There's plenty of money. It's just not moving to where it's needed.
Driving the news: Thursday's jobs report showed 4.8 million jobs created in June, but those were overwhelmingly people beginning to return to places where they had been temporarily laid off. The number of "permanent job losers" went up, not down, rising 25% in just one month to 2.8 million from 2.2 million.
Why it matters: We just ended a quarter in which economic activity is estimated to have fallen at a 37% pace. Unemployment stands at 11.1%, while the "full recall" unemployment rate, which assumes that 100% of temporarily laid-off workers return to their old jobs, is north of 7%. Most worryingly of all, the number of newly confirmed COVID-19 cases just rose by more than 50,000 in a single day — another new record.
- The big unanswered question: Whether money can fix any of these problems.
- We've already thrown $6 trillion at this crisis. Much of it seems to have found its way into the stock market, which rose 20% in the second quarter. A new stimulus bill could add another $1 trillion or so. But far too much of that money just isn't being put to effective use.
The big picture: Cash is deferred expenditure. If money flows into a bank and just sits there, that's a sign of severe economic malaise — the "paradox of thrift." In a healthy economy, individuals and corporations spend freely, and that free spending causes more money to come in tomorrow. In an unhealthy economy, cash gets hoarded and does not contribute to economic activity.
By the numbers: Americans saved 32% of their income in April, and 23% in May — numbers vastly higher than all previous records. Money-market funds now hold $4.7 trillion. Corporate cash balances are similarly surging, and now stand at well over $2 trillion. And the total amount of cash available for spending in checking accounts and other readily-accessible locations is now over $5.2 trillion.
Between the lines: Insofar as the CARES Act was designed to ensure that America didn't run out of money, it succeeded. And the individually-focused elements of the act — the $1,200 stimulus checks and the $600-per-week extra unemployment benefit — worked to cushion the economic blow that hit millions of Americans.
- The other side: Much of the corporate aid in the act — from $500 billion in emergency relief for businesses to the Fed's Primary Market Corporate Credit Facility — has ended up almost entirely untouched. Even the Main Street lending facility has lent almost nothing.
Small businesses did take advantage of $521 billion in PPP funding, but that money had no visible effect on small-business employment.
- A huge new NBER paper by Harvard's Raj Chetty and many others takes a detailed look at the effects of the PPP on employment by looking at what happened to employment at companies just above and just below the 500-employee PPP cutoff.
- Employment trends in the different groups turned out to be "extremely similar," whether or not they were eligible for PPP funds. "There is no evidence that employment went up" in PPP-eligible companies relative to those who didn't receive funding, the authors write, concluding that "the PPP had little material impact on employment at small businesses."
The bottom line: Until the virus lets us truly reopen the national and global economy, very little of that money is going to be spent on hiring, and America will continue to see employment lower than even during the 1950s, before most women entered the workforce.