WASHINGTON — The road to a successful reopening of the U.S. economy is strewn with hopeful intentions — and formidable obstacles. The biggest and most important obstacle is a surge in new coronavirus cases, which presumably will lead to more hospitalizations and more deaths as well as more firms shutting down. The closings will reflect lost customers who are either sick or have been frightened into staying at home. This is the mega-worry hanging over the economy.

But to this fear must be added at least three others that may frustrate economic recovery. The first is the crucial role of small firms in creating jobs. A new report from the forecasting firm IHS Markit illustrates the problem. In 2019, the U.S. economy had 10 million establishments with fewer than 50 employees, accounting for 44% of private-sector employment, according to the IHS study.

To say the same thing slightly differently: In the last economic recovery, from mid-2009 until early this year, these companies accounted for roughly 8 million jobs out of a total of 20.4 million jobs created. That’s roughly 40% of the total. Many of these firms are truly small, averaging about six workers each.

The problem they face is surviving in a fundamentally hostile economic environment. Unlike many large firms “they don’t tend to have cash reserve or access to credit to make their way through the storm,” says IHS.

A second problem for the economy involves the generosity of unemployment payments. Jobless benefits are normally skimpy. Before the coronavirus pandemic, the average weekly benefit was about $300. To supplement that, the federal government added $600 a week to most benefits. This represented a stupendous increase for many beneficiaries. Combining the $600 weekly benefit with the average benefit would produce a weekly pay of $900.

The generous benefits had two goals, according to an academic paper presented at a conference by the Brookings Institution: to stimulate the economy by pumping up demand and to protect the unemployed from excessive hardship. But the $600 payments expire at the end of July, and there’s a debate over whether they should be retained, modified or eliminated.

Withdrawing it abruptly could kill or weaken any recovery, say supporters. Still, there is no doubt that the $600 payments result in extremely generous benefits. The economists’ paper at the Brookings conference estimates that two-thirds of likely recipients would receive a benefit replacing 100% or more of their previous earnings. Typical replacement rates would actually range from 129% in Maryland to 177% in New Mexico. Clearly, high benefits could also deter some workers from looking for a job or taking one.

There is also a question of fairness if the unemployed earn more from government benefits than workers do from jobs. It’s hard to predict the debate’s outcome, though it will probably affect the pace of the recovery.

The third hurdle facing the recovery is debt. There’s lots of it, mainly assumed by companies that wanted to take advantage of extremely low interest rates. A headline in the June 25 Wall Street Journal captures the spirit of the matter: “Crisis Upends Corporate Borrowing Binge.” The corporate borrowing comes in the form of bank loans, bonds, commercial paper and other forms of credit.

Taken altogether, non-financial business borrowing was a staggering $16 trillion in 2019, though the regulatory concern seems most focused on a relatively narrow category of lending: so-called “leveraged loans.” These are loans to various risky firms – retail stores such as Neiman Marcus or transportation firms such as Hertz. Those two companies have already entered bankruptcy. The latest to file for bankruptcy is the parent company of Chuck E. Cheese, a children’s recreational business. Total leveraged-loans in 2019 was slightly more than $1 trillion.

The fear is that if more firms become bankrupt or try to avoid bankruptcy, they will exert a drag on the recovery as they cut costs in an effort to pay their debts. As a counterpoint, consumer credit seems less worrisome now than before the 2007-2009 global financial crisis. Total consumer borrowing was also $16 trillion in 2019. Of that, residential mortgages were $10.6 trillion. They have grown at a 5.6% rate since 1997, compared with a 15% growth rate for leveraged loans.

The lesson here is discouraging. We are dealing with unfamiliar economic and epidemiological phenomena. We should not be paralyzed by our ignorance — nor emboldened by our arrogance to do stupid things. It’s a tall order.

Robert Samuelson is a columnist with The Washington Post.


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