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The Turbulence Timeline

Updated: Jul 20, 2023

Most people generally agree that the development of a vaccine for Covid-19 is critical to the lives of billions of people and a multitrillion-dollar world economy. Fortunately, there are several clinical programs happening at a furiously accelerated pace, and some may even produce a viable vaccine by the end of the year.

Chief economist Jan Hatzius and senior economist Daan Struyven of Goldman Sachs issued a report today that underscored the immense economic stakes while expressing optimism that at least one vaccine will be approved by FDA by the end of the year. Altogether, Goldman counted 165 vaccines in development targeting the coronavirus. There are 26 in the clinic, with 12 in Phase II and 6 in Phase III.

Goldman highlights 9 of these programs:

The problem is that we’re likely to experience deep-scarring economic events between now and the end of the year. It’s difficult not to expect low-wage workers to not get socked in the chin again this month: Republicans want to replace a weekly bonus check for the unemployed with a new system that offers 70 percent of the wages workers were earning before they were laid off.

Who knows? Maybe that’s the right thing to do, but there are 53 different unemployment systems across the United States and its territories, all of which are inundated with record numbers of unemployment claims and all of which have different ways of calculating and handing out benefits, and that’s throwing them quite a curve ball. It will require states to implement a new way of calculating past wages and to adjust benefit checks accordingly, and that could take months. The change would be most damaging to lower-wage workers given that 70 percent of their previous earnings would amount to such a meager payout. Thanks to the $600 weekly supplement, many of those workers have been receiving more than they were earning from their jobs, which, of course, is a point often cited when arguing that the program discourages workers from seeking employment.

The problem is that those payments have provided a vital financial cushion to the unemployed at a moment when returning to work is still not an option for many people. Yes, the economy has bounced back somewhat from the worst of the pandemic lockdowns this April and May, but most of the fuel for that bounce-back came from the Treasury’s direct payments to households and expanded unemployment benefits. That’s evidenced by aggregate spending of the employed going down by 10 percent during the initial months of the pandemic while the spending of unemployment benefit recipients increased 10 percent. Here’s the chart:

We’re talking about households living check to check right now, with the highest uncertainty they’ve ever felt, and Congress essentially just asked them to go a few weeks (or more?) between deposits. It seems very likely to produce an ugly and now unavoidable stall for the overall economy; I expect we’ll see it show up in consumer spending and confidence over the next couple of weeks. Even the most optimistic timelines for vaccine development will not serve to stop it.

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