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The carnage continues, with 22 million jobless claims in only four weeks. And the Federal Reserve’s forecast of 47 million coronavirus-related job losses may well be an underestimate.
Meanwhile, the $2 trillion CARES Act that Congress passed will not stop the devastation of the labor market. The small business rescue program just tapped out and, even if the legislative standoff is resolved, the queue for loans dwarfed all expectations. As large corporations are showered with loans without strings attached, families have trouble receiving the promised one-time $1,200 checks. House Democrats are now proposing payments of $2,000 a month until employment returns to pre-crisis levels, but we have yet to see a single policy that is actually designed to create jobs.
How big a stimulus would be sufficient to pull the economy out of the abyss? How much should the government spend? If the focus remained on loans, corporate bailouts and emergency cash assistance, we may need to pass a dozen more CARES packages to tackle the many crises that are about to unfold — from bankrupting states, to mass company and household defaults, to insolvent educational institutions and others. And it may still not be enough. The entire economy is unraveling.
Go big
But there is another way. Government can take far more direct measures. Forget about loans and incentives. Forget about the “invisible hand.” Use the visible hand of government and let it do the heavy lifting.
First, government should protect payrolls at all costs, as some European countries are trying to do: The $2 trillion was enough to pay all wages in the U.S. economy for three months (or longer, if we paid a proportion) and hire the unemployed for a full year at living wages.
Second, the government can commit to paying state’s bills associated with the Covid-19 response, as well as for other social programs (Medicaid, Temporary Assistance for Needy Families). Faced with high unemployment and collapsing tax revenues, states are going broke one after another and the federal government could help with critical expenses on education and even public pension contributions. Block grants to states are nice, but how much will be enough? The bottom is falling faster than we can estimate the shortfalls.
Next, the government must shore up the safety net. Allow anyone to enroll in Medicare. Fund non-profits that deliver social services (food banks, elderly care and others). Provide debt relief for students and their families. Forgive student debt and launch a bigger and bolder Pell Grant program than we’ve ever seen before. The next great default wave will be of educational institutions.
Last but not least, mobilize, mobilize, mobilize. Produce masks, equipment and medication. Build hospitals. Hire and train dispatchers, paramedics, nurses and pharmacists. Pay the volunteers. Train and secure personal protective equipment for transportation and sanitation staff, store clerks and distribution center workers.
Start a jobs program
Start planning a post-pandemic jobs program. Imagine how much better prepared we would have been if we had a federal job guarantee. People enrolled in the program would be kept on the payroll and we would have had the institutional infrastructure to put others on the payroll now. Some of those job guarantee workers could have helped with mobilization needs. Others would shelter in place without the threat of layoffs. But in the absence of a job guarantee, it is never too late to start working on one now. Let it be a “green” job guarantee.
Social distancing will be needed for many months after we flatten the curve. In a service economy, government will need to continue supporting educational institutions, the arts and many other sectors. Some sectors may be decimated (e.g., parts of entertainment — concert venues, sports arenas). Others may operate at a significantly reduced capacity. If these sectors are critical (like the airline industry), government should run them as utilities.
Restructure industries
After the pandemic is behind us, the economy will have to be restructured, no doubt. Some sectors will release significant resources and labor. The way to deal with this problem is to crank up other long-neglected sectors and areas of investment after the pandemic (e.g., clean air and water, green infrastructure, etc.). It is never too late to start planning a “Green New Deal” now.
The bloated and over-leveraged financial sector continues to be systemically dangerous, even with its seemingly endless refinancing from the Federal Reserve. The most effective thing government can do for it is give families stable incomes to service their mortgages and contribute to their 401(K)s. If financial firms are unable to remain profitable without highly speculative activities, close them down and reform finance.
The bottom line is this: There seems to be no way out of this economic catastrophe without the government underwriting large parts of the economy. That’s exactly what it did during the Great Depression and WWII. Today, instead of reacting to the multiple crises that loom ahead, it can take direct steps to prevent them. Pay existing bills, help with mobilization efforts and prepare for what comes next.
The question before us is what kind of an economy do we want going forward? What does it mean to protect society, to guarantee economic security, to prepare in the face of pandemics, climate disasters and financial collapses? In a sense, we have an opportunity to start from scratch. And we should seize it.
Pavlina R. Tcherneva is an associate professor of economics at Bard College, a research scholar at the Levy Economics Institute and author of the forthcoming book, “The Case for a Job Guarantee” (Polity, June 27, 2020). Follow her on Twitter.
