- Federal unemployment benefits that provided an extra $600 per week to Americans who lost jobs to the pandemic expired on Friday, with congress locked in a stalemate over the next round of aid.
- During the worst economic crisis since the Great Depression and with the eviction moratorium ending as well, congress left town.
- Republicans want to reduce the enhanced unemployment payments or cancel them altogether. They also tried proposed passing a temporary extension of the weekly $600 while the Senate negotiated the full bill.
- Democrats, knowing the impending economic panic and evictions caused by the lapse in aid, will reflect poorly on the White House and damage GOP candidates – Donald Trump, in particular – in November’s presidential election rejected the temporary measure.
They really did it. Congress really let the federal unemployment benefits enacted as part of the CARES Act to support workers who lost their jobs during the pandemic – to know fault of their own – expire on Friday.
You know, — I expected the negotiations to come down to the last second. That’s US politics; they use the regular people’s pain and panic as leverage – freak everyone out a bit about their collective worlds coming to an end – and cut a deal at the 11th hour.
But they didn’t even make an effort! At the very least, you’d expect them to haggle over the details of the legislation through the weekend; congress went home on Thursday!
The Economic Crisis
To fully appreciate how callous and irresponsible congress was not to break the deadlock, you must understand the severity of the current economic crisis, and how devastating it’s about to be.
- On Thursday, the Commerce Department reported that the US GDP contracted at a 32.9% annualized rate during the second quarter (9% contraction non-annualized – still the worst drop on record).
- Even worse, last week’s 1.4 million first-time filers mark the second week in a row that unemployment claims have increased. The last time jobless claims rose for two consecutive weeks was in March.
- Approximately 30 million Americans are receiving temporary unemployment benefits.
- The unemployment rate in June is 11.1%. It’s slightly lower than the 14.7% rate posted in April, but still devastatingly higher than February’s record-low 3.5% unemployment.
- According to a recent government study, a quarter of all Americans are reported to be facing housing insecurity.
- And that was before the federal aid expired!
Despite the concerning stats, the only thing keeping what remains of the US economy together was the federal aid benefits. As lockdowns and stay-at-home orders forced businesses to close and employees to stay home, tens-of-millions were laid off and furloughed. Many small businesses were shuttered permanently.
The stimulus checks and $600 enhancement to unemployment payments allowed people to keep spending money from home – primarily from massive retailers like Amazon and Walmart – and patronizing restaurants (often in the form of food deliveries, which means income for delivery gig workers) and other businesses.
As bad as the economy has been hit, having that extra cash circulating prevented an even worse collapse.
An increase in federal government spending during a recession can increase GDP by more than the value of that spending—in some cases, almost doubling the amount of the original stimulus. This multiplier effect occurs when consumer demand is low. In April of this year, for example, the price of clothing decreased by 4.7 percent because there was not enough demand. When it is safe to reopen, a cash stimulus can increase consumers’ demand for clothing and create jobs in the clothing retail industry. These extra jobs then lead to more people having higher incomes and spending on more clothes, as well as other goods and services, multiplying the impact of the original cash stimulus.
The multiplier effect for Unemployment Insurance is at least 1.7, meaning that a $100 increase in government spending leads to $70 additional GDP in the private sector. This 1.7 multiplier effect is based on the effect of fiscal stimulus during the Great Recession of 2007–2009. The expansion of Unemployment Insurance during the Great Recession had an even greater impact—about 1.9, which means that every $100 spent on Unemployment Insurance led to $90 additional GDP value.
That’s the kind of value generated by the stimulus payments, while the GDP still saw its worst contraction since the US began recording the metric.
What happens when that money disappears, and the jobs market isn’t ready to replace those funds?
Republican Congressional Leadership’s Position
The White House hasn’t been on the same page as GOP leadership in congress since the beginning of these stimulus talks. While Donald Trump’s second term is riding on the success of the eventual deal, free-market fundamentalist ideologues in the Republican caucus can’t break away from their rigid belief systems, even as the economy goes careening off a cliff.
The White House is willing to cut a deal with Democrats that leaves out Senate Republican legislation aimed at protecting employers, hospitals and schools from coronavirus-related lawsuits, according to two people with knowledge of internal White House planning.
