Shoppers at a mall in Los Angeles. Consumer spending is nearly back to its prepandemic level.Credit…Mark Abramson for The New York Times
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- March 15, 2021Updated 2:31 p.m. ET
When the coronavirus pandemic ripped a hole in the economy a year ago, many feared that the United States would repeat the experience of the last recession, when a timid and short-lived government response, in the view of many experts, led to years of high unemployment and anemic wage growth.
Instead, the federal government responded with remarkable force and speed. Within weeks after the virus hit American shores, Congress had launched a multitrillion-dollar barrage of programs to expand unemployment benefits, rescue small businesses and send checks to most American households. And this time, unlike a decade ago, Washington is keeping the aid flowing even as the crisis begins to ease: On Thursday, President Biden signed a $1.9 trillion aid bill that will pump still more cash into households, businesses, and state and local governments.
The Federal Reserve, too, acted swiftly, deploying emergency tools developed in the financial crisis a decade earlier. Those efforts helped safeguard the financial system — and the central bank has pledged to remain vigilant.
The result is an economy far stronger than most forecasters expected last spring, even as the pandemic proved much worse than feared. The unemployment rate has fallen to 6.2 percent, from nearly 15 percent in April. Consumer spending is nearly back to its prepandemic level. Households are sitting on trillions of dollars in savings that could fuel an epic rebound as the health crisis eases.
Yet not everyone made it into the lifeboats unscathed, if at all. Millions of laid-off workers waited weeks or months to begin receiving help, often with lasting financial consequences. Aid to hundreds of thousands of small businesses dried up long before they could welcome back customers; many will never reopen. Long lines at food banks and desperate pleas for help on social media reflected the number of people who slipped through the cracks.
“The damage that has been done has occurred in a disparate fashion,” said Michelle Holder, a John Jay College economist who has studied the pandemic’s impact. “It’s occurred among low-income families. It’s occurred among Black and brown families. It’s certainly occurred among families that did not have a lot of resources to fall back on.”
For many white-collar workers, Dr. Holder said, the pandemic recession may one day look like a mere “bump in the road.” But not for those hit hardest.
“It wasn’t just a bump in the road if you were a low-wage worker, if you were a low-income family,” she said. “Their ability to recover is just not the same as ours.”
Jesus Quinonez lost his job as a manager at a warehouse in the San Diego area early in the pandemic. He quickly found another job — with a company that shut down before he could begin work. He hasn’t worked since.
It took Mr. Quinonez, 62, three months to fight his way through California’s overwhelmed unemployment insurance system and begin receiving benefits. Less than two months later, a $600-a-week unemployment supplement from the federal government expired, leaving Mr. Quinonez, his wife and his four children trying to subsist on a few hundred dollars a week in regular unemployment benefits.
By January, Mr. Quinonez was four months behind on rent on the one-bedroom trailer he shares with his family. He had raided his 401(k) account, leaving no savings a few years before his intended retirement. Government nutrition assistance kept his family fed, but it didn’t help with the car payment, or pay for toilet paper.
“I started falling behind on my bills, plain and simple,” he said.
But in December, Congress passed a $900 billion aid package, which included a second round of direct checks to households and revived the expanded unemployment programs. By January, Mr. Quinonez was able to pay off at least part of his debt, enough to hold on to the trailer and his car. The next round of aid should carry Mr. Quinonez until he can work again.
“As soon as they lift the restrictions and more people get vaccinated, I see things coming back good,” he said. “I expect to get a job, and I expect to continue working until I retire.”
Whether Mr. Quinonez’s story — and millions more like it — should count as a success or failure for public policy is partly a matter of perspective. Mr. Quinonez himself is unimpressed: He worked and paid taxes for decades, then found himself subject to a decrepit state computer system and a divided Congress.
“Now that we need them, there’s no freaking help,” he said.
Research from Eliza Forsythe, an economist at the University of Illinois, found that from June until Feb. 17, only 41 percent of unemployed workers had access to benefits. Some of the rest were unaware of their eligibility or couldn’t navigate the thicket of rules in their states. Others simply weren’t eligible. Asian workers, Black workers and those with less education were disproportionately represented among the nonrecipients.
The gaps and delays in the system had consequences.
“The impact of that is folks’ having to move out of their apartments because they have this money that’s supposed to be coming but they just haven’t received it,” said Rebecca Dixon, executive director of the National Employment Law Project, a worker advocacy group. Others kept their homes because of eviction bans, but had their utilities shut off, Ms. Dixon added, or turned to food banks to avoid going hungry — measures of food insecurity surged in the pandemic.
Still, the federal government did far more for unemployed workers than in any previous recession. Congress expanded the safety net to cover millions of workers — freelancers, part-time workers, the self-employed — who are left out in normal times. At the peak last summer, the state and federal unemployment systems were paying $5 billion a day in benefits — money that helped workers avoid evictions and hunger and that flowed through the economy, preventing an even worse outcome.
The record of other federal responses is similarly mixed. The Paycheck Protection Program helped hundreds of thousands of small businesses but was plagued by administrative hiccups and, at least according to some estimates, saved relatively few jobs. Direct checks to households similarly helped keep families afloat, but sent billions of dollars to households that were already financially stable, while failing to reach some of those who needed the help the most — in some cases because they had not filed tax returns or did not have bank accounts.
Beyond the successes and failures of specific programs, any evaluation of the broader economy needs to start with a question: Compared with what?
