Noted economist says hes never seen a recession like this - Patch.com

More than five months into a pandemic that has no end in sight, economist Donald Klepper-Smith says, "I've never seen a recession like this."

Klepper-Smith of DataCore Partners said average job growth for the first seven months of 2020 was 7.05 percent lower than for the same period in 2019.

"We have never seen it be more than four percent lower before now," he explained.

Connecticut lost 266,300 jobs in April, according to the Labor Department.

"It probably will take 10 years to recapture all of the jobs that we had in February 2020," said Klepper-Smith, who is now semi-retired and a decade ago chaired former Gov. M. Jodi Rell's (R-Brookfield) economic team

He said that he is encouraged by a recent CT Mirror report that Gov. Ned Lamont (D-Greenwich) "has directed agencies to find ways to cut spending by 10 percent or more in the next two fiscal years."

"The rainy day fund is not designed to encounter this kind of stress," Klepper-Smith said in a phone interview. That fund was at about $2.5 billion at the start of the pandemic.

"First and foremost, it should be about where the state is spending money," he added. "Consumer spending is being overwhelmed by the pandemic and the recession. You can't tax your way out of it. There are indications that this will be a formidable recession for at least the remainder of the year."

If there are tax increases, Klepper-Smith remarked, "I think that for every dollar of tax increase there should be $3 or $4 in spending reductions."

Klepper-Smith, who until last year was the economist for Liberty Bank, has noted that on average Connecticut has been losing 428 residents per week.

However, The Wall Street Journal reported in July that as a result of the work-at-home options that have emerged from the pandemic, more people are looking to move from New York City and Westchester County to suburban Connecticut, particularly Fairfield County.

"That has been the silver lining," said Klepper-Smith. "Connecticut has been the beneficiary of people looking to work at home and relocate. But it may be a short-term benefit, since Baby Boomers are seeking to retire in less expensive and less costly states. With a vaccine you also might see people move back to New York City."

Nationally, he said he has "never seen so much angst over a presidential election," referring to the pandemic, the recession and racial tensions.

The economist said that Republican President Donald Trump and Congress need to employ fiscal discipline.

Klepper-Smith pointed to a 2019 Congressional Budget Office report that projected the federal government's debt which was at 78 percent of gross domestic product would reach 144 percent in 2049.

"Those deficits do matter," he said. "You have to control your destiny and live within your means. These deficits can lead to higher interest rates."

In relative terms, the stock market has been buoyant over the recent months in comparison to the general economy.

Klepper-Smith explained, "The Federal Reserve has been spending to prop up the stock market. There hasn't been a lot of activity from the private sector."

In an August 25 New York Times column, former Federal Reserve Board Chairman Janet Yellen and Jared Bernstein, the Ridgefield High School graduate who was an economic advisor to Joe Biden when he was vice president, wrote that the congressional and White House negotiators need to make the same commitment as the Federal Reserve Board in reviving a stagnant economy.

The federal government approved the $2.2 trillion Cares Act on March 27 in response to the pandemic, but White House and congressional negotiators have not been able to agree on a second stimulus package after the U.S. House approved the $3 trillion Heroes Act on May 15.

Unemployment benefits for many people impacted from the pandemic expired at the end of July.

Yellen and Bernstein stated that, "With inflation as low as it is, servicing the debt required by the one-two punch of aggressive monetary and fiscal policies is relatively inexpensive."

Klepper-Smith cautions that any new fiscal stimulus will create further deficits and some of the spending might present a disincentive for some people to return to work.

"You can't throw mud against the wall," Klepper-Smith exclaimed.

The Wall Street Journal has reported that the federal government's debt is now near the same levels as in World War II.

It noted that the post-World War II economic boom would be difficult to replicate.

"Population growth has slowed in advanced economies, the workforce is shrinking as societies age and productivity is slowing." The Wall Street Journal stated.

In July Biden, the Democratic nominee for president, proposed increasing corporate taxes from 21 to 35 percent and raising the top individual tax rate from 37 to 39.6 percent.

"You have to go there," Klepper-Smith exclaimed. "More people need to have skin in the game. There should be a broadening of the tax base. Some corporations are not paying their fair share. Some upper-income people are not paying their fair share."

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Noted economist says hes never seen a recession like this - Patch.com
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