It’s not too late to put the American economy on a path to recovery
As millions of Americans feel the pain of the coronavirus and the unavoidable coronavirus recession, we need to focus on more than just our short-term priorities — defeating the virus and limiting the exposure and economic damage to workers and families. We also need to think about how we restore the economy, end the inequities and instability laid bare by the pandemic, and create a path forward for strong, stable, and broad-based economic growth.
The role played by economic and racial inequality in who has lost their jobs, who has been most exposed to the virus in the workplace, and who has gotten sick and died is so evident as to be blinding. Those with low-paying service jobs are least likely to have benefits such as paid sick days and are most likely to be laid off. Even worse, to keep their jobs, they are forced to work in dangerous conditions. And in cities and counties, state after state, where data have been compiled by race, people of color have died far out of proportion to their percentage of the population.
First things first: We need to support the efforts of our heroic front-line workers — the public health professionals, alongside the grocery store cashiers, security guards, and food delivery drivers — to defeat the virus.
Sustained economic relief is needed. Congress must pass another major legislative package that continues and expands support for workers, businesses, and families’ economic security. And those measures absolutely must stay in effect until the economy is healed. The reality is that our nation has made a series of decisions over the past 50 years that has created underlying fragilities in our economy. This package should focus on reversing those decisions, creating greater economic resiliency in the short run and laying the foundation for a strong economic recovery characterized by equitable growth.
To do this, the next legislative package should contain the eight elements laid out below. Each of these aims to address the immediate economic downturn while also encouraging a recovery where middle- and working-class families see their standard of living improve, not just continued gains for the wealthy.
First, the package should include necessary measures to ensure public health and worker safety, with continued funding of personal protective equipment, including N95 masks and any other medical equipment deemed necessary as our understanding of the health effects of the virus evolves. It is also imperative that the federal government do whatever is necessary to ensure testing and contact tracing, so that people can engage in economic activity.
Then, the legislation must ensure that social distancing does not grow into an even larger economic crisis that is more difficult to climb out of. This means reviewing the policies that were put in place in the Coronavirus Aid, Relief, and Economic Security Act, ensuring that the important ones, such as enhanced Unemployment Insurance benefits, stay in place in some form, as long as necessary, and enhancing other critical supports, such as paid sick days.
For those workers still on the job and those who will be returning to work, containing the spread of the virus will mean protective gear and strong health and safety standards, including social distancing. But what it also should mean is ensuring that those who are sick can stay home without fear of losing their job or income. The second coronavirus bill passed by Congress contained the first federally mandated paid sick days provision, but it was extremely limited and left out the vast majority of front-line workers.
The second element the next legislative package must provide is enhanced paid leave that is available to all workers, including healthcare workers, regardless of the size of the business where they work and which reimburses 100 percent of a worker’s wages, whether they’re caring for themselves or a loved one, or dealing with a school closure.
The third component of the legislation needs to be a large infusion of funds for state and local governments. The CARES Act contained $150 billion for states, but that is not nearly the amount that ultimately will be needed, and it is restricted to addressing the coronavirus itself. For state and local treasuries, the recession will be far more devastating than the coronavirus itself. With businesses closed and workers forced to stay home, income tax, sales tax, and other critical revenues are plummeting. Many states and localities have already begun to lay off workers and reduce spending. With balanced budget requirements, some states have no choice.
Greater government spending on programs that serve the increased needs in an economic downturn, and the simultaneous reduced revenues, help to prop up the economy, putting money into the hands of consumers and businesses. To carry on their vital functions, states and localities need a huge infusion of funds, one that only the federal government can provide.
One way of providing at least a portion of this assistance is to increase the federal matching rate for the Medicaid program from its current 60 percent. Proposed by Equitable Growth Steering Committee member Jason Furman and other economists and public health experts, this measure would help ensure that states do not cut back on health spending at this critical time, as well as help them meet other needs. It could be accompanied by an increase in the matching rate for the Children’s Health Insurance Program, now at 70 percent.
The fourth critical piece of the next relief package is the extension and enhancement of Unemployment Insurance benefits. The CARES Act took strong steps to increase both benefits and the number of eligible workers. Historically, the Unemployment Insurance system has underserved workers by making some categories of work ineligible for benefits, and some states have treated their unemployed workers shabbily for years, making it ever harder to obtain ever less support. Given that the unemployment rate for black and Latinx Americans consistently runs far higher than for white Americans, this has especially harmed those populations.
A number of proposals have been advanced for ensuring that the system is strengthened to help workers thrown out of work by the coronavirus recession, as well as for more permanent reforms. Equitable Growth grantee Arindrajit Dube recommended early in this crisis easing eligibility requirements so that three-fourths — not the current one-fourth — of the unemployed could collect benefits; substantially increasing the percentage of their previous wages that workers would receive in benefits; lengthening the maximum period of benefits; and encouraging temporary layoffs through enhancements to the short-time compensation program and other means for ensuring that workers remained connected to their employers.
