“Whether we like it or not the economy is getting restructured and our democratic institutions have a role to play.”
~ Sarah Miller, American Economic Liberties Project
“It is my fervent hope that we use this crisis as a catalyst to rebuild an economy that creates and sustains opportunity for dramatically more people, especially those who have been left behind for too long.”
~ Jamie Dimon, CEO J.P. Morgan Chase
The stock market may have bounced back from its March 23rd low, but that does not mean that the economy has bounced back with it. With the highest unemployment rate since the Great Depression, and more businesses going belly up everyday, the economic devastation of this crisis is far from over. Do not let premature re-openings, willfully ignorant politicians, and misplaced optimism obscure your view of what is really going on. Currently the economy is staying afloat upon a wooden raft that is disintegrating beneath it. That is to say, there are some very interesting economic trends currently taking place, which have warded off economic disaster in the short term. These trends provide us with definitive evidence of what will work best going forward, and thus give us guidance about how Congress should pursue its next round of stimulus, in order to stabilize the economy long term. But if we do not act quickly, it has all been for naught. What do I mean? It is no secret that the income inequality in the U.S. has been growing more severe for quite a while, and this crisis has the potential to make it even worse. 78 percent of Democrats polled, and 41 percent of Republicans polled see income inequality as a major problem. Out of all of the countries in the G7, the U.S. has the highest level of income inequality. This is because the wealth gap doubled from 1986 to 2016. Looking for the silver lining in this crisis: the novel coronavirus has provided the U.S. with the perfect time to address this growing issue. If we do not act now, however, the problem will only exacerbate itself and become irreparable, and thus the American dream -- being able to pull one’s self up by his or her proverbial bootstraps -- will become a thing of the past.
Let us take a look at the current economic environment – mid-crisis – and look at what is working thus far and how we can apply that understanding to larger economic issues, in order to not only climb out of our current economic predicament, but also to correct the glaring economic deficiencies of the past. That is, let us create a newer, more inclusive capitalism.
Even though, unemployment shot up from 4.4 percent to 14.7 percent in April, the personal income of Americans grew by 10.5 percent, which is the most it has risen in the entire sixty year history of that particular economic metric. This is completely thanks to the CARES Act, which not only provided Americans with a $1200 stimulus check, but it also added $600 a week to unemployment insurance. These two actions have had a tremendously positive effect on the economy.
Within two days of the stimulus package being implemented spending jumped for low income Americans by 26 percent, while only climbing by 9 percent for high income individuals. Not only that, the type of spending done by these low income Americans is exactly what the economy needs right now. These folks have been purchasing durable goods, such as furniture, cars, televisions, computers, etc. Moreover, many people who pre-crisis (pre-stimulus) were living paycheck to paycheck now finally have some extra money in their pockets. Not only are people buying more consumer goods, they have also started to invest in the stock market. In fact, people earning between $35,000 and $75,000 a year, traded stocks about 90 percent more after their stimulus check arrived. Furthermore, lower income Americans are finally starting to save money as well. This is not talked about enough, but the fact that individuals in this income bracket are finally starting to save money is good for everyone. We have already passed nearly three trillion dollars in stimulus, and when ever-increasing amounts of money are thrown around, the value of money itself has the potential to decrease dramatically. We can see this fact in the current interest rate environment. These incredibly low rates make money cheap. That is to say, the cost to borrow money is low, which in turn makes the value of money itself low.
Nevertheless, if more low and middle income Americans save their money, they are giving money its value back. By saving money they are putting an intrinsic and essential value upon it. Enough saving, will force interest savings rates to have to compete with each other, which will then in turn raise interest rates back up as a result, and thus give money a foundational value beneath it and ward off devaluation (i.e. inflation) in the mid-to-long term.
Low and middle class Americans finally have some money and they are doing all the right things with it. They are buying goods, they are investing, and they are saving. They are doing exactly what is needed for the economy to get through this difficult time, and these actions are showing us the formula for macro-economic success.
When low and middle class Americans have more money, the economy works more efficiently. What is more, since state economies have been re-opening around the country, low income Americans are much less likely to be able to work from home than their higher income counterparts. This means, lower income Americans are the one’s being put in harm’s way in order for the economy to continue to work. It is for all of these reasons, that Congress must act immediately to pass legislation in support of this valuable cohort of Americans, because only through their labor and money habits can the economy, and by extension, the American dream survive.
