Stimulus One of Few Options to Help Households, Businesses Survive, Experts Say

Duke scholars address fallout and options during media briefing

Part of the Election 2020 Series
Stimulus One of Few Options to Help Households, Businesses Survive in Pandemic, Experts Say
Duke scholars John Graham, Mariel Beasley and Connel Fullenkamp

The ongoing COVID-19 pandemic has devastated many sectors of the US economy. Businesses have failed and many Americans are struggling to feed their families and pay the rent.

But there are glimmers of hope, perhaps including a much-discussed, though still uncertain second federal stimulus package under consideration in Washington, D.C.

On Thursday, three Duke experts discussed the myriad ways American families and businesses are being impacted by the pandemic, as well as ways they can be helped.

Watch the briefing on YouTube.

Here are excerpts:

ON A NEW STIMULUS PACKAGE, AND WHAT PEOPLE NEED RIGHT NOW

Mariel Beasley, co-director, Common Cents Lab, Duke University

“The pandemic has really affected different people in different ways. We think about being all in this together, but households are really impacted in different ways.”

“There’s a substantial portion that have a very direct impact on their household budget. In the very beginning, people were very motivated to save … but as the pandemic has continued on and these households have been impacted, a lot of folks have had to eat into these savings.”

“Without additional infusions of cash into these households, many of those are going to make very difficult choices. Giving up food, figuring out different ways to make their rent payments, giving up medications, making hard choices because they just don’t have the cash flow on hand to buffer for much longer.”

ON THE STOCK MARKET AND AN ANTICIPATED STIMULUS PACKAGE

Connel Fullenkamp, economics professor

“The markets are very much reacting to the news about stimulus. In the short term, the markets are very focused on that. Every time there’s another potential delay, the market reacts negatively to that.”

“There’s a lot of watching and waiting for whatever stimulus comes out on the part of the market. In the near term, that’s really going to be the dominant story about what the market is doing.”

ON UNEMPLOYMENT RATES DURING THE PANDEMIC

(Note: “Small” firms are defined here as those employing fewer than 500 employees; “large” firms are those with more than 500 employees)

John Graham, finance professor

“In February, the US was at pretty much a 50-year low unemployment rate. Then the crisis hits … and the unemployment rate goes up as fast as the unemployment rate has ever grown. Now, about half of that has been recovered back, which is a good thing, but we still have the other half of those employees unemployed.”

“We see for small firms, there will actually be some recovery by the end of the year. Employment … will still be lower than it was pre-crisis, but only by about a percentage point. There has actually been a surprising amount of creation of new businesses in the past few months.”

“Large firms employ a lot of people. Large firms won’t recover as much in employment by the end of this year; they’ll still be down about 3 percentage points by the end of the year.”

“Large firms have a lot of pieces they can move around to keep operating. They can shift a person around to do another task, or to do two people’s tasks. Large firms have figured out how they can operate with fewer employees. When all is said and done, large firms will be more efficient, which sounds good, but it means operating with fewer employees.”

ON THE ROLE OF GOVERNMENT IN AIDING RECOVERY

Connel Fullenkamp

“There’s lots that government can do. This week we learned a lot more about transmission, especially about so-called aerosol transmission. Government could help people understand what the transmission rates are going to be in enclosed spaces, especially in places like restaurants.”

“One of the things I’m really concerned about is going into the winter. A lot of the small businesses that are still hanging on, places like restaurants that can serve outside, they’ll have to move inside. That may be a death blow.”

ON IMPACT OF UNCERTAINTY ON FAMILY ECONOMICS

Mariel Beasley

“Uncertainty can be a really paralyzing factor for a lot of people. When people are unsure about what to do, it really complicates the decision-making process.”

“Either what happens is optimism bias takes over, where people are overly optimistic about what the future looks like so they don’t plan for it, or it becomes so incredibly paralyzing that they stick with their defaults and don’t make any changes they need to make to have better outcomes.”

