Expect US Economic Recovery Due to CARES Act, Economics Professor Says

Commentary

An economics professor in California is optimistic that because of the government’s Coronavirus Aid, Relief, and Economic Security (CARES) Act, a recovery could be in store once the U.S. economy reopens.

Jim Doti, professor of economics and president emeritus of Chapman College in Orange, California, says that the compensation from the CARES Act grants consumers the wherewithal to invigorate the economy.

“Our analysis shows that the government came in so quickly and did so much. Workers who lost their jobs, who were either furloughed or laid off, are actually receiving more in compensation on average than they were prior to COVID,” Doti told The Epoch Times.

In previous recessions, the federal government would borrow money from the private sector, resulting in a slow economic recovery. It took the government one year into the recession before stepping in.

“I think this time, the Federal Reserve board learned its lesson,” he said.

Stimulus Checks

Doti said that the government’s swift actions to aid the economy helped avoid devastating societal consequences.

The amount of money from the stimulus checks even exceeds the amount of wages that need to be compensated. Roughly $600 billion from the CARES Act is intended for unemployment compensation, while the loss in wages is roughly $400 billion.

In California, the leisure and hospitality sector has been hit the hardest, Doti said.

“Of all of the jobs lost, 72 percent in California has been in that sector.”

The average compensation received by the CARES Act exceeds the average yearly salary for those employed in the leisure and hospitality industry prior to the CCP virus (coronavirus) outbreak.

Savings Up, Spending Down

Savings are going up and spending is going down, Doti said. Consumer spending comprises about 70 percent of the GDP, and the savings rate has recently jumped to 32 percent from 5 percent.

“If it continues at 32 percent, it would mark a significantly shrunk economy,” Doti said.

However, the increase in savings will contribute to a strong recovery, Doti said, because those who are saving now will have the money to spend when the economy reopens.

He likened this recession to the economic recovery that America saw soon after World War II.

“We were just producing airplanes, tanks, jeeps, but no private automobiles. The pent-up demand for that [automobiles], once the war ended, was enormous. And I can’t help but think that’s going to happen again.”

More People Working From Home

Doti said that some industries will be permanently affected by the recession.

“More people will work virtually from their home, which will affect future demand for commercial space. It will change the way we live in terms of residential housing, but in particular commercial activity.”

Changes in the economy are inevitable, Doti said. Certain industries, such as retail and shopping malls, were steadily declining before the pandemic and moving at a steady pace.

“COVID simply quickened that change,” he said.

Doti also pointed out that recessions have a positive effect on moving capital from weak industries to ones where the demand is greater. E-commerce is replacing retail. Shopping centers and commercial brick and mortar stores may be turned into apartments, residential houses, and manufacturing centers.

However, working at home may not be the best option for some businesses, Doti said.

“When you’re not together, bumping into each other, and stopping at the water cooler, or in front of somebody’s office, it restricts innovation. I think some of my best ideas in economics that led to my research came about as a result of that interaction,” he said.

Consequently, there may be a bit of a decline in the amount of office space utilized, but there’s not likely to be a great change, he said.

“California Insider” is an Epoch Times show available on YouTube.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.