The re-openings have caused a record spike in new virus cases in six states. If this trend continues, it will likely have a devastating effect on consumer confidence. Treasury Secretary Mnuchin has already said that the economy will not be shut down again. In situations like this, it really does not matter what government officials say. If people are not confident enough to go out and participate in the economy, then they are essentially taking things into their own hands and shutting things down themselves. In other words, if people don’t feel safe enough to go out and participate in the economy, then it does not really matter if things are open or not, does it?
Furthermore it is actually the wealthiest Americans who are the most scared of going out. As one might guess, higher income individuals support more small businesses than their lower income counterparts, and because wealthier Americans have stayed inside, small businesses have suffered the most during the pandemic. Think about all of those small businesses that service high income individuals in their homes and neighborhoods: landscapers, contractors, pool companies, maids, plumbers, etc. Small businesses have seen a 55 percent decline in the highest income zip codes, versus only a 40 percent decline in the lowest income zip codes. Moreover, the top 25 percent of income earners have seen a 66 percent decline in credit card spending, while the bottom 25 percent are already back to pre-crisis levels. The point has been made yet again: it is the lower income individuals who are going to be the one’s to save the economy. The only way that is going to work, however, is if Congress gets involved and makes sure that these Americans are provided for.
The following are three actions that Congress should take immediately to save the economy from the pandemic’s coming devastation and create a capitalism in which everyone has a chance to be involved.
1. More Stimulus Checks
The first action that Congress should take is to provide more stimulus checks to low and middle income Americans. It should be taken as an insult to all Americans, that other countries around the world provided much more relief for their citizens than we did for ours. For instance, in Canada, citizens are getting a $2000 check each month for four months and Britain’s government is giving its citizens over $3000 a month. I thought America was the richest country in the world? Why don’t we start acting like it? With unemployment at depression levels, low and middle income Americans need money now more than ever. No economist in the world could say that the first round of stimulus checks was not good for the economy in the short term. Likewise, I would love to hear the argument against another round (or two). And I do not want to hear that we cannot afford it. If we can waste hundreds of billions of dollars on forgivable loans to businesses that did not even need the stimulus money that they received, in a program that was “particularly badly designed” according to one Nobel Laureate, then I think we can give some more money to individuals who have been the heart and soul of the recovery thus far.
That is to say, the CARES Act sought to help individuals with a stimulus check and a raise in unemployment insurance, and it also sought to help small businesses with the Paycheck Protection Program. Where the bill sought to help individuals it was a massive success and where it sought to help businesses it was an unmitigated disaster. Tell me why any billion dollar business needs taxpayer money to keep themselves afloat? Some companies even called out the fiscal irresponsibility of the program. Shake Shack, for instance, gave the money back to the government. And even though they were eligible for it, Shake Shack’s CEO stated plainly, “It doesn’t seem right to us.” Unfortunately, there are countless businesses with less of a conscience. What companies took the money? We do not know, and according to Treasury Secretary Mnuchin Americans are not supposed to know. That is interesting, it is our taxpayer money going to these businesses, and we are not allowed to know who is getting it? That is preposterous and undemocratic!
The point of the paycheck protection program was to provide liquidity to businesses to pay their monthly bills and keep their employees on their payroll. Keep in mind that with the added $600 for unemployment, any business that actually took this money was most likely hurting their workers who would likely have made more on unemployment than by staying on the company payroll. Opponents of the added $600 for unemployment claim that the extra money is a disincentive to return to work. Do these critics not realize that their criticism just highlights their own failure to understand basic economics. If as little as $600 on top of the going unemployment pay rate is enough for someone to be better off on unemployment than still on the payroll, then the real question that must be asked is why is the American worker paid so little in the first place. Perhaps now is time for people to acknowledge the income inequality in our society and try to fix it. Another round (or two) of stimulus checks, and extending unemployment benefits until wages are raised to reflect the value of workers’ effort, talent, and risk, will have a far-reaching economic impact, and may be enough to get us through this difficult time and perhaps even far beyond.
