Hiroko Masuike/The New York Times

The New York Stock Exchange (NYSE) building, on Thursday, May 21, 2020

June 24, 2020

Cornell Professors Weigh in on the State of the U.S. Economy

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Bleak. Miserable. Chaotic. These words best describe the current state of what has become the worst American economy in recent memory, according to three Cornell professors.

While industries have struggled across the board in the wake of COVID-19, the pandemic’s impact on Americans’ health and finances largely differs depending on one’s socioeconomic background.  Lower-income Americans have been hardest hit during the recession, with over half reporting some loss of employment or wages due to COVID-19, compared to 42 percent for middle-income and 32 percent of upper-income adults.

Prof. Steven Kyle, applied economics and management, listed some of the industries most affected by the pandemic —  airlines, sports, restaurants, movies, and concerts — which consist largely of service workers and low-wage employees, millions of whom have been faced with mass layoffs.

Even some essential businesses that have stayed open, like grocers, have struggled in recent months. Despite widespread photos capturing customers frantically packing quarantine essentials at their local stores, the food industry has suffered from volatile swings in commodity prices caused by inconsistent demand.

“Meat prices have skyrocketed and plunged — [and] that’s been true for several other commodities,” explained Prof. David Just, resource economics, on the market movements that have left already struggling agricultural producers in deeper trouble.

The first downturn occurred as restaurants shut down nationwide, and subsequent waste ensued: Meat processing plants disposed of livestock after losing their primary buyers, while farmers threw away unprecedented amounts of eggs, milk, and vegetables as they became more difficult to sell.  While a potential second wave of the virus had stores anticipating a boom, grocery demand has “settled down somewhat in the past few weeks,” Just said.

Even as agricultural suppliers are throwing away food due to supply chain issues exacerbated by COVID-19, food insecurity has increased, especially in minority communities. “[This is] a huge issue…particularly among people who have not faced it until recently,” Just said. He noted a huge jump in the number of people in line for food pantries around the end of April, especially in blue-collar neighborhoods in the Midwest and South.

The economic damage from the coronavirus is not limited to the private sector. Despite traditionally enjoying greater job security, public workers have also taken a large hit due to plummeting tax revenues, forcing local and state governments to slash their workforce in a bid to remain solvent.

In a situation confronted by government officials across the country, Ithaca Mayor Svante Myrick ’09 was forced to furlough 87 city employees after the city projected $13 million budget shortfall. State and municipal leaders have warned that, if the federal government does not step in to provide assistance, more cuts will be necessary to avoid bankruptcy.

“Because of the unemployment spike and reduced tax revenues, state and local governments are cutting employment to balance budgets,” Prof. Michael Waldman, applied economics and management, said. “There has been a big push from states for federal support to keep teachers and others employed.”

Another notable trend is that consumer spending by higher-income individuals has not rebounded after the gradual reopening of the economy, while lower-income spending is rising back to pre-pandemic levels.

Activities like travel, going to the movies and fine dining were frequently the targets of discretionary spending from wealthier demographics before the COVID-19 pandemic. This is because basic necessities, such as food and rent, still need to be paid for no matter what, while luxury items have become less of a priority — a fact evident in the financial distress of several high-end retailers.

As a result, workers who held low-wage jobs located in high-income neighborhoods have experienced significant job losses as the wealthy’s discretionary spending has declined. Experts have pointed out that the decline in discretionary spending from high-income neighborhoods could severely affect economic recovery in the U.S. Since January, the wealthiest 25 percent of Americans have accounted for around two-thirds of the total decline in consumer spending.

Stimulus checks distributed to most Americans as a part of the CARES Act were intended to partially offset the sudden drop-off in spending. According to Just, stimulus measures can serve two purposes: One, to provide relief for people who just lost their jobs and second, to try and get the economy running again.

But while Just believed that stimulus checks had helped stave off poverty, he argued that the checks largely failed to fulfill their second purpose. Because receivers of the cash had limited ability to purchase goods and services during quarantine, it made stimulus measures less effective than they would have been in previous recessions.

With unemployment largely failing to abate, Kyle stressed the need for responsibility and action from those who are less affected.

“We need to worry about the whole country… If you care about yourself, you need to care about everyone,” he said. “We are all in one big petri dish.”