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 But several, including Amazon, Molson-Coors and Kroger have already withdrawn those raises.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.