2. Cancel Student Debt
The second action that Congress should take to save the economy is to cancel student loan debt. I have heard the arguments against student debt cancellation, and I have already addressed them in my post The 5 Most Common Arguments Against Student Debt Forgiveness (& Why They Are All Wrong). I am not going to address those arguments here, however. The purpose of this writing is to show the benefit that such a congressional action would provide for the economy. It would be the most successful stimulus package our economy has ever seen. It would raise GDP by 108 billion dollars and create 1.5 million jobs a year. Understanding the impact student debt cancellation would have, Democratic presidential nominee Joe Biden said early on in the crisis that the U.S. should cancel $10,000 in student loan debt for all borrowers to help them through this unprecedented time. After Congress passed the CARES Act, the HEROES act was passed in the House, and it originally called for as much as $30,000 in student debt cancellation. Unfortunately it was scaled back to Biden’s $10,000 proposal. Nonetheless, any amount of debt cancellation will help. It seems to be the same old story, however. Like many pieces of legislation that actually intend to help low and middle income Americans, the HEROES Act was said to be “dead on arrival” in the Senate.
Recently, however, the original idea in the bill has been given new life. That is, a letter was sent to Congress, signed by nearly seventy major organizations in support of the Student Debt Emergency Relief Act, which calls for $30,000 in student debt cancellation. Thus far during the crisis, the only thing that has been done in regards to student loans is the deferment of payments until September with no interest accumulating in the meantime. What a joke! First of all, do not even get me started on the fact that interest is even collected on student loans at all. Interest is supposed to represent the return on your money in exchange for the risk taken. Student loans are the only debt in America that is (almost) impossible to discharge in bankruptcy. So if one cannot ever get out of this debt, then where is the risk for the lender? If there is no risk for the lender, then why do they collect interest?
Furthermore, putting off student loan payments until September is simply putting off the problem until tomorrow. September is only two and a half months away. Congress must take action on student loans immediately. U.S. borrowers carry more than 1.6 trillion dollars in student loan debt. 9 million Americans are currently in default, and every 26 seconds another American defaults on his or her loan. This is a major problem that must be addressed post haste. Furthermore, if the over 40 million Americans who currently carry student loan debt had their money free to do other things with it – such as buy durable goods, invest, and save, which they have already shown that they will do – then we will be well on our way to not only getting ourselves out of this crisis, but ensuring an economic future for all of us to survive and thrive.
3. Four-Day Work Week
It would be difficult for anyone to deny that New Zealand’s handling of the coronavirus pandemic was second to none. This is thanks to the brilliant leadership of Prime Minister Jacinda Ardern, who put her country under lockdown after only 200 confirmed cases, and because of such swift decisive leadership, New Zealand never topped more than 1,500 cases nationwide. (In the U.S. we had more than 23,000 cases yesterday alone.) Jacinda Ardern has had another brilliant idea about how to deal with the crisis, and based on the enormous success of her first idea, perhaps the U.S. should pay attention. Her next idea for dealing with the crisis is a four-day working week. This idea makes a lot of economic sense. If you have an economy with high unemployment, it stands to reason that there is less of a need for as much work. Thus, working four days a week instead of five seems economically logical. As most businesses in the U.S. are re-opening, they are doing so with many restrictions, of both time and space. If a business needs their employees more than four days a week, then they should not work one employee more days, but rather two employees less. At Microsoft Japan, they found a 40 percent increase in productivity from their workers after they implemented a four-day work schedule. After all that the American workers contribute and all they have been through these past few months, they should be rewarded with more personal time to spend with loved ones and/or pursue passion projects. We say America is "The Land of the Free," let us prove that we can live up to our ideal and give Americans more of their precious time back.
The pandemic has put a lot of things in perspective. It has made abundantly clear where we stand as a society. We now know who is truly “essential.” It is time that our economy takes into account this new understanding. It is the American worker who is the American hero, and it is high time we provide them with the hazard pay that they deserve. This pay can come in the form of stimulus checks, the cancellation of debt, and/or equal compensation for less work. All of which, will have a positive effect on our economy in the mid-to-long term. But not only that, if the American worker is more financially secure and less overworked, then he or she will have less stress, and thus live a HEALTHIER LIFE.
Until we have a vaccine, that is how we defeat the virus.
