We have a consumer-driven economy. People need to buy things to keep stores open. Stores need to arrange to have merchandise on their shelves. The service industries, lawn service, pool service, cleaning services, all need people to pay for those services in order to employ people. To put simply, you, the consumer need to have enough disposable income to go buy things and services. Disposable income being, of course, money left over after you have paid for the necessities like housing, food, and health insurance.
But the economy has been shut down for over two months. And Congress was really late in approving of the first stimulus package, the CARES Act. Then it took quite some time for the IRS to get their systems functioning properly in order to pass out all those checks. While some people got their payments in mid-April, others had to wait until mid-May. Still others never received their payments, and may need to wait for next year's tax filing before they receive it.
At the same time, rent and mortgage payments are still due. Families need to be fed. And for some people, being laid off means they have to pay for their own health insurance. In many cases, the $1,200 per person stimulus payments were simply not enough to cover the necessities for one month. Sure, there were protections from evictions, so you did not have to worry about being tossed in the streets if you couldn't pay the rent. But that rent still accumulated. Families have had to dip into savings, if they had them. Even when people start going back to work, those arrearages will need to be addressed, especially since moratoriums on evictions are expiring. There's not going to be a lot of disposable income readily available right away.
To address this, some political leaders have pushed for a second stimulus package. There had been arguments about providing every adult a basic income of $2,000 per month until the national emergency is lifted. Unfortunately, when the Government provides these benefits, they have to be paid for. Republicans in the Senate don't want to raise taxes on businesses, which to a degree makes sense because we want those businesses to hire the people back. There have been proposals to just print a couple of trillion dollars up out of nowhere to finance the benefits. But when you print that much extra money, you risk hyper-inflation. That, by the way, is what led to the Nazis taking over Germany in the 1930s. So just printing money is a bad idea. The only other solution is to borrow the money. But that involves our Government taking on more debt, and paying more interest on that debt, which could lead to higher taxes.
The Republican Party has been traditionally known as deficit hawks. Meaning that they try to protect the Government from spending too much money that they have to borrow a lot of it. Well, at least when they're not talking about using so-called tax reform to give tax breaks to the big corporations. But those programs to help the poor, well you better bet they will fight to avoid "excessive" spending on them.
Among the proposals made by Democrats has been to extend the extra $600 per week in unemployment benefits beyond July 31st. But many Republicans will not hear of it. You see, with the extra $600 per week, some people on unemployment are actually making more money than when they were working. Republicans claim that they have an incentive to just sit around and live off of the Government's dime. What we really need to get the economy up and rolling again, is for people to just go back to work. Their incentive to go back to work is to cut off that safety net. As long as that extra money is there, who is going to want to go back to work.
Essentially, the Senate Republicans want to guilt you out of the recession.
There are just several problems with this. Let's start to unpack them. First, the number of people applying for unemployment compensation has just been massive. This is no exaggeration. The last time we saw numbers like these, it was the Great Depression. And that has caused stress on the unemployment system. Especially in Florida, where the former Governor purposefully designed the system to apply for unemployment benefits to be hard, and frustrating. Because if it's frustrating, maybe you'll fed up, and get your ass up and go back to work. That is just how most Republicans think. Nonetheless, the point in that the official unemployment rate may be lower than what is being reported. Which means there are people who are out of a job due to no fault of their own, who currently have no income.
Second, the theory that people will intentionally wait around until the extra federal unemployment benefits expire to find a job is based on two assumptions. The first is that there will be jobs available on August 1st. But as I explained above, for jobs to be available, people need to have disposable income. If they are still preoccupied with paying down the bills that have piled up since March, there won't be a lot of disposable income to buy new things. Indeed, given that many families have dipped into savings, the greater priority after paying for the basics may be to rebuild those savings.
Add to that the fact that some businesses will be downsizing out of necessity. There is still a new virus out there that is highly contagious and could easily overcome our medical resources. We still need to be engaging in safe practices, like social distancing, once those businesses open. People need to sit or stand further apart. So personal service businesses, like hair stylists, personal trainers, restaurants, will not initially be hiring all of their employees back. Indeed, even if sports come back, they will be televised only. That means no jobs for ticket takers, security guards, hot dog vendors. You can't just waive a wand, and expect that as of August 1st everything will be back to normal.
(Set aside, for the moment that the Republicans know how dangerous opening the economy too fast can be, as evident by their push for businesses to be immune from liability for opening too quickly and causing their employees to come down with the virus.)
The second assumption is that people will be intentionally waiting around until the end of July to start finding a job. If people are being rational, they will understand that the extra unemployment compensation is a limited thing. They are going to realize that a job that might pay less than unemployment now, is going to be worth more in the long run, especially when those jobs are going to be scarce for quite some time.
But this is all part of the normal Republican playbook: to demonize the poor, and to try to shame them into working more. But when you think of it, people are being told inconsistent things. On the one hand, you will hear Republicans say that more people should have been scrimping and saving. They shouldn't have been buying that $4 Starbucks coffee every day. They shouldn't go to the movies when they have cable TV at home. Why are they eating out instead of cooking at home? And yes, Americans need to save more, that's a point we can agree on.
Except, we are also being told that we need to spend money to get the economy rolling. This is a consumer-driven economy. If that person stopped buying Starbucks, then the store won't need as many barristers. If you don't go to the movies, the theater will need fewer ushers and concession salespeople. Every time you forgo going to a restaurant, there's less need for wait staff and cooks.
So it's a vicious cycle. And it requires tough choices. Either, you let the economy come back on its own gradually, in the meantime possibly hurting good, hardworking people who won't be able to find a job right away. Or, if you want the recovery to start earlier, the Government will have to borrow the money to provide people with some money while they are out of work to pay their basic bills. Indeed, the Government may need to provide a little extra if it expects people to spend money on non-essential consumables and services.
What is clear, is that if there are no jobs to come back to, you can't just guilt somebody off of unemployment benefits.
By: William J. Kovatch, Jr.
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References
Aratani, Lauren, “‘Designed for us to fail’: Floridiansupset as unemployment system melts down,” The Guardian (April 15, 2020).
Konish, Lori, "More $1,200 checks? Maybe $2,000 a month? The stimulus proposals that could put more money in your wallet," CNBC (June 2, 2020).
"Stimulus check: how many Americans have not received thepayment," AS English (May 31, 2020).
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