Relative to a world without Covid-19, the economy remains deeply troubled. The United States had 9.5 million fewer jobs in February than a year earlier, a hole deeper than in the worst of the last recession. Gross domestic product fell 3.5 percent in 2020, making it among the worst years on record.
Relative to the rosy predictions early in the pandemic — when economists hoped a brief shutdown would let the country beat the virus, then get quickly back to work — the downturn has been long and damaging. But those hopes were dashed not by a failure of economic policy but by the virus itself, and the failure to contain it.
“If you want to think back on what we got wrong, really the fundamental errors were about the spread of the virus,” said Karen Dynan, a Harvard economist and Treasury Department official during the Obama administration.
But relative to the outcome that forecasters feared in the worst moments last spring, the rebound has been remarkably strong. In May, economists at Goldman Sachs predicted that the unemployment rate would be 12 percent at the end of 2020 and wouldn’t fall below 6 percent until 2024. The same team now expects the rate to fall to 4 percent by the end of this year. Other forecasters have similarly upgraded their projections.
The stimulus payments would be $1,400 for most recipients. Those who are eligible would also receive an identical payment for each of their children. To qualify for the full $1,400, a single person would need an adjusted gross income of $75,000 or below. For heads of household, adjusted gross income would need to be $112,500 or below, and for married couples filing jointly that number would need to be $150,000 or below. To be eligible for a payment, a person must have a Social Security number. Read more.
Buying insurance through the government program known as COBRA would temporarily become a lot cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who loses a job buy coverage via the former employer. But it’s expensive: Under normal circumstances, a person may have to pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the entire COBRA premium from April 1 through Sept. 30. A person who qualified for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would not be eligible, either. Read more
This credit, which helps working families offset the cost of care for children under 13 and other dependents, would be significantly expanded for a single year. More people would be eligible, and many recipients would get a bigger break. The bill would also make the credit fully refundable, which means you could collect the money as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting. Read more.
There would be a big one for people who already have debt. You wouldn’t have to pay income taxes on forgiven debt if you qualify for loan forgiveness or cancellation — for example, if you’ve been in an income-driven repayment plan for the requisite number of years, if your school defrauded you or if Congress or the president wipes away $10,000 of debt for large numbers of people. This would be the case for debt forgiven between Jan. 1, 2021, and the end of 2025. Read more.
The bill would provide billions of dollars in rental and utility assistance to people who are struggling and in danger of being evicted from their homes. About $27 billion would go toward emergency rental assistance. The vast majority of it would replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed through state, local and tribal governments, according to the National Low Income Housing Coalition. That’s on top of the $25 billion in assistance provided by the relief package passed in December. To receive financial assistance — which could be used for rent, utilities and other housing expenses — households would have to meet several conditions. Household income could not exceed 80 percent of the area median income, at least one household member must be at risk of homelessness or housing instability, and individuals would have to qualify for unemployment benefits or have experienced financial hardship (directly or indirectly) because of the pandemic. Assistance could be provided for up to 18 months, according to the National Low Income Housing Coalition. Lower-income families that have been unemployed for three months or more would be given priority for assistance. Read more.
The recovery proved so strong in part because businesses were able to adapt better — and Americans, for better or worse, were willing to take more risks — than many people expected, allowing a faster rebound in activity over the summer. But the biggest factor was that Congress responded more quickly and forcefully than in any past crisis — a particularly remarkable outcome given that both the White House and Senate were controlled by Republicans, a party traditionally skeptical of programs like unemployment insurance.
“The dominant narrative about Washington and about legislating and public policy is one of dysfunction, one of not being able to rise to meet challenges, one of not being able to get it together to address glaring problems, and I think it’s a well-earned narrative,” said Michael R. Strain, an economist at the American Enterprise Institute. “But when I look back over the last year, that is just not what I see.”
Congress didn’t prevent a recession. But its intervention, along with aggressive action from the Federal Reserve, may have prevented something much worse.
“We could have experienced another Great Depression-like event that took years and years to recover from, and we didn’t,” Dr. Strain said.
Washington’s moment of unity didn’t last. Democrats pushed for another multitrillion-dollar dose of aid. Republicans, convinced that the economy would rebound largely on its own once the pandemic eased, wanted a much smaller package. The stalemate lasted months, allowing aid to households and businesses to lapse. Economists are still debating the long-term impact of that delay, but there is little doubt it resulted in thousands of business failures.
“We had this grand success that policymakers acted so quickly in passing two significant pieces of legislation early in the pandemic, and then they flailed through the whole fall in just the most frustrating of ways,” said Wendy Edelberg, director of the Hamilton Project, an economic-policy arm of the Brookings Institution. “That was just such an unforced error and created confusion and needless panic.”
But unlike in 2009, when Republican opposition prevented any significant economic aid after President Barack Obama’s first few months in office, Congress did eventually provide more help. The $900 billion in aid passed in late December prevented millions of people from losing unemployment benefits, and helped sustain the recovery at a moment when it looked like it was faltering.
The $1.9 trillion plan that Democrats pushed through Congress this month could help the United States achieve something it failed to do after the last recession: ensure a robust recovery.
If that happens, it could fundamentally shift the narrative around the pandemic recession. The damage was deeply unequal, and the economic response, though it helped many families weather the storm, didn’t come close to overcoming that inequity. But a recovery that restores jobs quickly could help workers like Mr. Quinonez get back on track.
“It’s just a bad year, and you just close the page and move on and try to make the best of the new days and new years,” he said. “Things are going to get better.”
Source: Economy - nytimes.com