August 02, 2020
There continues to be enormous confusion about what we should be trying to accomplish in the next pandemic relief package. This is best demonstrated by Republicans’ obsession with getting people back to work, with a mixture of cuts to unemployment benefits and return to work bonuses.
Ignoring the questionable economic logic (there is zero evidence of large numbers of jobs going unfilled), this approach also ignores the reality of the pandemic. At the start of April, both houses voted nearly unanimously to support measures that were designed to make it possible for people to stay at home rather than work. At that time, we had roughly 35,000 new infections a day. Currently, we are seeing well over 60,000 new infections a day, with the count crossing 70,000 in many recent days.
The comparison looks even worse if we pull out New York and New Jersey, both of which were overwhelmed by the pandemic at the start of April. Between them, they had roughly 15,000 new infections a day, which means the rest of the country was seeing close to 20,000. By contrast, at present both states have the virus relatively under control, which means that the new infection count in the country would still be over 60,000 a day, excluding New York and New Jersey.
This raises the obvious point: if Congress thought it made sense to allow, encourage, and possibly even require people to stay home rather than work at the start of April, how could it possibly make sense to push people to work at a time when the rate of new infections is more than three times as high, in areas outside of New York and New Jersey?
This is really a question of life and death. Tens of millions of workers have serious health conditions that mean they would be at considerable danger if they became infected. Tens of millions more workers would be putting into danger family members, with serious health conditions, if they became infected. As a result, a high percentage of the work force has very good reasons for not wanting to return to work just now.
If we face the reality of the pandemic, we should not be designing a package to get people back to work, we need to design a package to keep them whole through a period in which tens of millions of people will still not be able to work because of the pandemic. This means that we want people to have the money to pay their rent or mortgage and to buy food and other necessary items. We don’t want them to be going out to restaurants and bars, to see movies or baseball games, or to fly away on vacations or go on a cruise ship.
There was considerable confusion on this point even back in March and April where many were referring to the bills passed by Congress as stimulus. Some were even pushing types of spending that could boost the economy. There was little reason to want to boost the economy back in April, nor should there be now. We want to make it so that people endure as little hardship as possible for now, and the economy to be prepared to start up as quickly as possible, once the pandemic is under control.
Of course, we should not be in this situation. Most of the economy was shut down from the middle of March to the middle of May, with major restrictions staying in place in the hardest-hit areas well into June. These restrictions did largely bring the pandemic under control in places like New York, New Jersey, Maryland, Massachusetts, and Washington (both state and DC).
Unfortunately, many states did not take the need for restricting business seriously and began to open at the start of May. This is the reason that states like Arizona, Georgia, Florida, and Texas now have major outbreaks. California also now has a major outbreak, as a lack of financial support from the federal government, coupled with political pressure orchestrated by Donald Trump in the form of “liberate California” protests, led the state to relax restrictions sooner than it should have.[1]
It would be possible to talk about an economic reopening now, if we had been successful in bringing the pandemic under control, as is the case in Europe and East Asia, in addition to the Northeast in the United States. But we can’t make plans based on a reality that does not exist. The pandemic is more out of control than ever in most of the country. This means that we again have to plan for another period in which the economy will not be operating normally by design. We need to focus on keeping people whole.
The Shape of this Rescue Package
The centerpiece of a keeping people whole strategy should be the continuation of the $600 weekly supplements to unemployment checks. We can debate whether $600 is the right sum, but unemployment benefits have fallen far below the levels that would allow millions of workers to sustain anything close to their normal living standards through a period of prolonged unemployment. In order for millions of workers who are unemployed due to the pandemic to be able to pay their mortgage or rent and cover other unavoidable expenses, it will be necessary to have a substantial supplement to normal benefits.
There have been numerous complaints from Republicans, and some economists, that these supplements will discourage people from working. This is undoubtedly true in some cases, but this is the point. When we have a pandemic that is out of control, we don’t want to force people to work and threaten their own health and/or the health of family members.
