How will the U.S. recover? Look to small businesses and workers.

The continuing gallop of the coronavirus pandemic across cities and towns, suburbia and exurbia, and rural communities throughout the United States ensures our economy will not soon escape the ongoing coronavirus recession. But the ways in which the coronavirus and COVID-19, the disease caused by the virus, afflict some people in our nation more than others would seem to indicate this particular recession will be unlike any previous ones in our history in terms of the spark that set it off — a pandemic — and the public health measures required for an eventual economic recovery.

These are hardly the kind of economic determinants that led to the most recent U.S. recessions, which featured asset bubbles of one sort or another collapsing financial markets, with the consequences cascading into the real economy. Think of the home mortgage finance bubble, which led to the Great Recession of 2007–2009, and the dot-com stock bubble and resulting recession in 2001, and the commercial bank and savings and loan lending spree that helped crash the U.S. economy in the late 1980s and early 1990s. What’s more, the measures that need to be taken to corral the pandemic — rigorous public health practices alongside viable therapeutics and an eventual vaccine or vaccines — are hardly economic measures.

So, the coronavirus recession is different, right? And so, too, will be the measures needed to get to an economic recovery. Right?

Notwithstanding the first-order importance of stemming the spread of the coronavirus and lethality of COVID-19, recent data-driven economic research that I examined in my latest book, Unbound: How Inequality Constricts Our Economy and What We Can Do about It, strongly suggests this recession may be magnified by a collapse in asset values, as millions struggle with lack of employment and income and are no longer able to support assets nationwide — just as was the case in the prior three recessions, particularly the most recent Great Recession. Economists Atif Mian at Princeton University and Amir Sufi at the University of Chicago make the compelling case, for example, that economic inequality in our nation led to predatory lending by financial institutions controlled by the wealthy to borrowers least able to afford it — in the case of the Great Recession, financially stretched homebuyers in the run up to the Great Recession — alongside financial regulatory measures that made those assets more and more risky to the wider financial system.


So, let’s take a look at the value of an array of financial assets today, what structures underpin their ongoing value, and how many workers and firms are becoming increasingly unable to support the value of these assets. Start with property values. Commercial real estate is facing a possible pandemic storm of troubles. Companies are maintaining their remote workforces rather than returning to high-rise and low-rise office buildings — a troubling trend in the long-term for companies with long-term debt to service. Anchor retail outlets in these buildings are going bankrupt at record levels for lack of customers alongside an array of small business firms that constitute the bulk of street-level shopping and dining. Many private-equity-owned businesses on the margins of sustained profitability prior to the coronavirus recession also are on the ropes, putting immense pressure on these heavily debt-laden portfolio companies of private equity firms and the property owners where these businesses are struggling. Similarly, the value of real estate investment trusts listed on public markets are volatile.

The reality is that the value of our economy’s most important assets hinge on people having secure employment that allows them to pay the bills. July’s unemployment rate of 10.2 percent is a metric that masks the terrible consequences of the coronavirus recession for mostly low-wage workers in the “social economy” of retail shops, restaurants and bars, music clubs, and sports venues. The mostly small business owners of these workplaces are deep in equally hard times. This means rents won’t get paid by small businesses and their employees, which, in turn, means rent-dependent financial assets are in for deepening trouble, too. Then, there are several other huge pieces of the U.S. service economy — child care and primary and secondary education, higher education, and state and local government services — all of which are feeling the wallop of the coronavirus and the recession it caused, which is further reverberating across U.S. businesses and consumers.

To be sure, each economic recession is unique. Amid all the shocks to the real economy, U.S. stock market indices recovered in record time this summer, after they all crashed steeply this past March. Housing markets in well-off neighborhoods are booming, as more affluent, white-collar workers with work-from-home jobs reliably in place are looking for new digs in this pandemic economy. And many big firms are riding the new waves of economic change delivered up by the pandemic, such as big high-tech firms, do-it-yourself warehouse chains, big restaurant and retail chains, and other big companies. All of these firms and many others boast stocks and bonds that enjoy the Federal Reserve Board’s unwavering support of U.S. financial markets. And a relatively new kind of commercial real estate — private-equity-owned rental homes, both single family and multifamily housing and apartment buildings — is similarly poised to profit from a volatile rental market, just as it did in the wake of the Great Recession, when it vacuumed up distressed real estate and turned itself into big landlords. Private equity-driven roll-ups of small businesses in select sectors of the economy, such as healthcare, also are likely.

These opposing sets of economic conditions are emblematic of what financial economists and financial investors alike describe as a sideways Y economy — two “recoveries,” one up, one down. The flipped-on-its-side Y boasts a downward-pointing economic indicator comprising all those workers and firms suffering in this recession. The upward-pointing indicator includes all those workers and firms as yet only slightly affected by this recession or poised to profit handsomely from it. And the base of the sideways Y? Well, it’s hovering, suspended in air by those workers and firms most in trouble from the coronavirus and COVID-19 and weighed down by the high-flying financial assets perhaps positioned for a very hard landing.

The most consequential reason this sideways Y recession has not collapsed into a deep, L-shaped one is because of the swiftly expansionist monetary policy at the Fed followed by the fiscal stimulus measures taken by Congress this past spring. The Fed put more than $2 trillion to work to create the floor upon which congressional fiscal stimulus was built. Congress, in the spring, delivered up more than $3 trillion in coronavirus recession relief to support workers suddenly unemployed due to no fault of their own and small businesses to help them stay open while keeping their workers on payroll, among other targeted fiscal aid.

Until the end of July, that is. Only weeks since the Trump administration and the U.S. Senate failed to find a way to compromise with the U.S. House of Representatives on the next major coronavirus stimulus package, the stress on workers and their families and small business owners and their families becomes more and more apparent.

Evictions are poised to trend sharply up. Small business bankruptcies also are poised to climb, as many face a serious debt squeeze. Also flashing red is credit card debt and auto loan debt, while student debt repayments float in limbo due to conflicting regulatory measures regarding repayment during the recession.

Which brings me back to the root cause of this recession — the coronavirus and COVID-19. Public health expectations of a sharp rise in cases and deaths this fall and winter point to possibly even more tragic economic times ahead, both for those on the bottom of the sideways Y, but also many of those on the topside of that Y economy, too, if those private- and public-sector workers and firms do not receive sustained and sizable economic relief. And that means trouble ahead for financial markets.

It doesn’t have to happen this way. Historically high economic inequality concentrated economic resources among those at the very top of the U.S. income and wealth ladders well before the coronavirus landed on our shores. This left the United States particularly vulnerable to shocks, such as health, climate, and economic crises, due to the disparate impact of the pandemic on communities of color.

A growing body of research provides a framework for how the federal government can make choices that fully support people and families, as well as firms hard hit by the crisis, and ensures that we address the health crisis and move swiftly into economic recovery, rather than falling into a deep recession. The Washington Center for Equitable Growth is producing resources to connect existing evidence-backed research with the policymaking community to ensure the best available ideas inform a broad, deep, and long-term response to this growing crisis to ensure a broad-based and more equitable economic recovery.

To effectively respond to the coronavirus recession and build a more resilient economy for the future, we must level the playing field between the rich and the rest of us and implement policy solutions that will protect U.S. families now and in the future.

I’m president & CEO and co-founder of the Washington Center for Equitable Growth.

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