U.S. economy needs that CARES unemployment bump
The harm being done to the U.S. economy by COVID-19 is substantial and pervasive. As it stands today, the unemployment rate remains above 11 percent, better than a month ago but still higher than at any previous point in time other than the Great Depression. Over 30 million American workers -- or about one out of every five -- are collecting unemployment insurance.
Meanwhile, prospects for a quick national recovery fade dimmer each day, as the coronavirus continues spreading aggressively, infecting over 4.3 million Americans and causing over 149,000 deaths. If ever the nation needed thoughtful, bipartisan intervention from the beltway, that time is now. Given the abdication of anything remotely resembling coherent leadership from the Oval Office, the onus is on Congress to rise to the occasion for the greater good.
Unfortunately, Senate Republicans seem dead set on making things much worse for the economy as a whole, as well as the millions of Americans who are relying on unemployment insurance to make ends meet. That's because, for no legitimate reason, they've effectively killed the $600 weekly boost to unemployment insurance benefits created under the Coronavirus Aid, Relief, and Economic Security or "CARES" Act. And killing that benefit is akin to killing the economy.
Why? Well it's simple. The U.S. economy is driven by consumer spending, which accounts for 68 percent, or roughly $14.5 trillion of our nation's $21.4 trillion GDP. Obviously, folks who lose their jobs also lose their incomes. Hence they spend less on goods and services. Because of the pandemic, consumer spending is down by a whopping 6.8 percent so far this year. For context, that's over three times greater than the largest decline in consumer spending at any point during the Great Recession. This dramatic drop in consumer spending is the main reason the economy is contracting at an annualized rate well in excess of five percent. Which is horrible, given a normal economy would be growing at an annual rate of between two and three percent.
Keeping the $600 weekly bump in UI benefits through year-end, however, would go a long way toward countering those negative economic trends. For starters, the Bureau of Economic Analysis found that, if continued through the end of 2020, it would enhance the income -- read that as purchasing power -- of unemployed Americans by $842 billion.
This in turn would stimulate the economy. According to Mark Zandi, a Ph.D. economist at Moodys.com, for every dollar in UI benefits the public sector provides to unemployed workers, national GDP grows by $1.62. That's because unemployed workers have a very high "marginal propensity to consume," meaning they are much more likely to spend, rather than save, any additional dollar of income they receive from whatever source -- including UI benefits.
So, if left in place for the remainder of this year, the $842 billion annualized growth in income unemployed Americans would receive from enhanced UI benefits under the CARES Act, would increase America's GDP by some $1.356 trillion, or enough to move the economy out of the red and into the black. Economist Jason Furman, during his recent testimony to Congress on this issue, pointed out this would support three million jobs that otherwise would be lost.
So why won't Senate Republicans support this highly effective and needed program? Well, they claim its benefits are so generous it will dissuade unemployed individuals from searching for work. Which might happen if there were a tight labor market, but as it stands today, there are almost four unemployed Americans for every available job opening. Moreover, extensive studies by researchers at Yale, the University of Edinburgh and the Federal Reserve Bank of Chicago all found generous unemployment benefits had no negative effect on people's desire to find work.
Which means Senate Republicans who oppose extending this crucial program are willing to harm American workers and the U.S. economy, just to promote an ideological worldview that runs counter to the facts.
Ralph Martire, email@example.com, is executive director of the Center for Tax and Budget Accountability, a fiscal policy think tank, and the Arthur Rubloff Professor of Public Policy at Roosevelt University.