Economist predicts recession will probably last until mid-2021

By Scott Benjamin

Longtime Connecticut economist Donald Klepper-Smith says “we’re looking at a recession that will probably last through the first half of 2021” since the pandemic has resulted in “numbers I thought that I would never see.”

In April, nationally the country loss 20.8 million jobs, which was equal to 91 percent of the job gains from February 2010 through February 2020.

The $2.2 trillion CARES Act signed in March and the $900 billion relief package approved December 21 by Congress represent just a “band aid” on the economy.

Regarding the most recent $900 billion proposal, Ben Casselman and Jim Tankersley wrote in The New York Times that, “the aid may not be sufficient to propel the economy beyond the kind of grinding rebound that followed recent recessions. Already, there are signs that the crisis is leaving a lasting economic toll: Long-term joblessness is rising, radical gaps are widening and more people – particularly women – are leaving the labor force.”

Reuters reported in December that 17 percent of the restaurants in the country have permanently closed.

Klepper-Smith, the director of DataCore Partners, remarked, “What surprises me is how many people – elected officials and consumers – are unaware of the extent of the economic devastation.”

“The impact has been different in different sectors,” he said in a phone interview. “There may have been less impact in manufacturing than restaurants and retail.”

New York Times columnist Bret Stephens wrote in May that there are the remote workers, who represent about 37 percent of the population, who can work for home. He stated that for them the pandemic has been “stressful.”

However, for the other 63 percent, the exposed workers – such as the shop owners, waiters and cab drivers – Stephens stated that the COVID-19 crisis has been “catastrophic.”

Wall Street Journal columnist William Galston stated in December that, “Online businesses have prospered while bricks and mortar establishments have disappeared.”

On another topic, University of Chicago economist Casey Mulligan and Trump economic recovery advisor Stephen Moore stated recently in The Wall Street Journal that the extension of unemployment benefits in the most recent relief package is a disincentive for many people to return to work.

Klepper-Smith, who chaired former Gov. M. Jodi Rell’s (R-Brookfield) economic team, said he agrees.

“When you pay people more to not work, the system is creating disincentives,” he said. “Some were making more on unemployment versus working their regular jobs. That is bad policy.”

“My biggest concern in 2021 is about [President-elect] Biden politically bailing out state governments because of contracts that they had no business signing,” declared Klepper-Smith.

He said Connecticut’s state employee pension system – which, according to the 2018 repot from the Commission on Fiscal Stability & Economic Competitiveness, was only 29 percent funded – is a prime example.

Klepper-Smith, who has been a Republican for 41 years, said he gives departing GOP President Donald Trump “a D-minus” on economic management.

“We cannot keep printing money and expect economic prosperity,” he said of the large budget deficits resulting from the president’s 2017 tax cut.

“There was little strategic policy and very little fiscal discipline,” said Klepper-Smith. “Our economy has been devastated by Trump’s economic policies and lack thereof.”

He said he supports Biden’s proposed tax reform, which would boost the top individual tax rate from 37 percent to 39.6 percent and increase the corporate tax rate from 21 percent to 28 percent.

“I sound like a Democrat and I don’t want to do that,” he said. “But we should support anything that would make the economy more inclusive. The top one percent has had an advantage in netting income. It would address economic inequality.”

Biden has pledged to make climate change a priority, even appointing former Connecticut Department of Environmental Protection Commissioner Gina McCarthy as the first-ever national climate adviser.

Klepper-Smith said energy reform could generate economic activity.

“We have to look to new sectors,” he said. “Infrastructure can be a key to prosperity. It can come in the form of solar power, hybrid vehicles and other alternative technologies.”

Klepper-Smith noted that the stock market had outperformed the rest of the economy. He attributed that in large part to policies taken by the Federal Reserve Board to “prop it up.”

Connecticut lost 269,200 jobs in April – which is about equal to the employment losses combined from the recession of the early 1990s and the Great Recession which began in 2008.

It had only recaptured 86 percent of the jobs that had been lost during the Great Recession – the only New England state that had not reached at least 100 percent.

Klepper-Smith said that gross domestic product has grown nationally by 25.5 percent over the last 10 years but only 1.1 percent in Connecticut.

Patch.com has reported that University of Connecticut Finance Professor Fred Carstensen, the director of the Connecticut Council for Economic Analysis, has said what Connecticut has lacked in recent years is public-private partnerships such as the 2005 stem-cell legislation which he has said was “hands down” the best program in the country.

Said Klepper-Smith, “I agree and disagree” about the importance of big public-private partnership projects.

“You should seek a major economic engine that will be a multiplier,” he explained. “But the majority of your jobs come from small businesses.”

“There is a lack of respect for what small businesses are doing,” declared Klepper-Smith.

He said Connecticut has the fifth highest cost of doing business among the 50 states.

“If you are paying more attention to employees than employers then you are behind the 8-ball,” said Klepper-Smith. “Employers bring in jobs.”

“The best thing DECD [the Connecticut state Department of Economic & Community Development] could do would be to make an assessment of what is working best in other states,” Klepper-Smith remarked. “

Klepper-Smith, the former economist at Liberty Bank, is now semi-retired, and spends much of his time in South Carolina. He related that South Carolina has “a slush fund of getting employees trained and retrained in the new work force initiatives.”

He said the Work Force Council appointed last year by Connecticut Gov. Ned Lamont (D-Greenwich) “is a good first step” in that direction.

Klepper-Smith added that Connecticut is “not taking inventory” of the structural changes in the economy. ABC News reported in 2017 that by 2032 through robotics, automation and artificial intelligence 38 percent of the current jobs would be eliminated.

He said that the pandemic has prompted residents living in New York City and Westchester County to move to Connecticut, but added: “People have to question how long this in-migration will continue. It certainly won’t make up for the 200,000 residents that Connecticut lost between 2010 and 2019. A massive influx is not going to be a reality.”

Over the recent years, Klepper-Smith has been the featured speaker each spring at the Greater Danbury Chamber of Commerce’s Economics Forecast breakfast and has noted that the metro Danbury area economy is the only one in Connecticut that has more than recaptured the jobs it lost in the Great Recession.

In the phone interview, he commended former Republican Mayor Mark Boughton, who recently left after 19 years in office, to become the state commissioner for the Department of Revenue Services.

Danbury ranks first in the state in sales tax revenue and first per capita in restaurants.

The New York Times reported in 2018 that during Boughton’s tenure the city’s homeless population had been trimmed by half and he streamlined the permitting process for new businesses. Patch.com reported in 2019 that when Boughton took office in 2001 the municipal government fund balance was $2.5 million and had grown over those 18 years to $25 million.

“He did a great job,” Klepper-Smith declared. “His economic initiatives created jobs and income.”