Liquor store in Burbank, Calif. Photo by Cory Doctorow.
There is a lot of excitement as the calendar flips to May and states begin to relax their lockdowns, but it will be quite some time before we enjoy even the first act in the nation’s financial recovery from the pandemic.
Thanks to some well-intentioned but contradictory policies designed to see us through the emergency, I don’t believe the curtain will go up on this drama until August. If this were a Broadway production – a sadly ironic metaphor, since Broadway has been dark since mid-March – the steps states are taking starting today do not represent the stage lights coming up. They aren’t even the overture. At best, they are the sound of the orchestra tuning its instruments while ticket holders find their seats.
This is not to ignore what is happening this spring: Americans are busting out all over. Or almost all over, at any rate. Californians can expect to find their beaches and state parks closed this weekend, after some crowds disrespected social distancing measures in a rush to the surf during a heat wave last week.
Still, you can now find places to get your hair cut in Georgia or to get your decayed knee replaced in Pennsylvania. Come Monday, in most of Florida (excepting the southeastern corner, where I live) you can dine at a restaurant – outdoors with tables spaced six feet apart. Indoor dining rooms can open too, but are limited to 25% of capacity.
To switch metaphors, we are no longer hiding in our foxholes from the coronavirus that attacked us. We are fighting back. In World War II terms, this isn’t D-Day or Anzio, battles where the Allies pushed back the enemy. It isn’t El Alamein, where British forces eventually reversed the Nazi blitzkrieg across North Africa. It might be Midway, where America blocked Japan’s bid to control the Pacific. Economically, though, it feels more like the wasteland of Stalingrad. Yesterday’s release of the latest unemployment claims highlighted this feeling.
To win a war, you first have to stop losing battles. We aren’t losing them anymore on a societal level, though the individual tragedies continue. We are making progress on treatment therapies and vaccines – the latter being the ultimate weapon most likely to bring the pandemic to its final end. It is clear that the disease will not permanently overwhelm our hospitals and outrun our supply of ventilators. And our hard-won knowledge about the contagion risk from asymptomatic and presymptomatic people will make any second wave much easier to manage.
This progress has come at a staggering cost. Already more than 60,000 Americans have died. We also took on some $3 trillion in federal spending that was meant to work like a ventilator, keeping the economy alive while we fight off the acute viral infection.
Restarting the economy will not mean going back to our pre-pandemic routines right away. That must wait for either a vaccine that conquers the virus, or the implementation of contact-tracing and testing measures that can keep it tightly confined. But we are in a position to get the country back to work, in stages that President Trump outlined last week. Various governors are adapting these stages to local conditions as they put them in place.
There is one big catch: To put a country back to work you need workers, and businesses to employ them. The measures that Congress hurriedly crafted are at cross-purposes and will likely act to delay the process. This impediment will not dissolve until midsummer, which is why an effective restart will probably have to wait until then.
People generally act in their family’s best financial interest. Pay them more to work, and they will work if given the opportunity. Pay them more not to work, and they won’t work. It is not about laziness, but rather financial logic and necessity.
The relief package known as the CARES Act provided federal funding to extend unemployment benefits by 13 weeks (to a total of 39 weeks in most states). It also added $600 per week to the benefits that workers would otherwise receive from their own state’s unemployment insurance program. The law extended unemployment benefits to self-employed individuals and “gig” workers for the first time, too.
The net effect is that, for something like half the workers who are eligible to collect benefits, there is more money to be made by collecting unemployment than by returning to work. These are the lower-paid, blue-collar workers who tend to live from check to check. The federal $600 weekly unemployment stipend alone is worth $15 per hour in place of a 40-hour week, and that is on top of whatever state benefit might be available.
This generosity achieved only limited success in its main goal of providing immediate relief to these precarious workers who abruptly lost their income. States were quickly swamped by tens of millions of unemployment claims, many times their usual volumes. Processing those claims was much harder due to the federally mandated rules changes, and often because of antiquated computer systems that most modern technology workers don’t know how to reprogram. Many workers still have not received their first unemployment checks, The Wall Street Journal recently reported. Some have not even been able to file their claims.
Now that the economy is beginning to reopen, these workers face a conundrum. Rejecting an offer to return to work is usually a disqualification from further benefits. Even in the absence of such an offer, workers are supposed to actively look for new jobs or pursue job training to minimize their time on the public dole. But a lot of these workers literally cannot afford to get off unemployment without adding to their own financial distress.
The problem was foreseeable – and foreseen. A few Republican senators originally thought the federal unemployment benefit was a drafting error; they could not believe anyone would pay workers more to be unemployed than to work. Some of their colleagues and many observers treated them as the proverbial skunks at the garden party. They were not accused of being wrong. They were accused of being mean. In those fear-inducing weeks in late March, nobody wanted to be mean. Yet this was no drafting error. It was a concession by GOP leaders and the administration to congressional Democrats who don’t see any reason not to give workers free money when the same was being made available to companies.
There was, potentially, $349 billion available to businesses under the Paycheck Protection Program – to which Congress recently added another $310 billion. That money was supposed to help businesses of up to 500 employees hold on to their work force by making loans of up to $10 million, which may be forgiven if businesses meet certain requirements.
Unfortunately, those requirements are hard or impossible for some businesses to achieve under lockdown conditions. Other enterprises will have trouble satisfying them because doing so means recalling workers whose families are better off if they remain unemployed.
To have the loans forgiven, businesses must spend at least 75% of the PPP loan on payroll for employee compensation (capped at $100,000 per employee, per year) within eight weeks of receiving the money. Borrowers can spend the rest on rent, mortgage interest and utilities. But businesses that fail the test must repay the PPP loan within two years, with payments suspended for six months.
Owners of the hardest-hit businesses – the ones that could not operate at anything like normal volumes, if at all, during the shutdown – are in the worst position. A restaurant that can only open 25% of its dining room can hardly be expected to use or need 75% or more of its regular staff at full wages, even allowing for expanded take-away services. To get any “free” money under the PPP, restaurants may have to recall more staff than they need. But by doing so, they will deprive those workers, whose tipped income will be a shadow of its normal self, of the unemployment compensation that would have left them much better off.
In an echo of the earlier criticisms of calls to limit unemployment to the amount workers would have earned on the job, some voices in the press are now objecting that recalling workers may make some uncomfortable about their personal safety. These critics would effectively turn the current generous unemployment benefit into a risk-free government guaranteed income, regardless of society’s need (and individual business needs) for labor. Every worker would become his or her own occupational safety expert, but this personal choice would be made on the public dime.
Most employers will take care to shelter older or other vulnerable workers from early recall, or to put them in the most socially distanced jobs they can find, regardless of government action or the lack thereof. And most employees of any age and condition are likely to work under extensive precautions for the foreseeable future. The alternative – paying workers not to work – just means a lot of workers won’t work.
Until Aug. 1, that is. That is the scheduled expiration of the federal $600 unemployment boost. Even with extended state-level benefits, the end of this bonus will eliminate the financial incentive for many workers to avoid available work. Then, and only then, will we see how our new socially distanced economy will actually perform.