“We kind of bury our heads in the sand and choose not to try to resolve things … until it kind of blows up in our face.”

“The worst time to try to solve a problem is when you’re in the middle of it.”

ON THE STOCK MARKET’S VIEW OF THE PRESIDENTIAL ELECTION

Connel Fullenkamp

“In the short run, if there’s a Biden win, the market is really expecting more stimulus to come out of a Biden administration so the markets will react pretty positively to that.”

“In the longer term, though, the market will eventually realize the Biden presidency has proposed some measures that are more negative for corporations, like increasing the corporate tax rate substantially.”

“There’s worry that a Biden administration would re-impose some regulations on business.”

ON LONGER-TERM ECONOMIC RECOVERY

Connel Fullenkamp

“The pandemic recession is undoing so much of the progress we’d made in the previous few years, especially getting low-income people elevated in terms of income and wealth, and getting people who were out of the workforce, back into the workforce. I’m really concerned that all of that progress is rapidly being undone.”

“People are now dropping out of the workforce again and we’re seeing the return of long-term unemployment.”

“We need to pay attention to the underlying causes of inequality and joblessness and really attack those.”

“I think it’s really telling about the surge in entrepreneurship. I think a lot of people were forced into entrepreneurship because they lost jobs and they’re just trying to make ends meet in the near term. I think we’re seeing a substitution in terms of quality of employment.”

“I really think moving forward we have to be really concerned about job creation and business creation. We’ve lost so many small and medium-sized businesses and we’re on track to lose more before this is all done.”

ON BUSINESSES BEING FLEXIBLE DURING COVID

John Graham

“This is a very unique crisis this year because it’s really a health crisis affecting the business and finance of the world. So employment flexibility is super important now. The companies that can continue to have their workers work productively are doing relatively well now.”

ON VIRTUE OF SMALLER, TARGETED STIMULUS PACKAGES

Connel Fullenkamp

“Having targeted packages … is certainly to be desired. I have a lot of doubt, though, that Congress would be able to pass a series of relief packages. It’s just politically infeasible.”

“The political realities are prohibitive here. They have to put together big, single pieces of legislation that have enough votes on both sides of the aisle to get through Congress.”

IF NO SECOND STIMULUS, WHAT’S THE DAMAGE TO FAMILIES?

Mariel Beasley

“My hunch is that even with will eviction holds … this will inevitably still have an impact on households. We will see an increase in homelessness. We will see an increase in reliance on  food assistance. We will see a reliance on local charities. I think that feels a bit inevitable at this point knowing the timeline for recovery and the likelihood of the jobs coming back.”

“I do think we will see, as more and more stories come out about households that are struggling, we will see an increase in charitable donations.”

“I do think as it becomes more and more visible about the way households are being impacted, I do think we will see increases in people giving to foodbanks and things like that.”

“But we will see a major uptick in homelessness.”

ON HOUSING PRICES

Connel Fullenkamp

“It has made housing affordability worse. We’ve seen housing prices rise during the pandemic. A lot of people are highly reluctant to even show their homes during the pandemic. That has contributed to housing prices going up.”

“House prices are rising, complicating the fact that a lot of people are not going to be able to pay their rent, pay their mortgages. It’s really getting to be a dire situation.”

ON THE IMPACT OF A SHIFT TO WORK-AT-HOME

John Graham

“We expect that office space won’t be filled up as quickly. When the virus is finally under control, we have a vaccine out there, there will be plenty of people who go back to work at their office. But 15 to 20 percent of people won’t go back to their office. That will put downward pressure on commercial real estate. There will be a lack of recovery in that sector.”

“The cost of office space will go down for companies that do want to rent space. And the housing market is going up. Rental market in cities is not. So some people trying to move out of cities, so that should put downward pressure on rent in cities. That may help a little bit on the housing side.”

ON WALL STREET AND FORECASTING A RECOVERY

Connel Fullenkamp

“I’m really worried we’re going to return to an era of empty storefronts in many communities. The pandemic is amplifying a lot of trends that were already present in the economy.”

