Saving the Economy

For some time now it has been obvious the US stock market does not reflect accurately the broader conditions within the US economy. The lockdown resulting from the coronavirus surely has convinced any remaining doubting Thomases.

As the threat of the pandemic became clear in early March 2020, the US stock market dropped precipitously. By mid-March when the coronavirus had taken approximately 100 lives in the US, and US unemployment was 4.4 percent, the Dow had sunk to 20,188.52, the NASDAQ was down to 6,904.59, and the S&P had fallen to 2,386.13.  

Now as we near the end of July and the coronavirus has taken more than 150,000 American lives and unemployment in the US is above 11 percent the stock market is firing on all cylinders. The Dow has gained 31 percent since mid-March and the S&P 35 percent. The tech heavy NASDAQ has steamed ahead by 52 percent.

Major factors in the hyper confidence of the stock market have been policies of the Federal government. On the one hand, the Federal Reserve has committed to keeping interest rates low and ease access to credit for businesses and state and local governments. And on the other hand, Congress and the Trump administration have provided roughfully $3 trillion in economic relief through four separate measures since late March. Much of that aid was directed towards business in the form of grants and loans.

Federal legislation also targeted individuals and families, providing $1200 cash relief payments to families, emergency family and medical leave and a $600 per week subsidy to state unemployment benefits. Given that consumer spending accounts for approximately 68% of the total US economy, these measures have helped the country avoid a financial collapse.

Meanwhile, America’s corporate elites are not passing up any opportunity to fatten their wallets, even in the face of the pandemic.

Some companies provided temporary pay increases to their employees and even one-time bonuses. But several, including Amazon, Molson-Coors and Kroger have already withdrawn those raises. Also, a number of companies indicated the desire to hire additional people, but the numbers of jobs added can be calculated in the tens of thousands, while the number of unemployed are in the millions.

 A few corporate CEOs have had their salaries reduced as result of the Covid-19. One in ten members of the Russell 3000, a broad index of listed American companies, has cut the top man’s salary.

But total CEO pay includes things like bonuses and stock awards that typically make up the bulk of what a corporate boss takes home. CGLytics, a compensation analysis firm, claims most reductions were generally only 10 percent or less of 2019 salary. Walt Disney CEO Bob Iger, for example, took a $2 million salary cut, but it just amounted to slightly more than 3 percent of his total compensation in 2019.

An even more egregious example of corporate avarice was the decision this spring of Raytheon Technologies to make an adjustment in the pay package of its head man, Gregory J. Hayes likely to increase his future income by an estimated $12.5 million. At the same time, the company, one of the nation’s biggest defense contractors, was cutting wages for thousands of employees by 10 percent and furloughing a number of its 195,000 employees, including 1,500 in Winston-Salem.

While this scenario is playing out in the US economy, the Congress and the Trump administration are engaged in a heartless and financially ruinous battle over how to extent federal relief. The Democratic-controlled House passed in May a proposed expansion of assistance with a price tag of an estimated $3 trillion. In control of the Senate, Republicans under the leadership of Mitch McConnell, and without any leadership from the president, have elected to drag the legislative process out to the point that millions of Americans may face a dire fall and winter.

Neither side is proposing sufficient money for state and local governments, including the public schools that everyone would like to see opened. Republicans are also insisting on giving a blanket liability waiver to employers with regards to potential exposure of employees and customers to Covid-19. This seems overkill given the conservative judges they have approved during the past three years.    

The big fight appears to be over extending the $600 subsidy to state unemployment benefits. Republicans criticize the $600 as being a disincentive to work because many people have higher income on unemployment insurance than they did in their prior job.

But this ignores three facts: 1) there are three times more unemployed workers than there are job openings; 2) in general, workers prefer a steady job instead of unemployment benefits, but given the spike in coronavirus cases, how likely will opportunities for regular employment return soon; and 3) the return to normalcy in our economy will continue to be hampered by our failure to gain control over the coronavirus.

The irony is that by keeping millions of households financially intact and reducing the negative impact of the coronavirus threat to the overall economy, the original federal aid also shored up the stock market. If the $600 unemployment subsidy is now axed with over 30 million Americans still unemployed, the stock market may finally resemble our economy.

School Openings Require Federal Funds

As the normal time for opening schools approaches, it is becoming increasingly clear the country is not ready. Despite broad recognition of how important it is to get young people back in a learning environment, political leaders have failed to provide the resources for a safe launch.