The White House wants and is pushing for the “liability shield” as a top priority but would be willing to sign off on a deal that lacks the legal protections, those people said.
In the week’s leading up to Friday’s expiration date, the airwaves were inundated with GOP congress members outraged over the possibility of unemployment insurance recipients potentially making more money than they did to work. The thought is that given the option, these people would rather be lazy and stay home.
🚨New paper 🚨Despite the $600/week unemployment benefits expiring tomorrow, employers saw more applicants per vacancy after the CARES Act, even in lower wage occupations (4th quartile below). With @DaphneSkandalis @DanielBZhao. https://t.co/xKWuRTTRx5 1/10 pic.twitter.com/nBOc38MKvX
— Ioana Marinescu (@mioana) July 30, 2020
It’s not that people are staying home; there aren’t enough job openings.
Over 140,000 small businesses have closed permanently; industries like air travel and hospitality executed mass layoffs and can’t rehire until people use their services again; others are still locked down over covid concerns.
An economic research paper examining the effects of the $600 weekly stimulus found the exact opposite of what GOP leaders fear:
We document two new facts. First, applications-per-vacancy were higher during the COVID-19 crisis than before. This is because job vacancies decreased by 64% during the crisis, while job applications only decreased by 21%. Job applications decreased before the CARES Act, and remained relatively stable until June 2020. Second, applications and applications-per-vacancy were slightly lower in occupation-states with a larger increase in the replacement rate after the CARES Act, but these differences are not entirely explained by the CARES Act. Overall, our evidence suggests that employers did not experience greater difficulty finding applicants for their vacancies after the CARES Act, despite the large increase in unemployment benefits.
Job vacancies decreased at a much higher rate than job applications! People weren’t sitting around enjoying their “government handout,” they’ve been searching for work in a shrinking economy. More apps are being submitted per job vacancy than before the CARES Act!
Cutting government spending on stimulus aid now risks sending the US into a deflationary spiral, as explained by the Washington Center for Equitable Growth’s research:
The job losers’ stimulus program would strengthen the fiscal stimulus at a critical time for economic recovery and would create jobs and raise Gross Domestic Product by increasing consumer demand. This is especially important as consumer demand is low during the pandemic, which already led to price decreases as of April 2020. Such price decreases can lead to a deflationary spiral in which businesses are cash-strapped and must lay off workers, leading to even lower consumer demand and further price decreases down the road.
Democrats Negotiating with Leverage
Democrats in congress are looking for something closer to the HEROES Act, passed by the House in May.
The $3 trillion package promises to extend the $600 per week unemployment enhancement, provide hazard pay for frontline workers, send out another round of one-time $1,200 stimulus checks, and give additional state and local aid.
That last part is especially crucial. If state and local governments don’t receive assistance soon, we’ll see millions of Americans laid off, piling onto what’s already a disaster.
However, the HEROES Act also contains lots of “woke” and neoliberal pork. The bill provides bailout money for debt collectors, the National Endowment for the Arts, National Endowment for the Humanities, the Fish and Wildlife Service, and even research for minority-and-women-owned cannabis dispensaries.
Republicans dismissed the act in May as a “$3 trillion left-wing wish list,” as Mitch McConnell called it.
That’s why DNC leadership balked at last-minute GOP proposals to temporarily extend the unemployment insurance and cut another round of stimulus checks before working the rest out.
They can afford to wait and force more concessions out of the right for the final version of the next stimulus bill.
2020 Election Consequences
Congress leaving on Thursday without a deal is devastating for the Trump White House. The President has spoken publicly about the need for more stimulus but has been met with resistance from Republican congressional leadership.
Donald Trump’s remaining base of support consists of primarily working-class and rural white voters. The affluent, conservative suburbanites have already mostly jumped ship and formed a coalition behind Joe Biden. Older voters gradually followed throughout the pandemic.
The people Trump’s relying on this November are who Republicans are worried about “making more than they do to work.” How are they going to feel about their “populist-right” President when the economic crisis hits closer to home?
This ordeal has convinced me that the Republican establishment that Donald steamrolled through the 2016 primaries is ready to take their party back. And they’re willing to lose the White House, the Senate, and the filibuster to make it happen.