Equitable Growth has proposed three permanent reforms aimed at shoring up the system for the long term, which should also be included: increasing the federal taxable wage base to the same level as the Social Security taxable wage base and indexing it to inflation so that states have adequate resources for program administration; implementing a standardized minimum benefit level and benefit duration to address the problem of inadequate state benefits and incentivize more workers to apply for benefits; and redesigning benefit extensions in recessions so the program responds quickly and efficiently to downturns.
Fifth, the next package must include another direct payment to low- and middle-income Americans. Consumer spending comprises some 70 percent of the U.S. economy. To mitigate and recover from a recession, therefore, it is essential to get consumers spending. That is not easy at a time when consumers’ confidence has been shattered by high unemployment and deep societal anxiety. One of the lessons learned from the Great Recession is that an effective way to support families and overcome that resistance is direct stimulus payments.
But the legislation must go further than direct payments to support struggling families. As such, the sixth needed element is enhanced Supplemental Nutrition Assistance Program benefits. News outlets continue to report extraordinarily long lines at food banks, many of which are running out of food because of demand and disrupted supply chains. Even in normal times, this program is critical to low-income black Americans, who make up more than 1 out of 5 recipients. Increasing spending on SNAP would support not only families dealing with food insecurity, but also the agricultural economy and consumer spending more broadly. Lauren Bauer of the Brookings Institution and Northwestern University’s Diane Whitmore Schanzenbach propose increasing the SNAP maximum benefit level by 15 percent and introducing a multiplier for households with children based on a proposal by Schanzenbach and Hillary Hoynes of the University of California, Berkeley.
Beyond these measures, whether in this package or in a future one, we can address the underlying fragilities in key programs to ensure we are protected if and when the coronavirus has a second spike in cases or a different crisis emerges. That is why we need permanent, inequality-fighting policy changes that support workers and ensure we have effective automatic fiscal stabilizers — programs whose spending increases in an economic downturn — in both providing relief and supporting the economy, and of the need to strengthen them for the future.
This leads to the seventh, absolutely critical element: employment-based triggers that keep the above supports flowing until the economy is in recovery. In Recession Ready, a book published a year ago by Equitable Growth and the Hamilton Project, we brought together scholars to think through how we could improve the nation’s policy response to recessions. Each author laid out concrete proposals for how to trigger on and off the programs that are most effective in stabilizing the economy and supporting families through times of high unemployment. In each chapter, authors laid out how the economic stabilizer would be triggered by an easily understandable measure of increased unemployment, such as the Sahm Rule.
We know what we need to do in a recession. Unemployment Insurance, aid to the states, enhanced nutrition support, direct payments — and infrastructure and job programs — are the tried-and-true programs that stabilize the macroeconomy while supporting America’s families. Decades of evidence show these programs work. Now, in this package, Congress should ensure that the supports we put in place stay in place by crafting them so that they trigger off when the labor market recovers, and not before. Of course, Congress can always step in sooner or with additional or more targeted support, but ensuring that the right policies are in place is our best defense against ongoing economic decline. Sen. Michael Bennet (D-CO) has already advanced proposals based on Recession Ready’s proposals for Unemployment Insurance and SNAP, and Congress could incorporate these kinds of triggers for aid to the states and direct payments as well.
A final marker for the next package is a provision that requires the U.S. Department of Commerce’s Bureau of Economic Analysis to provide distributional data along with every quarterly report on Gross Domestic Product. This may seem to fall in the “nice to have” category, but here’s why it’s the all-important eighth element: When the economy begins to recover, we won’t want to repeat the mistake of the previous recovery, when Congress assumed everything was back to normal while in reality, only the top 1 percent had actually recovered. If we have learned anything from the pervasive economic inequality of the past four decades, when massively disproportionate benefits of growth have gone to the top layers of income and wealth in our society, it is that the overall GDP figure tells us nothing about how the average family is faring. BEA is already moving in the direction of providing distributional data, but Congress needs to ensure that it has the funding and incentive to make distributional data a permanent feature of the quarterly GDP report.
When we look back on the time we’re all living through right now, it will either be seen as a time when the U.S. government took the necessary steps to shore up the economy, providing a brighter future for all of us, or when it left millions to suffer through both a global pandemic and manmade economic disaster.
These twin crises have presented us with a moment to reset as a nation. We now have the chance to act collectively to create an economy characterized by equitable growth and sustainability, one that measures its success by the degree to which individuals and families have a chance at a good life.
Heather Boushey is President and CEO of the Washington Center for Equitable Growth and the author of the book Unbound: How Inequality Constricts Our Economy and What We Can Do About It.