I’m not sure why people see the April statistics on personal income and spending as a surprise. We put a bunch of people on enhanced unemployment with an extra $600 a week, and gave practically everyone in the country a $1,200 check. At the same time there’s nothing to spend money on outside of necessities. Of course income went up and spending went down!
In fact, income was up 10.5 percent, and spending down 13.6 percent, leading to record highs in the personal savings rate. And this has led to crowing in some circles about the CARES Act, the legislation that advanced the stimulus payments and boosted unemployment. It has prevented the record unemployment from completely sinking Americans into deprivation, and to some it has even set the nation up for a huge recovery, with pent-up demand ready to pounce when we get through the worst.
But as Bill McBride points out, real income less transfer payments was down sharply in April, a testament to the reliance on government largesse right now. And the critique about the CARES Act, or at least my critique wasn’t that giving people a bunch of money wouldn’t work. The critique was that this assistance was temporary, compared to the permanent change the CARES Act would spur in American business.
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First of all, you always have to be careful arguing from aggregates. Millions of people are not participating in this surge in income: they still haven’t gotten their claims filed, or they are undocumented and therefore cannot qualify. Many are still waiting for stimulus checks, or threw out the scammy-looking envelopes containing debit cards, losing that $1,200 boost (how those are captured in the statistics is unclear; the money went out, so it’s probably included).
Second, the stimulus checks were a one-time boost and boosted unemployment runs out at the end of July. As this is all that’s keeping the country afloat, this would be a remarkably shortsighted outcome. Yet Republican leaders are determined to end that $600 increase. And even Senate Democrats aren’t keen on new $1,200 checks. Automatic stabilizers until the economic system recovers weren’t contemplated in the CARES Act, and Nancy Pelosi decided they were too expensive (in a bill that already totaled $3 trillion!) for the follow-up.
Meanwhile, two developments are sure to put the economy in ruins: state budget cuts and business bankruptcies. Budget cuts for states with fiscal years beginning July 1 will start to hit in a few weeks. Last Friday mayors explained to the House coronavirus select committee how bad the cuts will get; New Jersey’s governor has floated firing half the state workforce. These cuts will rain down on the most vulnerable, costing jobs and services for those who need them.
Meanwhile, the midsized chain bankruptcies are piling up: Hertz. Tuesday Morning. Le Pain Quotidien. 24 Hour Fitness. We would have been mad if these companies got “small business” loans, but of course smaller businesses are falling out too, with two-thirds at risk of bankruptcy. Millions of Americans on the superdole won’t have a job to go back to. And there are ripple effects here: Hertz and other rental car companies are leading buyers of new automobiles, so hits to the carmakers can be expected.
The CARES Act could have included state and local fiscal aid; it added a trifling amount that mostly covered increased pandemic costs. It could have included small and medium-sized business relief; the PPP program was temporary (we’re nearing the 8-week point for many businesses and things are in no better shape) and not useful to a lot of companies. The Federal Reserve put together a program for mid-sized businesses but hasn’t spent any of it. Retailers, stuck in a supply squeeze (with outdated inventory from the spring and worsening credit to support buying more), are begging the Fed and the Treasury for help.
The only sector truly feeling fine is big business, reflected in a stock market that’s even taking the burning of American cities in stride. Big Tech is buying more companies than at any time in the last half-decade, and dominant companies in every sector are quietly smiling about their competition falling by the wayside. That’s who the CARES Act rescued as a policy matter, with a $4.5 trillion money cannon. Even that’s probably fueled by some irrationality about a V-shaped recovery, but in general, the CARES Act protected the investor class and gave temporary relief to everyone else.
It takes an expert in the Fed, Nathan Tankus, to explain why running long-term economic recovery through the Fed is a bad idea. “Our macroeconomic policy mix is centered around monetary policy and our fiscal safety net has been increasingly ripped apart,” Tankus writes. “I write about and advocate shifting to a fiscal policy centered macroeconomic policy framework…. because I think that framework is the only that’s up to the task of responding to climate change and the deprivation that’s leading to civil unrest.” The CARES Act did not shift this framework. At all.
The shape of the recovery was always going to be driven by the end to the public health crisis; no bill can give people confidence to emerge from their homes. Continued cash hording will weigh on recovery. Another $1,200 check isn’t coming, so income in May will be down from April. Bills keep coming (it’s the first of the month again), and staying current is a continued struggle. Fifty-nine percent of Americans report “severe economic impacts” in their community, according to an ABC poll. The desperation in the streets right now gives testimony to this.
But we can acknowledge that the CARES Act was not only an underweight solution to what you could see at the time was a catastrophic problem; it treated the wealthy and connected to a permanent change in fortune, and provided everyone else with a temporary benefit. That’s what we were saying at the time. A predictable one-month spike in income doesn’t change that.
New Days of Rage
As long as there are protesters in the streets, I will probably include a section on that here. I got the word yesterday afternoon that protesters were coverging about a block or two from my house. Because I’m a terrible journalist, by the time I got there, they had scattered. But I did catch the phalanx of officers, who had made a staging ground on Venice Boulevard a little west of Lincoln (this is about a mile from Venice Beach in Los Angeles). There had to be about 30 cop cars, a few of them unmarked, and at least 50-60 officers, decked out in face shields and riot gear. Green guns (which fire rubber bullets) were being handed out along with zip ties. Everyone fully stocked, the group moved off as the twilight waned.
The thing I kept thinking about was that nobody in this group had to worry about having enough personal protective equipment. Police budgets are obscenely large. There’s been a lot of talk in recent days about defunding, and you get an appreciation for the need for it when you’re confronted up close with the—I think the best would is richness—of the police presence. I heard helicopters and sirens all night: those came from our tax dollars. The batons flying indiscriminately came from our tax dollars. The tear gas cannisters and rubber bullets and pepper pellets and the rest, our tax dollars. We generously fund the terrorizing of certain people and certain communities.
We need to have a conversation about that, especially given that everything else in local budgets will be reflexively cut during the pandemic crisis. Police spending is the local equivalent of federal military spending: it’s magic money that is undeterred by economic or fiscal conditions. That must stop.
Meanwhile, we have a bunch of coverage on the protests today at the Prospect. Read Harold Meyerson on the police escalation and the political fallout: “Police in America remain, fundamentally, enforcers of white supremacy.” Alex Sammon was on the ground in San Diego, one of many cities up in arms. Jessica Goodheart talked to Rev. William Barber. Marcia Brown examines the Prison Phone Justice Act, which could get passed in the next pandemic response bill.
Today I Learned
- Dr. Fauci casually mentions that there are barely any coronavirus task force meetings, and no discussions at a presidential level. We are flying blind. (STAT News)
- Tom Friedman, lead architect of globalization, now frets that we made the world too fragile from globalization. You can’t make this up. (New York Times)
- Ryu Spaeth on our broken social contract. (New Republic)
- The Wall Street Journal catches up to me: why is meat still expensive for consumers if cattle is cheap and plants are open? (Wall Street Journal)
- Italian doctor claims COVID-19 has mutated into something less potent, let’s hope so. (Reuters)
- Chinese manufacturing grew in May. (CNBC)
- Suddenly everyone needs plexiglass, and that’s leading to shortages. (Wall Street Journal)
- RIP Christo. (NYT obit)