A larger financial safety net is needed to repair COVID economy
Gov. Greg Abbott says you should wear a mask. President Donald Trump calls it patriotic. On Amazon, Make America Great Again face coverings are catching on.
The GOP’s top leaders have abandoned wishful thinking and are finally recognizing COVID-19’s persistent threat to public health. But they also need to wake up to the virus’s longterm economic toll before a financial crisis takes hold.
The growing infection rate and death toll have proved that Republican leaders reopened the economy too soon. As a result, July’s encouraging economic indicators are fading, and the new data are downright terrifying.
“The recovery is facing increased challenges with the spread of COVID-19,” a new report from S&P Global Economics, a data analysis firm, said. “The reclosures in a number of states will most certainly change the U.S. economic outlook. It depends on how many states close and how long these state closures remain in place, with the path of the virus dictating the terms.”
More than 40 states are experiencing growing infection rates, and sampling by the Centers for Disease Control and Prevention proves the number of cases — and deaths — are dramatically underreported. There is still not enough testing or contact tracing to slow the spread.
With 140,000 Americans dead, and 1,000 more dying every day, more people are encountering the disease and reacting predictably. They are staying at home, avoiding crowds and preparing for the worst. Those wise steps, though, hurt worker productivity, consumer spending and economic growth.
The New York Federal Reserve’s Weekly Economic Index, which tracks 10 high-frequency economic data points nationally, is dropping for the first time since April. The St. Louis Fed reports unemployment is growing again.
The Institutional Loan Default
Rate, a measure of financial health, has topped 4 percent, the highest level in a decade, according to Fitch Ratings, a financial analysis firm also owned by Hearst. Analysts expect defaults will cost the economy $80 billion. Federal courts report 3,600 businesses have filed for bankruptcy so far this year, up 26 percent from last year.
Half of Americans say the Coronavirus Recession has hurt their finances, according to a survey by the Prudential investment firm. About a third of Americans are expecting help from the federal government to survive the year.
Trump and other Republican leaders need to accept that the economy is not returning to normal, just as the new coronavirus is not going away on its own. With past stimulus programs expiring, Congress must act to avoid a depression.
Democrats have proposed throwing $3 trillion at the problem, basically providing a universal basic income until the end of the year. The University of Chicago found that the extra $600 a week approved in March means most people laid off because of the virus are taking home more money now than when they were working.
Economists debate whether this is good or bad. If you want people to
stay home and yet maintain consumer spending to support the economy, giving poor people money to spend is a tremendous economic stimulus.
Additionally, the Paycheck Protection Program, which paid companies to keep workers on the payroll, has prevented the U.S. economy from collapsing. Bond-buying programs and government handouts to corporations have also managed to keep stock markets afloat. So far, so good.
Too many Republican leaders, though, think they should force people back to work by cutting these deficit-inflating programs. Treasury Secretary Steve Mnuchin’s inability to strike even a $1 trillion deal with GOP senators this week revealed the intraparty divisions.
At the heart of the matter is a philosophical question about what we owe one another as Americans. How much of a safety net do we think is appropriate? The GOP has proposed slashing aid unemployment insurance from $600 a week to $100 a week.
Senate Majority Leader Mitch McConnell, the Kentucky Republican, has proposed more narrowly focusing aid on those at the bottom of the income scale who cannot go back to work, such as hotel, restaurant and entertainment workers. That makes sense.
Unfortunately, the debate still centers on shortterm solutions. The virus will keep surging every time we let our guard down and delay full economic recovery. Even after a vaccine, the United
States economy will need infrastructure programs, more affordable health care and higher minimum wages to get back to 2019 levels.
Lastly, Congress must spend more on testing and tracing to contain the virus as most other wealthy countries have done. It took four months to convince GOP leaders to wear masks; we cannot wait that long for them to figure out this is only the end of the beginning.