How to turn a recession into a depression

Last week, the United States sent checks for $600 to approximately 25 million unemployed people. This amount effectively triples the average $350 per-week unemployment check from the states. As I argued in my new podcast episode this week (thank you for all the feedback and downloads, much appreciated!) distributing this money, at a cost of roughly $15 billion per week, has been one of the most crucial and effective things we’ve done to combat the pandemic recession.

And now there could be an abrupt end to this federal aid to unemployed Americans at the end of this month. There shouldn’t be. We can do better.

Researchers at the University of Chicago estimated that 68% of unemployed people are currently earning more money on assistance than they made working at their previous jobs. There are anecdotes all over the press about business owners who are having trouble hiring people because the potential pool of workers would rather collect the increased checks and do nothing. I’m sure this exists. I doubt it’s as widespread as some media accounts make it out to be. I believe that Americans fundamentally and overwhelmingly would prefer to work if given the choice.

The simple fact is millions of people simply do not have that choice. There were 3.9 unemployed people for every job opening in the month of May. That’s up for .8 unemployed people from every job opening in February. Federal assistance became necessary overnight and, to the credit of Congress and the Treasury, they got it done quickly. Now they’ve got to decide whether or not to keep it going, or how to modify it going forward.

Writing for the Peterson Institute for International Economics, Harvard Professor Jason Furman estimates the potential damage that could be done if these $600 checks stop going out abruptly at the end of July when the Federal Pandemic Unemployment Compensation (or FPUC) program expires (emphasis is mine):

Assume for the sake of illustration that 20 million people are still on unemployment insurance by the end of July. The expiration of federal supplements to unemployment insurance would dramatically reduce these people’s income. It would also remove about $50 billion a month from the economy. Given that the main constraint on employment is the relatively small number of jobs available, it is inconceivable that many of these 20 million people could quickly go out and find work. As a result, they would reduce their spending—hurting other businesses, costing other workers their jobs, and reducing mortgage payments and thus straining the financial system, resulting in lower overall GDP.

These effects can be quantified using a methodology similar to that used in the past by the CBO (2014) and the Council of Economic Advisers (2009, 2014), which assumes a multiplier of 1.5 for aid to directly affected individuals (roughly the mid-point of the CBO estimates)…

Relative to the full continuation of expanded unemployment insurance, expiration of benefits would reduce GDP by 2.5 percent on average in the second half of 2020, costing an average of 2 million jobs over the next year and raising the unemployment rate by up to 1.2 percentage points (figure 9). These costs would be borne not only by the currently unemployed (who would receive smaller benefits) but also more broadly across the economy.

And here are those projections in terms of both GDP and unemployment…

So, do we want to turn the recession of the first half of 2020 into a depression for the second half? Well, this is how you’d do it.

You can read the rest of Furman’s paper at the link below, including a proposal for creating “automatic triggers” that raise and lower the amount of unemployment insurance based on economic conditions in each state and the changing unemployment rate.


US Unemployment Insurance in the Pandemic and Beyond
PIIE – July, 2020

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here:

Please see disclosures here.

What's been said:

Discussions found on the web
  1. Bitcoin Loophole Review commented on Sep 22

    … [Trackback]

    […] Read More on that Topic: […]

  2. Sig Sauer commented on Oct 14

    … [Trackback]

    […] Read More on that Topic: […]

  3. travel clothes for women commented on Oct 29

    … [Trackback]

    […] Read More on to that Topic: […]

  4. Vape juice commented on Oct 29

    … [Trackback]

    […] Find More Info here on that Topic: […]

  5. sell cc commented on Nov 16

    … [Trackback]

    […] Find More here on that Topic: […]

  6. dumps + pin commented on Nov 20

    … [Trackback]

    […] Information to that Topic: […]

  7. automated regression testing commented on Nov 25

    … [Trackback]

    […] Find More Info here to that Topic: […]

  8. click here commented on Nov 27

    … [Trackback]

    […] Read More Information here on that Topic: […]

  9. scotiabank online banking sign in commented on Nov 27

    … [Trackback]

    […] Here you will find 76301 additional Info on that Topic: […]

  10. fashion elena of avalor wig 80 off commented on Dec 08

    … [Trackback]

    […] Find More Info here to that Topic: […]

  11. realistic male sex dolls torso alien commented on Dec 31

    … [Trackback]

    […] Read More here on that Topic: […]

  12. Software Testing solutions commented on Jan 15

    … [Trackback]

    […] Find More here to that Topic: […]

  13. Remington R-225 manuals commented on Jan 21

    … [Trackback]

    […] Find More Information here on that Topic: […]