Some have raised the issue that it is not fair that some people who are working at low-paying jobs are getting less from their paychecks than other workers are getting from being unemployed. This isn’t fair, but there is much that is going on in this pandemic that is not fair.
For example, the government is paying the pharmaceutical company, Moderna, $955 million to develop and test a vaccine. Then, after covering the research and testing costs, Trump will also give Moderna a patent monopoly that will allow it to charge prices that are more than 2000 percent above the cost of manufacturing and delivering the vaccine. The company is getting the patents in spite of the fact that the taxpayers paid for the research and took all the risk. Several top executives of the company have already made tens of millions on stock options as a result of the government contracts. There are similar stories at other pharmaceutical and medical equipment companies.
So, the fact that some workers may be getting less money at low-paying jobs than other workers are getting from unemployment insurance is unfair. But if this is someone’s biggest concern over unfairness, they are not paying attention to the world around them.
Others have also expressed concerns that these unemployment insurance supplements are making it hard for employers to find workers. There is zero evidence that this is a problem. There are millions of unemployed workers anxious to find jobs. If employers were having difficulty getting workers we should be seeing an increase in the number of job openings for unfilled positions. In fact, openings are very low. We should also be seeing rapidly rising wages as employers compete for available workers. The most recent data on compensation, that controls for changes in the mix of the workforce, found that compensation growth slowed sharply in the second quarter.
There will be workers who fall through the cracks and don’t get unemployment insurance. To try to help as many of these workers as possible, we should expand both the size and eligibility criteria for SNAP. We also must ensure that the moratoriums on evictions and moratoriums on foreclosures remain in place throughout the rest of the year.
Some of the other items that should be in the rescue package are funding for state and local governments. The Postal Service will also need substantial additional funding to prevent large-scale layoffs. State and local governments have already laid off 1.6 million workers, additional funding will allow them to hire back many of these workers and prevent the lay off of millions of additional workers. These governments also have an essential role to play in bringing the pandemic under control, doing things like testing and tracing, providing health care to coronavirus patients, and ensuring that workplaces and businesses are safe.
In the same vein, money is needed to allow schools to reopen safely. It is very important for both children and parents that the schools be open, but plans have to be put in place to allow for safe re-openings. Unfortunately, there was no national leadership or money for this effort over the summer and now most schools are not prepared to reopen. The next rescue package must have the money to allow for schools to make the necessary arrangements so that they can have safe re-openings as soon as possible.
We also need to try to lay the groundwork for a quick recovery when the pandemic is brought under control. The Paycheck Protection Program was useful for this purpose, keeping many businesses intact through a period in which they were operating well below capacity or shutdown completely. It would be good to extend this through the next three months.
We also need to ensure that our child care facilities are up and running. Lack of affordable child care has long been a problem, but it has become much worse in the pandemic as many child care centers have closed. We will need adequate child care arrangements if we want to ensure that parents are able to go back to work when the pandemic is brought under control.
One item that is completely unnecessary is the pandemic checks that gave every adult $1,200 in the first round and seem destined to be included in the last round as well. While these checks give Donald Trump something to put his name on, they did little to keep people whole in the shutdown and are not likely to provide much of a demand boost when we reopen.
The vast majority of these checks were saved, with the saving rate out of disposable income soaring to 25.0 percent in the second quarter. (The saving rate was hovering near 8.0 percent before the pandemic.) The overwhelming majority of people who received these checks did not suffer any substantial fall in income as a result of the pandemic, they are either still getting full pay at their job or were retired. It is difficult to understand what the purpose of these checks is supposed to be.
To be clear, at a time when the economy is operating well below its capacity there is no particular harm in adding $1,200 to everyone’s bank account. This is not about causing an inflationary spiral, in large part because people are not spending the money. But if there are political limits on the size of the pandemic package, knocking out a $300 billion item that serves no real purpose, is a very good place to start.
[1] Trump also promoted “liberate” rallies, which often involved heavily armed protestors, in New York, Michigan, Pennsylvania, and Minnesota, among other states.
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