Congress can’t buy a cure for recession

In fits and starts, the decision has been made to shut down large segments of the U.S. economy to lessen the extent to which hospital ICU units are overrun with coronavirus patients and to reduce deaths from the disease by an uncertain amount.

The singular prioritization of the public health objectives has initiated what is likely to be a deep and prolonged recession. The recession will hit lowskilled workers particularly hard, since their jobs are disproportionately found in the economic sectors that have been shut down. The avalanche of unemploy

ment claims began this week.

Congress has enacted a $2 trillion economic rescue package, which President Donald Trump supported. The rescue package will help some better endure the downturn. But unless the public health protocols shift rapidly, from shutting down everything to focusing on isolating and protecting vulnerable populations, it won’t materially affect the course or contour of the recession. In some respects, it will tend to prolong it.

There are three main components of the rescue package. First, checks to everyone as a stimulus. Second, a large increase in unemployment compensation to provide income support for those losing their jobs. And third, a blizzard of loan programs in hopes of keeping businesses alive with their workforces intact.

The stimulus is sure to be a bust. Singles making less than $100,000 a year and couples making less than $200,000 are going to receive a check from the government, irrespective of whether they have suffered any income loss as a result of the coronavirus shutdown.

Even when large segments of the economy weren’t shut down, such rebates didn’t do much to stimulate economic activity. The tendency is to squirrel away one-time windfalls, not go on a shopping spree.

In this case, the money can’t even theoretically be spent where it is most needed, on purchases from businesses that are shut down. It’s a waste of $300 billion.

The rescue package will provide significant income support for those losing their jobs. In fact, in some cases, it does too much of that.

Unemployment benefits in every state will be increased by $600 a week for up to four months of joblessness. In Arizona, that boosts the maximum benefit from $240 a week to $840. And the maximum length of benefits has been extended from six months to 10 months.

Given the jobless epidemic that has been unleashed among lowskilled workers, a boost in income support was warranted, in fact the most pressing item for action.

But doing it this way will mean that many workers will be making more on unemployment than they were from their job, or another job that might be available for them. In Arizona, anyone making less than around $40,000 a year would make more, temporarily, being unemployed.

If the economy restarts, this will make it more difficult to get people to return to the workforce.

Small businesses will face a struggle to survive. But they won’t all automatically run to sign up for one of the blizzard of loan programs Congress has enacted.

Supposedly the money will be available quickly and without a lot of red tape. Small businesses will believe that when they see it.

Congress wants small businesses to keep their workforces intact. One of the loan programs even offers forgiveness for payroll and other operating expenses, turning it into more of a grant.

But Congress also saddled small businesses with higher employee-related costs, requiring them to offer up to twoweeks paid sick leave for COVID-19 related illnesses, and up to threemonths paid family leave. Family leave entitlement includes having a kid at home if schools are closed, which they are all around the country.

Employers are supposed to be reimbursed through payroll tax credits, but that requires cash flow to get there.

Many small businesses will just hunker down and try to gain forbearance from landlords and lenders. Or close up shop and wait for a better day to attempt a relaunch.

Given how generous unemployment benefits now are, small business owners will have less worries about their employees, and less reason to try to hang in there.

That’s particularly true since no one can say when the economy will open back up, or even when it is likely to be opened back up.

There are more people beginning to question the wisdom of purposely inducing a deep recession among low-skilled workers as a public health precaution, as opposed to focusing on isolating and protecting vulnerable populations. The economy won’t get markedly better until that becomes the actionable consensus.

Many small businesses will just hunker down and try to gain forbearance from landlords and lenders. Or close up shop and wait for a better day to attempt a relaunch. Given how generous unemployment benefits now are, small business owners will have less worries about their employees, and less reason to try to hang in there.