by Avigail Rosen, Opinions Editor
graphic by Cat Lu
The Roaring Twenties! The 1920s was a decade full of dramatic social and cultural growth, economic prosperity, newfound freedoms and, best of all, the Great Depression. Luckily for us, the 2020s are already showing parallels to the 1920s with the most obvious connection being a devastating recession causing detrimental impacts on US citizens. Fun, right?
The U.S. Department of Commerce predicted that the U.S. Gross Domestic Product will decrease by 4.8% in the first quarter of 2020. Even worse, as reported by Market Watch, predictions for the second quarter illustrate a 25% decline, making it the largest recession since the Great Depression. COVID-19 has destroyed supply chains between the U.S. and other countries, which has resulted in a decrease in trade, created volatility in the stock market and led to mass unemployment, all of which have been large factors that contributed to the downfall of the economy.
COVID-19-induced mass unemployment is arguably the outbreak’s most drastic economic consequence. On April 30, the U.S. Department of Labor reported that within six weeks, over 30 million jobs were lost. With such unemployment, the economy will continue to spiral downwards, leaving families struggling to stay afloat. Unemployment has devastating effects, leaving no sympathy for workers living paycheck to paycheck, single-income families or college students and graduates who are in debt.
All the economic harms caused by the spread of the coronavirus truly sound like a never-ending horror story, but, thankfully, there is a solution in sight. Meet the $2.2 trillion stimulus package passed by Congress on March 27. It was passed to directly combat the economic damage and mass unemployment that the coronavirus has caused.
A stimulus package is exactly what it sounds like, a sum of money allocated in different ways in order to stimulate the economy. A stimulus package isn’t by any means a brand new concept. In fact, one way the U.S. got out of the 2008 recession was through a stimulus package, the American Recovery and Reinvestment Act (ARRA), worth $787 billion. Arguably, though less direct, Roosevelt’s New Deal to get the U.S. out of the Great Depression was a stimulus package.
Historically, stimulus packages have been effective in ending and mitigating recessions. In 2008, the stimulus package increased consumer spending by cutting taxes, increasing unemployment benefits and creating jobs. Because of the package, the economy grew 1.7% in the third quarter and 3.8% in the fourth quarter in 2009, a drastic improvement on the economy’s 6.7% drop in the first quarter of that same year.
The CARES Act, the most recent stimulus package, contains $100 billion for hospitals, $500 billion for struggling larger industries, $150 billion for state and local governments and $377 billion for small businesses. This sheer amount of money alone will help not only slow down the pandemic, but will also prevent industries from falling apart and taking the U.S. economy down with them.
The package also includes unemployment benefits, helping the over 30 million people who are newly unemployed. Under the stimulus package, unemployed individuals will get an extra $600 per week for up to four months, on top of state unemployment benefits to make up for 100% of lost wages. The most striking aspect of the plan, however, is the $1,200 check going to individuals making below $75,000, with eligible families receiving an additional $500 for each child under the age of 17.
Not only is giving money to citizens beneficial because it helps those who are struggling, but it also plays a large part in resurrecting the economy. When people have money, they spend money. This sums up the general goal behind a stimulus package, which is to increase consumer spending in one way or another in order to stimulate the economy. According to the Federal Reserve Bank of St. Louis, consumer spending accounts for roughly 70% of economic growth. By increasing the amount of disposable income a given individual has and can spend, even by only $1,200, the stimulus package is effectively keeping the economy alive.
One of the largest criticisms of the stimulus package is its funding mechanism: increasing the U.S. debt. At first glance, increasing America’s already-high debt by $2 trillion seems like a horrible idea. In reality, however, a high debt doesn’t really matter that much. The U.S. has only been debt-free once in its history — and that single time was in 1835. Nonetheless, a national debt has never proven detrimental.
Though even before the stimulus package, the debt sat at its highest point ever — $23 trillion dollars — CBS reported that, “the nation’s debt has more than doubled since the 2008 crash — and yet until the coronavirus hit, the U.S. was enjoying its longest ever economic expansion.”
Overall, the U.S. will likely never fall bankrupt due to their debt like other countries have because as the Brookings Institute concludes, investors always buy U.S. debt, even during an economic crisis, since the U.S. is seen as a both stable and profitable investment.
Another issue critics have with the stimulus package is the $500 billion allocated to larger industries that went to the Federal Reserve System, the U.S’s central banking system, with no strings attached. The lack of regulation on these loans is criticized because of large industries’ poor track record of prioritizing shareholders and turning a profit over keeping their employees on payroll. However, these bailouts have proven to be successful in saving large companies and helping the economy. The Washington Post reported that such loans from the CARES Act have increased investor confidence and market stability, both of which in turn have helped firms raise capital they used to avoid layoffs.
The 1920s, or the Roaring Twenties, were characterized by social, economic and cultural growth and a lively and enjoyable ambience. 2020 thus far has been a disaster, and all the infant decade has known is a life-threatening virus with the ability to create a destructive recession and destroy millions of jobs. The stimulus package put in place to combat the devastating consequences of mass unemployment and to prop up the currently failing economy has great potential. Although not perfect, the plan has the ability to lift the U.S. out of the recession and into its own, equally prosperous, Roaring Twenties 2.0.