseph Minarik. He is currently the director of research at the Committee for Economic Development. He had formerly been the Office of Management and Budget under the Clinton administration. Joe, good to talk to you, again, as always.
So let's start right now with the negotiations happening on a potential extension for unemployment benefits. And given the four months we've had with this program in place, your view on what worked, what didn't, what needs to be extended, how important this is for the health of the economy over the second half of the year.
JOSEPH MINARIK: Well, as you've been discussing, part of this is really brute force. It's just a question of having money out there in the economy for people to spend. Part of it is also the fact that we have a group of people, very large, as we saw in the continuing unemployment claims last week, who have no income. State benefits are very small. There are no jobs out there to be had. There is a threat of people not being able to pay the rent, of being evicted. They can't buy food for their kids. It's a really difficult situation for many folks.
So there is a need to provide support. And if it's not there, the economy will do poorly. The markets, of course, will react accordingly if they see that that support is not going to be there. So it is clearly important.
The programs that have been put into place thus far are not optimal. But at this point, they're what we have got. And that's what we're stuck with.
MYLES UDLAND: And, you know, you spent a lot of time in D.C. And you know how these things go, right. They wait until the last minute. There are imperfect solutions to very complex problems. Are-- so are you surprised that we are here a couple of days after the-- kind of those programs ran out, looking for a fix that might be equally as imperfect to what is, again, probably our biggest economic crisis since the Depression?
JOSEPH MINARIK: I don't know that I'm surprised, Myles. I am disappointed. The unemployment insurance fix, the $600 additional benefit to every unemployed person, is the first falling domino in this series. That is the program that has already expired.
As you noted, in Washington you've got a negotiation going on. You're in the room. Your constituents are outside the room. You want to show them how hard you're bargaining. And the way you show them that you're bargaining hard is you don't come to an agreement on time.
The problem is that this negotiation is very different from the usual Washington standoff over agency appropriations, because agency appropriations can go on, or agencies can continue operating even after their appropriations have run out. In this instance, we've got individuals, we've got households, unemployed people who can't pay the rent, who don't have cash. And they are literally liquidity constrained. And they can't spend.
So this would have been one of those situations where you would have hoped that people put on all the show of being difficult, and being ornery, and not wanting to reach an agreement, but they ideally would have reached an agreement on time. Now we're past the deadline. And there is, of course, some doubt that we'll have an agreement at the end of this week or even at the end of next week. And that is unsettling.
MYLES UDLAND: And I think-- and correctly so, a lot of our conversation is focusing on the consumer side of it, the enhanced unemployment, the one-time stimulus checks. But the story around the business side, small business side, is getting increasingly grim. And you know, we heard from Jer Powell last week talking about why there hadn't been uptake in some of their programs, what they were trying to do. When you look at the business side is-- like, do these need to be grants instead of loans? Where's the communication fault line here?
Because clearly, there's been a lot of money and political capital from Treasury and from the Fed put behind these programs. But the uptake has been disappointing, I think, at best.
JOSEPH MINARIK: First, you've got that Paycheck Protection Program under the Small Business Administration. The regulations on that program turned out to be so complicated and the downsides to a failure to comply with the terms, including spending a high percentage of the loan proceeds on wages-- the downsides were so deep that in many instances businesses, smaller businesses, decided they couldn't take the risk of taking the loan. So that program has been very weak.
When you go to the Federal Reserve side and you go to those lending facilities, you're into programs that are brand new, that have never operated before. And part of the problem there has been bringing them up to speed and also coming up with the terms that would be acceptable to businesses so they'd be willing to make commitments. And in many instances there, it appears as though those facilities were too rigorous, not generous enough. And as a result, businesses were not sufficiently engaged.
So the Paycheck Protection Program did kind of amount to a grant. The lending facilities with the Federal Reserve, of course, are not, but the lending terms do not appear to be attractive enough in some instances. There's going to have to be some fine tuning here and probably some acceptance of the notion that there will be loan losses, that some loans in the Paycheck Protection Program will need to be forgiven, even if the regulations are not fully complied with. And as a result, there's-- there are going to have to be some decisions made if those programs are going to be supportive of the business community.
MYLES UDLAND: And then, Joe, I think the final pillar of the crisis that I think has also gotten short shrift is the state of budgets at the state and local level. Those have been hollowed out to a large degree. They're dependent on sales tax to many-- in many instances. There's been pretty much, as far as I can see, little to no conversation about what will be needed to help states and municipalities. What kind of-- what's the scale of the crisis, I guess, in your view as you see it right now?
JOSEPH MINARIK: It's extremely important. If you go back to the financial crisis, state and local government layoffs at the end of the day were a contributor to the downturn. We need to avoid that this time around. We have a-- pretty much a party division standoff here. There is concern, mainly in the Republican Party, that states and localities have behaved irresponsibly in the past, that-- you know, the poster child there is pension programs, which were liberalized, in some instances, written into state constitutions. So the concern is if we provide relief to states that are hurting we will be, in effect, endorsing that irresponsible behavior.
The problem is that if we have those state local government layoffs, including at the locality end-- firefighters, police, teachers-- you know, that would be extremely painful and would hurt the economic recovery.