Most responsible citizens recognize that schools are essential to the wellbeing of our society, not only for education, but also for the socialization that occurs in the school setting. Parents can meet some educational needs and provide a foundation of respect for learning in general, but they cannot cover all subjects, nor replicate the interaction with other students critical to helping young people understand the challenges and values of community.

The shutdown of schools in mid-March brought home to Americans the central role schools play in our daily lives, especially in our working lives. Schools not only educate our children, but they accept responsibility for them while parents work. Parents with minor children comprise almost one-third of the nation’s workforce. Nearly 34 million families have at least one child under 14.

If our economy is to recover anytime soon, it is critical that our schools open. But opening schools without proper safeguards against the coronavirus would be foolish. In recent weeks we have seen the tragic results of trying to open major sectors of our society without sufficient planning and protective measures.

How are school districts responding to this challenge? In general, education experts identify three possible approaches: 1) relying on remote learning and forego opening of schools until the coronavirus is under control and a vaccine is ready; 2) opening schools on a hybrid schedule allowing students to attend in-school classes for a couple of day each week and relying on remote learning the other three, and 3) fully opening schools with as much social distancing as is affordable given existing resources and facilities.

The first approach does nothing to meet the socialization goals of schools and raises serious questions about maintaining continuity in the education process. Professional educators are already concerned about the negative impact of closing schools thus far. In addition, it has become apparent that many youngsters do not have resources necessary for remote learning.

The second approach seems the most popular, but such a halfway measure is not likely to satisfy either the goals of education or of socialization. Also, families are likely to find it severely disruptive. What if multiple children in a family are not scheduled for in-school classes on the same days? What child care arrangements can be made on a three-day week schedule? How do working parents coordinate their job schedules with their children’s class schedules?

All in all, the second approach seems to be a “Hail, Mary” by frustrated school administrators faced with the task of trying to address a need without adequate resources.

The third approach is the only one that meets society’s interests, but there are two caveats: 1) although the threat of the coronavirus cannot be eliminated until there is a vaccine, its spread can be brought under some reasonable degree of control. Several European countries have successfully opened their schools, but only after significantly reducing the spread of the pandemic. At the moment in the US this is not the case, and 2) the states are not in a position to provide the resources and facilities necessary for success.

What is necessary for schools to fully open in a reasonable, safe manner? Given the continuing risks from the coronavirus, social distancing rules must be mandated to protect students, teachers, school nurses, and other essential workers. Masks, space restrictions, modified school buses, frequent testing and contact tracing, access to sanitizing materials, and sufficient quarantine areas all must be in place.

Meeting space restrictions may involve modification of existing facilities or even the acquisition of additional buildings. Most school districts have within their boundaries empty structures that could be converted to meet educational purposes or to expand the availability of child care.

These requirements will necessitate buy ins by parents and students, but they also will cost money. Most states have been struggling with school financing for several years, especially since the Great Recession. A primary source of school funding, the sales tax, has suffered greatly during the pandemic, and state income tax revenue is also likely to fall. State budgets for public schools in 2018 totaled slightly more than $700 billion. Estimates of state shortfalls range from 20 to 30 percent of anticipated revenue.

Only the federal government with the power to run deficits is in a position to provide the states the help they need to open schools safely. The US Congress provided $13.2 billion in emergency aid for public education in the Coronavirus Aid, Relief, and Economic Security Act (CARES) last March, but this is less than a drop in the bucket towards the need. While the Democratic-controlled House passed in May another stimulus bill that includes $350 billion for state and local government, the Republican majority in the Senate does not appear supportive or even agreeable to negotiating a compromise.

Trump has not been helpful. He has encouraged states to reopen without adequate controls and has refused to recognize any federal responsibility for securing necessary PPE resources. Also, he has demanded schools reopen regardless of the status of the pandemic or the availability of the necessary funding for social distancing. If districts fail to comply, Trump has threatened to withhold federal education funds. It is doubtful he has the authority to withhold funds, but Trump’s threat is an obstacle to resolving the problem. His secretary of education, Betsy DeVos, who does not hide her disdain for public education, has indicated a desire to divert federal monies to vouchers that could be used for families to send students to private schools.

The federal government should provide funds for more teachers and other key personnel, such as nurses and counselors, for additional facilities (temporary or otherwise), for other essential support personnel (maintenance, housekeeping, and bus drivers). The Council of Chief State School Officers estimates schools need between $158 billion and $245 billion in additional federal support to cover funding cuts and follow the Center for Disease Control’s coronavirus recommendations for reopening safely in the fall. If federal politicians can figure out how to funnel billions of dollars to lawyers, car dealers, lobbyists and well-funded private schools, surely they can find a way to provide the money needed by public schools for a safe opening.