There is widespread agreement that the $1.8 trillion economic recovery package that went into effect in March – the CARES Act – averted economic disaster after the coronavirus pandemic began. But even that conventional view understates its true success.

With each passing month, the evidence mounts that the CARES Act performed better than even its strongest advocates thought it would. Perversely, its success is undermining the perceived need for Congress to provide additional support. Households, workers and small businesses will bear the brunt of the lethargy among both Democratic and Republican congressional leaders.

One way to see how strikingly the CARES Act exceeded expectations is to look at evolving professional forecasts of future economic performance. On May 15, about six weeks after the CARES Act was signed, the Survey of Professional Forecasters’ median prediction for third-quarter gross domestic product growth was an annual rate of 10.6 percent, and forecasters expected a 12.9 percent unemployment rate. On Aug. 14, forecasters expected even faster improvement. The median prediction for third-quarter GDP growth was 19.1 percent, with a 10 percent unemployment rate.

What actually happened was far more impressive. Third-quarter growth clocked in at a 33.1 percent annual rate, and the unemployment rate fell to 7.9 percent.

Or consider all the talk last spring of a “second Great Depression.” That was a reasonable concern in April and even in May. But now that level of anxiety has largely evaporated from the public discourse, replaced by headlines this fall touting the economy’s surprising strength.

When the CARES Act passed in March, the conventional view was that the economy would incur damage that would take years to work through. In March and April, 22 million workers lost their jobs, threatening to create a prolonged period of labor market distress. A wave of bankruptcies was expected that would wipe out healthy businesses, with the economy wastefully losing their networks, relationships and knowledge. Fewer businesses would mean fewer job openings, making it harder for unemployed people to find work, deepening the labor market’s challenges and reducing household income. The CARES Act was expected to mitigate the damage, but not to stop it.

Remarkably, the extent of this type of deeper, longer-term damage is limited so far. The unemployment rate is much lower than was expected this spring, and temporary layoffs do not seem to be turning into permanent separations. Business continuity suggests that labor demand will be strong in 2021. Small-business closings largely proved temporary. New businesses are forming at a surprising rate. Commercial bankruptcy filings are below pre-virus levels.

With the benefit of hindsight, the CARES Act’s impact is remarkable. The economy was producing over $2 trillion less in the second quarter than its underlying fundamentals suggest it should, but that gap narrowed to less than $1 trillion in the third quarter. Economic output shrank by 9 percent in the second quarter relative to the first quarter. But over the same period, as the economy was violently contracting, disposable household income increased by 10 percent. The personal savings rate shot up to 34 percent in April, creating a cushion for households that is paying dividends today.

There are signs that the cushion is losing air. The pace of monthly job gains has slowed considerably since the spring. This fall, consumers pulled back on spending, and their confidence in the economy decreased in November to a three-month low. The savings rate has fallen by 20 percentage points as households burn through their reserves. Lines at food banks are growing as nutritional insecurity worsens.

The economy can be likened to a car, and the CARES Act to a half-built bridge. If the bridge is complete, the car can get to the other side in one piece – if Congress passes extensions to unemployment benefits, aid to state and local governments and another round of small-business relief, then the economy can make it to the other side of the pandemic without incurring the kind of deeper problems that leave an economy weakened for years.

But if Congress does not pass another stimulus, then the first quarter of 2021 could easily see a shrinking economy and increasing unemployment. Deeper problems could take root. Millions of businesses could be wastefully lost. Labor demand could weaken over the medium term, keeping unemployment higher for longer.

If the CARES Act had not been so successful, then House Democrats would not be approaching another round of stimulus at such a leisurely pace. Senate Republicans would not be confusing rising stock prices for overall economic strength. But if another economic recovery package isn’t passed before February, it will become unfortunately clear how needed one was in December and January.

The passage of time should make Americans even more thankful for the fact that leaders in Congress and the administration of President Trump were able to set their divisions aside in March.

Given how quickly Washington returned to rancorous division, it is easy to fail to appreciate the role that statesmanship and bipartisan cooperation played in this success. Workers, households and businesses need leaders of both parties to compromise again – quickly.


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