“I’m really concerned about the future of small businesses. One of the things that was really great about the economic recovery – we saw not just big cities but small and medium-sized cities revitalize their downtowns as small businesses moved in and taking off.”

“I think it’s going to take quite a lot time to recover.”

ON A COMING WORK SKILLS MISMATCH

John Graham

“For the last five years, the number one concern businesses would tell us about is that they can’t find the right employees for the right jobs. A skills mismatch.”

“Yes, there will be jobs a year from now that aren’t available now. But will the employees have the right skills? You can’t go from working in a restaurant to being a data processing person without some training and further education. The skills mismatch probably will lengthen the transition.”

ON SECTORS DOING PARTICULARLY GOOD OR BAD NOW

John Graham

“Businesses that are people-facing and/or need their employees to be physically at work are the ones struggling. Assembly lines, meat-packing, restaurants. The ones doing reasonably well are the ones whose demand is still there, and/or are able to operate with less of that intensive contact between the customer and employee.”

ON WHY GETTING ‘BACK TO NORMAL’ IS HARDER THAN IT SEEMS

Mariel Beasley

“A lot of times we think that as soon as the pandemic is under control, people will go back to the movie theaters or go back to going out to eat at restaurants.”

“But habits are sticky. People have adjusted to some aspects of pandemic life. Our prior behavior predicts our future behavior. So, the fact is that it’ll take a lot longer even once the pandemic is done because you then have to re-train people. They’ll think, ‘Oh, it’s really convenient to have my groceries delivered.’ Individual habits will be much stickier and longer.”

ON A VACCINE’S EVENTUAL IMPACT ON THE STOCK MARKET, PERSONAL ECONOMY

Mariel Beasley

“We’ll see disparate reactions to having a vaccine released. One of the real challenges is that already there are increasing rates of vaccine hesitancy. The last several years have really eroded trust in the scientific community.”

“There’s a lot of people who basically won’t feel safe until there’s a vaccine. That does feel like a major decision point for when it’s safe to go out and eat in restaurants, etc.”

Connel Fullenkamp

“There are multiple therapeutic approaches that seem to be going well and moving much faster towards approval than people thought. When it really gets out that one or more of these are effective, we will see a positive effect on the market.”

ON WHAT CAN HELP PEOPLE RIGHT NOW

John Graham

“I think the goal here is to get through the next year. I don’t mean to say everything will be perfect, but certainly we’ll be better off than we are now.”

“Even if you’re a small-government person … this is not the time to have the philosophical debate. This is time that government does need to help.”

“For corporations, is the goal to maximize stock prices or is the goal to take care of our employees and be good citizens and such. Companies have been saying they’ve been shifting to these other stakeholders other than just shareholders. This is a time to do that; for the next year it’s time to take care of your employees.”

Mariel Beasley

“I’d like to see getting more cash in hand for folks … but I’d like a part of it to be a gift card that is branded for spending at local businesses. I do think it’s so important to get that cash infusion into some of our local businesses. I’d also like to see more grants and less loans.

Connel Fullenkamp

“I think the other missing piece is for governments to step in and facilitate the return back to normal. I mean really helping businesses in how to cope with the virus. How do we make sure schools are safe so students and teachers can return? Government has to facilitate the return back to the economy.”

The experts:

Mariel Beasley
Mariel Beasley is co-director of the Common Cents Lab at the Center for Advanced Hindsight at Duke University. Beasley uses behavioral science to improve financial decision-making in low-income families.

Connel Fullenkamp
Connel Fullenkamp is a professor of the practice and director of undergraduate studies in the Department of Economics at Duke’s Trinity College of Arts & Sciences. He studies financial market development and regulation of financial markets.

John Graham
John Graham is a professor of finance and Duke’s Fuqua School of Business, where he teaches and researches corporate finance. Graham also directs The CFO Survey, a long-running quarterly measure of CFO optimism and economic outlook. 

Duke experts on a variety of topics related to politics and public policy can be found here.