CURRENT ADMINISTRATION IS CONSIDERING ECONOMIC SUICIDE

…Will we be soon seeing these Depression Soup Lines?

The current extra unemployment payments are helping the US economy

Let’s put things into perspective.  The senior presidential adviser, Stephen Miller, actually said the following to the president:  “…the single most important thing we have to do going forward to improve the US economy is to stop the $600-a-week payments.” He said this, instead of something like:  “…the single most important thing we have to do going forward to improve the US economy is to curb the spread of covid-19”, or “…safely expand the nation’s schools and child-care re-openings”.

The latest federal program providing financial aid to 30 million jobless Americans is set to expire this week. This money has helped struggling families pay their bills, their rent or mortgage, and put food on the table.  And it has kept many retailers and landlords afloat. Unless Congress acts fast, America’s current economic recovery is poised to take a serious nosedive.  This $600 has obviously provided the money that is being returned to the US economy every day.  

Can you imagine how hard the US economy would be hit if that money is stopped?

I know that it is increasing our national debt, but it is also putting food on the table of many Americans, and it is keeping them in a home.  These people will be in a world of hurt if that money is stopped.  And if that happens, the American public will the be hit with the consequences of dealing with tens of thousands of people, on top of the thousands that are already being hit with the pandemic.

So, which problem do you think would be worse?

Today’s traditional state unemployment insurance benefits replace, on average, only about 40% of a worker’s lost wages.  As concerns about the pandemic grew back in March, Congress created the federal payment to supplement state-level unemployment benefits. Congress wanted to give workers enough money to replace 100% of their lost wages, but our embarrassingly ancient government IT systems made it virtually impossible to link benefits to a specific share of workers’ lost pay.  Lawmakers instead settled on a flat $600 extra per week, for every worker, an amount chosen because it was roughly enough to make the average jobless worker whole.

Unfortunately, due to that poor and antiquated IT system, some previously idled workers have been receiving more in unemployment benefits than they did in their pre-pandemic paychecks.  Now, those lame economic advisers to President Trump are arguing that these benefits are too generous.  And they are saying that this is the real reason unemployment remains so high.  In other words, the workers are allegedly being treated to a collective, government-sponsored vacation and are refusing to return to their jobs.  Of course, our less than bright president is believing these advisers.

During normal times, that is, in a healthy economy with ample job opportunities, it would be reasonable to worry that generous unemployment benefits discourage recipients from taking available jobs.  But the main problem now is that there just aren’t many jobs available.

Job vacancy postings are still down about 25% from pre-crisis levels.  And while it seems possible that, on the margin, some workers might turn down work because they want to keep getting that government pay, the generosity of benefits do not appear to be holding back any employment growth.

“So far, there is no evidence that the federal $600 payments had either job finding, or job leaving effects, in the May and June data."   This is according to a detailed analysis of Labor Department Data from the head of Evercore ISI's fiscal analysis.

Even from the Republicans’ star witness in a recent Senate hearing, his talking about whether benefits were being too lavish.  This was from a small-business owner whose employees had grumbled because their laid-off colleagues were earning more on the government dole than they were earning.  The owner acknowledged that he had no trouble rehiring back all his workers: “I was very happy that no one refused to come back,” he testified, “and everybody when I talked to them was in agreement and said ‘Fine, we’ll see you tomorrow.’ ”

This makes so much sense, given the nation’s current economic conditions.

Fatter though those benefit checks may have been, workers know that they are only temporary payments.  Most workers don’t want to burn a bridge by turning down a job offer when the pre-pandemic unemployment had been at its highest levels since the Great Depression.  And federal and state rules already require people to lose their other benefits if they refuse what is called: “suitable work.”

Besides, to the extent that people are reluctant to return to work, concerns about Covid-19 infection risk and a lack of child care, that may weigh more heavily on their decisions than an unemployment checks.

While evidence is thin that the federal benefit is discouraging work, evidence is abundant that the program has in fact, boosted consumer spending.

Research from the JPMorgan Chase Institute suggests that the additional $600 has had a huge bang for its buck and has been a major contributor to the recovery thus far in consumer spending.

That head of Evercore ISI, estimates that allowing the enhanced benefit program to lapse would lead to a 2% reduction in gross domestic product by year’s end.  Even scaling back the federal pay by halving it to $300 per week, as lawmakers are reportedly considering, this would result in a sizable hit to the nation’s GDP, at least 1% this year.

This blow would be especially painful in some of those states with already high unemployment such as in Nevada.  These enhanced benefit payments are the equivalent of 11% of Nevada’s personal income statewide.

Don’t get me wrong.  The current benefit as designed shouldn’t continue as-is forever.  At some point, as the economic conditions normalize, jobless benefits greater than workers’ expected wages will obviously dis-incentivize real work. That’s why it’s a good idea to phase out the $600 bonus as the economy recovers, and link the benefit levels to a state’s economic and public health conditions.  

It would also be helpful if some kind of pandemic-related earned-income tax credit were there to reward and enhance the spending power of those who do get jobs.

But with the US economy still in a coma, and an ignorant president at the helm for now, it is definitely not the time to withdraw the current life support.

Nuff said.

Copyright G. Ater 2020