Daily Outlook

Why Trump’s Reopening Won’t Save the Economy

President Donald Trump decided to reopen the U.S. economy even if the pandemic wasn’t under control.

While we saw an improvement in job numbers and retail sales, the economy is still damaged from the pandemic. It will take a long time to go back to normal.

After the government released a better-than-expected jobs report for May, Trump gave a triumphant press conference where he said the economy was taking off quickly:

We’ve been talking about the V. This is better than a V. This is a rocket ship.

Trump is way too optimistic about the reopening. Unfortunately, his plan won’t save the U.S. economy, Even as states reopen their economies, spending and employment remain well below pre-crisis levels. This suggests that the economy will be slow to rebound until the virus is under control.

Billionaire investor Bill Ackman said recently he thought the economy would start to recover by the end of the year but won’t return to anything close to normal until the second half of 2021. If there is an early, distributable vaccine by the fall, it will make a huge difference.

A study by economists from Harvard University found that the vast majority of lower consumer spending in the United States is due to lower spending by high-income households.

Rich people have reduced their spending, which in turn destroyed millions of jobs, especially in the service sector.

Recessions are typically driven by lower spending on durable goods, such as automobiles and computers. This recession is different. The decline in consumer spending is mostly seen in restaurants, hotels, bars, and other service establishments that require face-to-face contact.

The study shows that this drop in spending is mainly in rich ZIP codes, whose businesses saw their sales fall by 70%. This compares to a 30% drop in revenue for firms in poorer postal codes.

This 70% drop in revenue led these companies to lay off almost 70% of their employees, who are mostly low-wage workers. Businesses in poorer postal codes laid off about 30% of their employees.

That means the reduction in spending by the wealthy has resulted in the loss of jobs mainly for low-income people working in wealthy areas.

The study also found that the federal rescue package failed to save businesses and jobs most affected by the pandemic.

Traditional economic policy tools like tax cuts and spending increases to boost demand won’t be enough.

Until Americans feel safe again, Trump should expand unemployment benefits and help low-income workers who will struggle for a long time in the pandemic economy.

Why Trump’s Reopening Won’t Save the Economy, CCN, Jun 29

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