BOSTON (CBS) - Economist Jeffrey Frankel of Harvard's Kennedy School, an expert in capital formation and growth who served on the President's Council of Economic Advisers, says premature reopenings and failure to funnel adequate federal aid to states and cities could lead to a roller coaster economy for the foreseeable future.
"You have a partial recovery and then you end up back at the bottom again, and then maybe even more than two downturns," he told WBZ-TV News.
That's what is at stake in the debate over a trillion dollars in aid to reeling state and local governments included in House Speaker Nancy Pelosi's new bill. President Trump and Senate Majority Leader Mitch McConnell have pushed back against that funding stream with partisan rhetoric suggesting, falsely, that it's only Democrat-run states which have been poorly managed that are facing devastating revenue shortfalls. (McConnell's Kentucky is drowning in red ink too.)
Without federal aid soon, Prof. Frankel says we could be facing a bloodbath.
"The kind of fiscal austerity where you see teachers, police and firefighters laid off who are just essential, and public health workers we need more than ever right now, needless to say, austerity at that kind of level would be horrendous," he says.
House Ways and Means Committee Chairman Richard Neal (D-Springfield) notes key bond-rating agencies like Moody's have "already indicated that the state and other states are looking at a 20% drop in revenue." And when WBZ-TV asked him what impact it would have on the Massachusetts economy if Congress were to stiff us, he said the Pelosi bill provides "an additional $23 billion for the state of Massachusetts alone."
That's more than half of the current state budget.
So what happens next? More political posturing, of course. Pelosi's bill includes all sorts of items she surely expects to have to give up during negotiations, and McConnell has already backed down from earlier rhetoric suggesting struggling states should consider declaring bankruptcy.
But the bottom line is, failure to reach a compromise that helps buoy sinking states is unthinkable. All over the country, Americans are making difficult compromises to deal with the impact of the pandemic. Congress will too, or face the political consequences of massive layoffs of cops, firefighters, teachers and public-health workers.
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