NOTES (Full Links Are in the Text above within the Footnote Number) Talib Visram. “6 Experts on How Capitalism Will Emerge After COVID-19.” Fast Company. Jun 11, 2020. FastCompany.com Hugh Son."Jamie Dimon Says Coronavirus 'Wake-Up Call' for a More Inclusive Economy." May 19, 2020. CNBC.com
Larry Elliott. “Stock Markets Bounce Back Despite Poor Economic Prognosis.” The Guardian. June 16, 2020. Chuck Jones. “3 Reasons Unemployment is Already At Great Depression Levels.” Forbes. May 19, 2020. Forbes.com. Hannah Miller. “JC Penney Could Join List of Bankruptcies During the Coronavirus Pandemic.” CNBC. May 15, 2020. Cnbc.com. Katherine Schaeffer. “6 Facts About Economic Inequality in the U.S.” Pew Research Center. Feb 7, 2020. Pewresearch.org. Ibid. Dylan Matthews. “A New Paper Finds Stimulus Checks, Small Business Aid, and ‘Reopening’ Can’t Rescue the Economy.” Jun 17,2020. Vox.com Ibid. Ibid. Maggie Fitzgerald. “Many Americans Used Part of Their Coronavirus Stimulus Check to Trade Stocks. CNBC. May 21, 2020. Cnbc.com. Christy Bieber. “Americans are Saving More and Spending Less, In Response to COVID-19.” USA Today. June 12, 2020. usatoday.com Steve Liesman. “Federal Reserve Cuts Rates to Zero And Launches Massive $700 Billion Quantitative Easing Program.” CNBC. Mar 15, 2020. Cnbc.com. Emily Stewart. “The Pandemic Job Divide: Those Who Can Stay Safe At Home, And Those Who Can’t.” Jun 12, 2020. Vox.com. “Record Spike in New Coronavirus Cases Reported in Six U.S. States As Reopening Accelerates.” CNBC. Jun 17, 2020. Cnbc.com. Thomas Franck. “Treasury Secretary Mnuchin Says ‘We Can’t Shut Down the Economy Again.” CNBC. Jun 11, 2020. Cnbc.com. Matthews. Ibid. “Canada Backs 75bn Coronavirus Relief Bill.” BBC News. March 25, 2020. Bbc.com. Daniel Villareal. “Here’s How U.S. Coronavirus Stimulus Package Compares to Other Countries Around the World.” Newsweek. Apr 10, 2020. Newsweek.com. Elizabeth Schulze. “Joseph Stiglitz Says Government Stimulus Programs Have Failed American Workers.” CNBC. Jun 2, 2020. Cnbc.com. Michelle Toh."Shake Shack Returns $10 Million Emergency Loan to the US Government." April 20, 2020. CNN.com Marcy Gordon and Mary Clare Jalonick. “Treasury Secretary Mnuchin Refuses to Disclose Recipients of Taxpayer-Funded Coronavirus Business Loans. USA Today. June 14, 2020. Usatoday.com. Hayley Peterson. “The $600 Federal Boost to Unemployment Checks That Was Meant to Aid Struggling Families is Triggering Some Confusion.” Business Insider. Apr 26, 2020. Businessinsider.com. Adam S. Minsky, Esq. “NAACP And 60 Other Groups Call on Congress to Cancel Student Debt.” Forbes. Jun 16, 2020. Forbes.com Zack Friedman. “Joe Biden: Cancel $10,000 of Student Loans Due to Coronavirus.” Forbes. May 23, 2020. Forbes.com. Bill Fay. “Details on the HEROES Act.” June 1, 2020. Debt.org. Sergei Klebnikov. “Republicans ‘Apalled’ By $3 Trillion Heroes Act As Democrats Urge Its Passing.” Forbes. May 16, 2020. Forbes.com “Over 60 Organizations Urge Congress to Cancel Student Debt in Next COVID-19 Stimulus.” Studentdebtcrisis.org. H. Dennis Beaver Esq. “Yes, It is Possible to File Bankruptcy on Student Loans.” May 4, 2020. Kiplinger.com Studentdebtcrisis.org. Charlotte Graham-McLay. “New Zealand Drops Covid-19 Restrictions After Nation Declared ‘Virus-Free.’ The Guardian. Jun 8, 2020. Theguardian.com.  CDC.gov.
Kate Whiting. “New Zealand Prime Minister Opens Door to 4-Day Working Week.” World Economic Forum. May 20, 2020. weforum.com. Bill Chappell. “4-Day Workweek Boosted Workers’ Productivity by 40% Microsoft Japan Says. NPR. Nov 4, 2019. Npr.org.