Expect 2 'major waves' of unemployment if D.C. gridlock continues, Obama economic advisor says

In recent days, the window of opportunity for additional coronavirus stimulus has gradually closed more and more as Republicans and Democrats continue talking past each instead of negotiating.

On Friday Senate Majority Leader Mitch McConnell added to the sense that a deal was unlikely, reportedly saying: "I wish I could tell you we were going to get another package, but it doesn’t look that good right now."

Many are now trying to assess what the economy will look like if – as is now expected – Washington simply passes a bill to avoid a government shutdown and then leaves town until after the Nov. 3 election.

Austan Goolsbee, a Democratic economist who has endorsed Joe Biden, appeared on Yahoo Finance on Friday and painted a dire portrait of what could be coming.

In a worst-case scenario, where Washington remains gridlocked and the virus remains out of control, he sees “two major waves of additional unemployment" in the months ahead on top of the millions who are already out of work.

Goolsbee said he had thought lawmakers would figure out something, but “now I'm not so sure.” And even if they do come together ”it's going to be something tiny,” he said. Goolsbee predicts a bill closer to the “skinny” Republican bill that just failed in the Senate rather than the $2.2 trillion that Democrats like him want.

States could ‘lay off millions’

Goolsbee said states and cities will continue to face shortfalls and in order to balance their budgets, they’ll need to lay off workers, or raise taxes, or both.

It could be “on the order of magnitude of what's already happened which is more than a million” jobs lost, said Goolsbee, who was the chair of the Council of Economic Advisers under President Obama and currently is a professor at the University of Chicago.

It’s a grim picture that Goolsbee said is already happening. "You've already seen Nashville raise property taxes 30% or more,” he said, pointing to a recent 34% property tax hike there. It’s possible in the end that the unemployment rolls could be adding “several million [new recipients] just on that state side.”

During a recent Yahoo Finance interview, the mayor of Chapel Hill, N.C., Pam Hemminger, gave a similar perspective, noting that her city’s revenues have plunged. “We have a lot of needs here,” she said noting that the state has been able to fill in the gap, for now at least.

‘Millions of businesses going through liquidation or bankruptcy’

The expiration of the Paycheck Protection Program is another factor Goolsbee sees deeply damaging the U.S. economy without Congressional action.

Lawmakers have been in agreement for months about the need for a second wave of PPP loans, but the window to apply for new loans ended in early August.

Before it ended, the program gave out over 5 million loans to businesses around the country valued at over half a trillion dollars. If that spigot stays closed, “you are going to face millions of businesses going through liquidation or bankruptcy," Goolsbee says.

A recent survey from the National Federation of Independent Businesses found that 84% of businesses have used up their initial PPP loan and 75% would at least consider another loan. More than 20% of small-business owners in the survey say they will have to close their doors if their current situation doesn’t improve in the next six months.

In July, the House Small Business Committee Chairwoman Nydia Velazquez estimated that 7.5 million small businesses are at risk of closure in the near future, in addition to the 110,000 that have already closed their doors.

The need for a second wave of PPP has bipartisan agreement. Sen. Marco Rubio (R-FL) helped design the PPP program. He recently told a Florida TV station that some businesses “need a second round of support.” Rubio is pushing for a targeted second round of relief.

Provisions for a second wave of PPP loans were included in the GOP’s “skinny” bill, which failed in the Senate earlier this week.

‘The virus is the boss’

The picture painted by Goolsbee and others doesn’t even include the millions of Americans who are already unemployed and have seen their unemployment benefits cut.

Depending on the state they live in, some unemployed Americans have lost their additional benefits entirely, others are still waiting for their state’s program to kick in, and others have been getting a smaller $300 benefit but their state is already running out of money.

Goolsbee said that economic pain he foresees could be mitigated if the virus abates in the months ahead. "There have been some promising signs over the last week and a half," he said, but there are still "a lot of red danger zones."

Also on Thursday, Dr. Anthony Fauci said he was “depressed” about the U.S. inability to contain the virus and warned against repeating mistakes made at the start of the pandemic again this fall.

In the end, "the virus is the boss,” says Goolsbee.

Ben Werschkul is a producer for Yahoo Finance in Washington, DC.

Read more:

American savings accounts are now ‘steadily declining’ as coronavirus effects linger

Why a ‘vast majority’ of Americans are not getting the most out of Social Security

Report lays out how the gender pay gap becomes a retirement wealth gap

Read the latest financial and business news from Yahoo Finance

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, YouTube, and reddit.