COVID-19 fears will dictate how fast state’s economy recovers, economist tells senators

Many of the normal lessons of how to deal with a recession do not apply to the current one because COVID-19 is the “boss” and it determines how fearful consumers will respond, a former chairman of the Council of Economic Advisers told Washington state senators on Tuesday.

“To lose 20 million jobs in a month and to have the unemployment rate go up to 15 percent, if we’re on the normal rule of recovery, we’re going to be a decade before we get back to anything like normal,” said Austan Goolsbee, who is an economics professor at the University of Chicago.

“We have to hope — and I think it’s true — that because this was a virus-induced recession and in some sense if we can contain the rate of spread of it, we can go back to doing what we were doing before, then there is the possibility that recovery could be much more rapid than in a normal recession,” he added.

Goolsbee spoke via videoconference at the first meeting of the Senate Special Committee on Economic Recovery, a bipartisan panel that will make recommendations about the state’s long-term recovery to the Legislature by the end of the year.

“Unemployment is at record numbers, small businesses are fighting to survive, and it is up to us to find solutions to help people across the state bounce back,” said the committee’s chairman, Sen. David Frocht, D-Seattle.

The state’s Economic & Revenue Forecast Council on Wednesday plans to release an estimate of COVID-19’s impact on state revenue. An unofficial estimate released in May put the decline in projected revenue at $7 billion through mid-2023.

Frockt pointed out that he and four other members of the committee were in the Legislature during the Great Recession from 2007 to 2009 after the U.S. housing bubble burst and the world faced the worst financial crisis since the Depression of the 1930s.

“We’re still living with some of the decisions we made at that time. ... I don’t think we can necessarily only cut our way out of the crisis or tax our way out of it either. We have to find a balance,” he said.

Goolsbee, who served as chairman of the Council of Economic Advisers and a cabinet member in President Barack Obama’s administration, said lawmakers should consider cutting the state sales tax rate, which is 6.5 percent.

“Anything that are excise taxes on consumption, or taxes that you only get the tax cut if you spend the money, have proven more effective than just pure handing out money,” he said.

This story was originally published June 16, 2020 at 1:38 PM.