Yesterday, Donald Trump called for an end to the fourth-round stimulus talks between White House officials, Senate Republicans, and House Democrats. He told Senate Majority Leader Mitch McConnell to focus on confirming Amy Coney Barrett to the Supreme Court, and argued, in effect, that no immediate help was needed for families or businesses. “Our Economy is doing very well. The Stock Market is at record levels, JOBS and unemployment also coming back in record numbers,” he tweeted.
The stock market declined after he made his statement. Still, depending on what the president meant by “our Economy,” he had a point. Parts of the economy are doing very well. Others are doing horribly.
Prior to his tweet, the S&P 500 had regained its early-year losses, and Nasdaq was up. Yet 100,000 small businesses and counting have closed. High-wage employment has grown this year, but low-wage employment is down 15 percent. An estimated 13 million families are behind on their rent, and 23 million are struggling to get enough to eat. At the same time, the housing market is on a “sugar high,” with sales at a 14-year peak and home values at an all-time high.
The pandemic recession has erased trillions of dollars of economic activity and pushed the jobless rate to 8.4 percent, with one in 10 Americans currently drawing unemployment-insurance payments. But it has not been evenly distributed. Big companies and rich families have largely recovered, whereas mom-and-pops and the moms and pops who run them are living through a second Great Depression.
This divergence, described as a “K-shaped recession” by economists, means that the headline economic numbers in many ways underplay the financial stress and pain that families are feeling. And, as Trump’s tweet yesterday proved, it poses a potent political threat, dampening congressional interest in passing the trillions of dollars of emergency stimulus that the country desperately needs.
As a general point, recessions tend to hit small companies harder than big companies, and less educated and lower-income workers harder than more educated and higher-income workers. But this recession and recovery have proved particularly skewed: Normalcy for some, apocalypse for others.
For businesses, the pandemic-driven downturn has decimated some sectors while leaving others untouched, acting like a tornado rather than a hurricane. Restaurants, hotels, and airlines have seen their revenue collapse, with United Airlines down nearly 90 percent in the second quarter, for instance. The construction industry, among others, got hit hard in the spring but quickly rebounded. And some businesses—technology companies, grocery stores, the makers of home goods—have flourished. “Long gone is the notion that we’ll have a V-Shaped Recovery,” argues Suzanne Clark, the president of the U.S. Chamber of Commerce, the powerful business lobby. “What we’re looking at is a recovery that will be vigorous for some sectors while others remain in freefall.”
Businesses’ fortunes are also diverging based on their size. Extraordinary actions taken by the Federal Reserve have introduced trillions of dollars of liquidity into financial firms and large companies, helping buoy them through the crisis and pumping up the stock market. But Congress has not done nearly enough to aid small firms without access to the public markets or preexisting relationships with banks. Nearly all of the small companies that took Payroll Protection Program funds from the government have now exhausted the cash. Two percent of small businesses have already closed permanently.
Similar dynamics are playing out among households. For the wealthy, the pandemic has primarily changed where work is happening, not whether it is happening, given that workers with a college degree are six times as likely as workers without a high-school diploma to be able to work remotely. As a result, job losses have proved muted at the high end of the income scale, compared with the low end. For workers making more than $32 an hour, total employment is actually higher than it was when the pandemic hit.
For hourly workers, the losses have proved severe. The pandemic cut half of the jobs in the leisure and hospitality sector—at concert venues, museums, restaurants, hotels. Local reopenings after shelter-in-place orders have provided a bounce back, but only a partial one. Workers in those sectors have been much more likely to transition from temporary furloughs into permanent layoffs than in higher-wage sectors, and one in six low-wage jobs has disappeared since January.
The additional unemployment-insurance payments and stimulus checks sent as part of the CARES Act helped support families through the summer. But that aid is now gone, and millions of families are cutting back on groceries, utilities, and other necessities. At the same time, rich families are benefiting from a buoyant stock market and cheap credit, driving up real-estate prices and juicing home sales. Dividend checks and vacation homes for some, soup kitchens and gig work for others.
The coronavirus-driven education and child-care catastrophe is also being unevenly felt. Households with cash to spare are hiring babysitters to supervise Zoom school, enrolling their children in private institutions with in-person instruction, or setting up one-room schoolhouses. These options are in no way affordable for lower-income parents, some untold thousands of whom have had to drop out of the labor force. Many education experts fear that this terrible school year will drive the achievement gap between kids from high-income and low-income families yet further apart.
Because the people least capable of bearing the pain of the recession are the ones bearing nearly all of it, the recovery might be slower than otherwise anticipated. High-income families spend less and save more of what they earn, giving them strong buffers through turbulent economic periods. But poor families spend what they take in; when they take in less, they spend less. This means that the economy cannot truly recover if it is relying on rich people to drive the recovery.
The country’s output growth might be lower in the long term as well, because of the loss of start-ups and small firms. The pandemic is increasing industry concentration, and spurring the big to get even bigger. That will result in less ingenuity, less productivity, less choice for consumers, and higher prices for everyone going forward, all terrible preexisting trends that COVID-19 stands to amplify.
Yet the fact that rich families have recovered and many big businesses are doing fine seems to have sapped Washington’s will to do anything. There is less urgency around a fourth stimulus now, despite the fact that the economy is drifting sideways and millions of families are suffering. “A rising tide lifted all boats,” Larry Kudlow, the director of the National Economic Council, recently said on Fox Business, capturing the sentiment in the White House. But who owns a boat in the first place?