Is It Enough?

The extraordinary speed with which the US Congress has acted to address the economic fallout of the coronavirus has been a sight to behold. Usually our national legislature moves with swiftness of a loggerhead turtle stuck in a mountain of mud.

Circumstances certainly call for quick action. The lockdown required to deal with the threat of the coronavirus to public health is having a painful impact on the nation’s economy and psyche. It does not help that many Americans have not yet recovered from the financial trauma of the Great Recession a little more than a decade ago.

Unfortunately, the several federal initiatives pushed through thus far have not provided meaningful relief to those suffering most. The problem is not so much the lack of resources as it is the wrongheaded mindset of the nation’s financial and political leadership.

Trickle-down economics does not work when businesses are flourishing but it is disastrous when businesses are in the tank. And refusing to recognize the limits of the “free” market means ignoring government’s responsibility to protect the interests of all participants in our economy.

So far, the Congress, the Trump administration and the Federal Reserve have authorized an estimated $3 trillion in grants, loans and other forms of assistance to deal with the financial impact of the coronavirus. While the scope of the effort is extensive, much of it is harum scarum and reflects political horse trading more than any clear strategy for rescuing the economy.

Of significance is the fact that most public services in the US are delivered by, or at least through, state and local government entities. The areas include health care, education, public safety, transportation, infrastructure, workforce initiatives, community development, and employment security.  In implementing programs in these areas, state and local governments employ nearly 20 million people, 13 percent of the nation’s workforce.

By comparison, the federal government employs only about 2.8 million people with nearly 600,000 of those in the postal service.

Under normal circumstances aid to state and local government constitutes approximately 17% of federal budget outlays, $750 billion. These dollars represent only about one-third of anticipated budget requirements of America’s state and local governments.

It is not too difficult to imagine the financial chaos that would result if state and local governments should collapse, perhaps even go bankrupt. About 70 percent of state and local revenue comes from sales and income taxes.  Obviously, the shutdown of the economy, especially retail, restaurants and tourism, is knocking a giant hole in state and local tax collections. With wide spread layoffs reflected in 30 million applications for unemployment benefits during the past six weeks, the decline in revenue should easily exceed the 9 percent dip that occurred during the Great Recession.

Those 30 million applications for unemployment benefits are indicative of a major problem the nation faces in trying to address the economic fallout from the coronavirus. Unemployment benefits are delivered at the state level. Each state has general freedom to determine benefit amounts and the criteria for eligibility with limited oversight from the US Department of Labor.

Most states view the system of unemployment benefits as a temporary form of limited assistance for a worker between jobs. No attempt is made to provide replacement income of more than about 40 percent. And there is no consistency among the states. South Carolina, for example, paid in 2019 an average of $228 weekly with a maximum of 20 weeks, while North Carolina paid an average of $265 weekly with a maximum of 12 weeks.

Nationwide, in 2019 unemployment benefits averaged $385 weekly and most other states paid a maximum of 26 weeks.

Congress attempted to resolve some of the shortcomings of the system by providing funding for up to 39 weeks of benefits in every state and through July an additional $600 weekly on top of the benefit paid by each state. Thus, a recipient in North Carolina will likely have a weekly unemployment benefit $40 higher than a South Carolina recipient.

Of course, both US senators from South Carolina voted against the CARES Act (the Coronavirus Aid, Relief and Economic Security Act) because of the $600 bonus. Apparently not because it seems unfair to workers in South Carolina, but because nurses and other essential workers will likely refuse to return to work because of the generous unemployment benefits.     

According to the Charleston Post and Courier both senators were in attendance April 29, at a meeting with Columbia business leaders when in reference to the $600 bonus Senator Lindsey Graham declared, “I promise you over our dead bodies will this get reauthorized.”

Senator Tim Scott added, "The unemployment benefit is wreaking havoc and will continue to wreak havoc until it's over,"

Neither provided any evidence that South Carolina nurses or other essential workers were refusing to work for any reason.

The unemployment benefits system is a poor choice for trying to deal with our economic calamity. It is actually not a single system, but a clumsy and convoluted collection of systems not meant to address long term problems. Across the board direct payments to all citizens with reasonable income limits is a better way to distribute assistance fairly and quickly. The CARES Act did provide a single $1200 payment per adult and $500 per child, but this type of assistance should be available on a regular basis when the economy is suffering.

In another half-hearted effort at easing the anxiety and probable pain of American workers, the CARES Act raised the federal share of Medicare spending by 6.2 percent, an estimated $35 billion. A recent study by the Center for American Progress indicates that for every one percent increase in unemployment in a state Medicaid costs rise by roughly $2.7 billion per year. On this basis, if unemployment rises as high as 20 percent, it could cost states a combined $45 billion.

But given our employer-based healthcare system, inadequate Medicaid funding is not the only problem. The 30 million applications already submitted for unemployment benefits likely means many working Americans will soon be without access to healthcare. Not a good development when the country is trying to deal with a pandemic.

At a minimum Congress should make anyone receiving unemployment benefits eligible for Medicaid. Better yet would be a serious effort to implement some form of universal healthcare access divorced from one’s employment. The time has come to provide a genuine economic safety net for all Americans.