© Reuters. A woman walks past a shuttered bar following the coronavirus (covid-19) disease outbreak
By Andrea Shalal
WASHINGTON (Reuters) – Top White House economists pushed back on Wednesday against overly rosy interpretations of the Congressional Budget Office’s economic forecasts, and called for immediate action to avert the risk of persistent and long-lasting U.S. unemployment.
Jared Bernstein and Heather Boushey, two of the three members of the Council of Economic Advisers, said the CBO’s “dire” forecast that 7 million people will still be out of work in 2021 underscored the urgency of enacting President Joe Biden’s $1.9 trillion rescue plan.
“The costs of inaction are far higher than the costs of acting too aggressively,” they wrote in a blog first reported by Reuters. “We should not wait for years for the economy to return to full employment and get the economy back to pre-pandemic expectations.”
The CBO this week forecast the U.S. economy will grow more strongly than previously expected – 4.6% in 2021 – after contracting 3.5% in 2020, providing fodder for Republican critics who say that Biden’s plan is too expensive and could stoke inflation.
The CBO also forecast a drop in the average U.S. unemployment rate to 5.7% in 2021 from 8.1% in 2020 – a big improvement from July forecasts of 8.4% in 2021 and 10.6% in 2020. But it said the number of people employed would not recover to pre-pandemic levels until 2024.
Treasury Secretary Janet Yellen hammered home the same message in a call with six mayors from around the country, representing both Democrats and Republicans.
She said it was imperative to move forward with Biden’s comprehensive economic rescue package that included $350 billion in aid to state and local governments.
“The benefits of acting now – and acting big – will far outweigh the costs over the long term,” Yellen told the mayors, according to a Treasury statement.
She told the group that the federal government’s failure to provide sufficient aid to states and localities during the last recession had resulted in sharp cuts in infrastructure and education, ultimately weakening the labor market and undercutting a broader economic recovery.
While some viewed the CBO forecast as a sign that U.S. officials could wait to see whether added fiscal relief was necessary, Bernstein and Boushey stressed quick action was needed to avoid the scarring caused by prolonged periods of high unemployment and to address the disproportionate impact the crisis has had on women and lower-wage workers.
Without additional fiscal measures, the U.S. labor market will recover too slowly and economic output will fail to recover to pre-pandemic expectations, they said.
“We know that getting back to full employment, as quickly as possible, will make a major difference in the lives of tens of millions of people, particularly those most at risk of being left behind,” they wrote.
In addition, the cost of taking aggressive action now was low, with real interest rates and real debt service payments as a share of GDP at historic lows, they said.
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