Donald Trump’s double-dip recession

So much for President Trump’s wishful thinking that the U.S. would have a sharp V-shaped economic recovery from its deepest slump in the past 90 years. So much, too, for the notion that the economy could be revitalized on a sustained basis by prematurely lifting the lockdown and thereby compromising its population’s health.

Judging from the pandemic’s recent resurgence and from high-frequency economic data, the U.S. could well be on its way to another economic downturn. It also shows that the pandemic’s gross mismanagement can lead to a situation in which the country could have not only a prolonged health crisis but also a prolonged economic crisis.   

It is all too likely that future historians will trace this year’s very poor U.S. health and economic outcome to President Trump’s decision to ignore his health experts and to listen instead to the siren call of his supposed economic experts. 

This induced Trump to turn a deaf ear to Dr. Anthony Fauci’s repeated warnings that the pandemic’s control would require extending the lockdown and putting a serious testing and tracing program in place. It also allowed him to be seduced by his economic advisers’ confident predictions that getting rid of the lockdown would guarantee that the country would have its strongest economic recovery on record. 

It would be an understatement to say that the U.S. health experts’ warnings proved to be well founded. Still, in the first wave of the pandemic, the number of U.S. daily COVID-19 infections has increased from its earlier April peak of around 35,000 to its present level of around 70,000. 

Even President Trump is now warning that worse news is still to come, though he hasn’t yet come up with a coherent national plan to get the pandemic under control. Meanwhile, his health experts are bracing themselves for a second wave later this fall.

An international comparison reveals how poorly the U.S. has coped with the pandemic. Currently the U.S. has the most reported COVID-19 cases in the world. Indeed, with barely 4 percent of the world’s population, the U.S. accounts for around 25 percent of both  the world’s COVID-19 infections and deaths. This is to be contrasted with the very low infection and mortality rates in countries such as Germany, Australia and New Zealand. Unlike the U.S., those countries were more disciplined in their lockdowns, and they backed those lockdowns with serious programs of testing and tracing.  

The pandemic’s U.S. resurgence, coupled with health experts’ dire warnings about a likely second wave this fall, now seem to be halting in its tracks the economy’s very strong bounce from its second quarter collapse. As several Federal Reserve governors are noting, high frequency economic data on consumer demand as well as disappointing employment figures are suggesting that the economy might already be plateauing at an unacceptably high unemployment rate.

It is not just that large Southern states and cities appear to be rolling back at least in part the earlier lifting of their lockdowns. Nor is it only that schools and colleges are increasingly pushing back their scheduled reopening dates, which could complicate peoples’ return to the workplace. It is also that individuals are adjusting their behavior in a manner that is putting renewed pressure on those sectors of the economy that have been hardest hit by the pandemic. With the pandemic raging, they once again appear to be increasingly reluctant to travel, frequent restaurants or engage in indoor shopping.

A stuttering economy now would heighten the prospect that the U.S. will soon face a massive wave of bankruptcies. It will do so as high unemployment puts unbearable strain on household finances and as additional stress is placed on companies in the travel, restaurant, retail and entertainment space. It will also do so as the real commercial property sector is challenged by excess office space and by vacated shopping malls as people increasingly chose to work remotely and to shop online.

All of this points to the desperate need for a more coherent U.S. pandemic strategy at the federal level than we have had to date. It also suggests that if we are to avoid a double-dip recession, more fiscal and monetary policy stimulus might soon be needed.

Desmond Lachman is a resident fellow at the American Enterprise Institute. He was formerly a deputy director in the International Monetary Fund’s Policy Development and Review Department and the chief emerging market economic strategist at Salomon Smith Barney.