Remarks by Angel Gurría
Paris, France - 9 July 2020
(As prepared for delivery)
Ladies and Gentlemen:
I am pleased to launch the OECD’s 2020 Economic Survey of the United States. My thanks to Mr. Tyler Goodspeed, Acting Chairman of the Council of Economic Advisers (CEA), for joining us today, and to Mr. Greg Ip from the Wall Street Journal for moderating our discussion.
At the beginning of the year, the US economy was doing very well. The longest economic expansion on record, coupled with the longest string of monthly job gains and the unemployment rate falling to just 3.5%, were paying dividends. The labour market was drawing in workers who are often left at the margins, with unemployment rates for black and African Americans dropping to historic lows. These successes were boosting household incomes and curbing further rises in income inequality. In short, there was much to celebrate.
But the last few months have been tough. The COVID-19 pandemic, and the containment measures adopted to minimise infections and loss of life, have stopped the US economic expansion in its tracks. Our latest Economic Outlook predicts GDP to contract by 7% in 2020. Under a “double hit” scenario – where there is a second wave of infections – the US may face a contraction in economic activity of 8% in 2020. The economic effects of COVID-19 have hit the most vulnerable Americans hardest, and risk exacerbating inequalities.
The unemployment rate has also risen precipitously in recent months, reaching 14.7% in April before falling back to 11.1% in June. Worryingly, the last time the US unemployment rate exceeded the recent peak was during the Great Depression.
The US Administration and Congress moved decisively and quickly to shield families and businesses from the worst economic effects of the crisis. Notably, the CARES Act injected massive fiscal support, including innovative measures such as a Paycheck Protection Program to preserve workers’ attachment to firms. And the Federal Reserve reduced interest rates rapidly, restarted quantitative easing, and introduced diverse liquidity programmes to support broad swathes of the economy, far beyond its traditional purview.
While these actions have helped protect the US from the worst effects of the crisis, the recovery is going to take time. Looking ahead, our Economic Survey focuses on a number of policy priorities.
Policy priorities to support the recovery
First, displaced workers need help to find new jobs and new training opportunities. While many workers are on temporary furlough and should be able to return to their jobs as businesses gradually re-open, others face more uncertain futures. Our Survey calls on the Federal Reserve to continue providing temporary liquidity support to firms to help prevent further bankruptcies and thus safeguard employment opportunities.
Second, regulatory reform is key to helping strengthen the recovery, get people back to work, and ward off a drop in living standards. Streamlining occupational licensing – which covers around one quarter of the US labour force, and makes it hard for workers to move jobs – is particularly important. Delicensing and mutual recognition, among other reforms, would boost dynamism and address discrimination against particular population groups. Making it more difficult for firms to use non-compete covenants in employment contracts would complement reforms to occupational licensing and help protect low-income workers.
Third, a review of land-use and housing policies could position workers to secure more productive jobs. Land use restrictions have slowed the housing supply in areas that are performing well, preventing the growth of successful cities. Moreover, inadequate housing is limiting opportunities for workers engaged in job search, and is also pushing up house prices. As these policies are often set by state and local governments, the Survey emphasises the need to ensure they are well aligned with complementary policies, such as transport.
Finally, environmental policy should be further strengthened to build a more sustainable economy. Our study reports some progress on this front: US greenhouse gas emissions are already falling as a result of a shift from coal to natural gas in electricity generation, and the growth of renewables. The COVID-19 pandemic has given us an opportunity to go even further, to transform production and consumption patterns in a way that will avoid the worst impacts of impending environmental crises, including climate change. After all, as the OECD’s work has proven, investing in climate is investing in growth!
Of course, all these measures will come at a cost. But very low interest rates will make it possible for the US to sustain temporarily higher deficits and larger debt levels. And the room for manoeuvre to react to further weakness is not exhausted. Once the economy is back on its feet and the recovery is underway, the focus can shift to gradually addressing long-term fiscal challenges in a manner that avoids fiscal cliffs from derailing the recovery.
Ladies and Gentlemen:
The US is facing a historic crisis. COVID-19 has inflicted a heavy blow on the US economy and all Americans, and the scars are likely to run deep. Federal, state and local governments are making unprecedented efforts to control the pandemic and kick-start the recovery, and we are starting to see some positive signs. But there is still so much to do.
I want you to know that in these challenging times of struggle and uncertainty, one thing is certain: the OECD stands ready to help. I very much hope that the analysis and recommendations in our Economic Survey can help the US to confront this crisis and put the economy back on a sound footing. I look forward to keep working together to bring about the resilient, inclusive and sustainable growth that all Americans deserve through better policies for better lives. Thank you.