Go Big on COVID Stimulus — We Can’t Afford Not To

I have long pondered and studied, along with a team of economists with whom I work, the decline of the U.S. economy as it affects middle- and low-income Americans. On a related note, I’m keenly interested in how various policy choices, including stimulus measures, might work to build a robust economy for everyone.

After careful review, I am strongly of the belief that concern over the size of President Joe Biden’s COVID-19 relief bill is misplaced. The country needs this amount of relief – or more.

Now is a critical moment to go big.

Those advocating for a more modest relief effort argue that a glut of new debt-financed stimulus money might lead the financial and monetary systems to go haywire. Inflation might spin out of control. The dollar’s value might plummet. The global financial system might react in horror.

But those fears rest on the notion that the pre-pandemic economy was teetering on inflation or that foreign nations were about to dump our debt. And that’s the problem: Even before COVID-19, lower- and middle-income families were much worse off than the prevailing indicators indicated. There were tens of millions of people still in search of a living-wage job. The pain wrought by the pandemic has simply compounded dismal circumstances that predated any infection. And given America’s solid reserve currency status, foreign nations were not and are not dumping dollars.

Here’s the core problem: It’s high time we stop categorizing those making poverty wages as “employed.” If you work only a few hours a week, but want to work more, or you work full-time for less than a living wage, you are functionally unemployed. But that is not clear when we look at the figures released by the Bureau of Labor Statistics, which lops everyone receiving a paycheck in the same category. Recent research completed at the Ludwig Institute for Shared Economic Prosperity  reveals that, even as the official January unemployment rate was 6.3 percent, the functional unemployment rate was 24.4 percent — and it was 24 percent a year before the pandemic began. And our LISEP number is very conservative because it does not include all those people who are so discouraged that they gave up seeking a job. If you were to count those people, and they have only increased since the pandemic, the number of functionally unemployed would balloon.

Worse still, the pain, to this point, has not been spread evenly. Minorities and women have borne the brunt of the pandemic’s economic ramification, with many losing their jobs and others dropping out of the workforce altogether. Black functional unemployment in January was 30.7 percent and for women it was 28.5 percent. And no one need worry that these families, should they get more aid, will sock it away. Given the realities of their family budgets, they are almost sure to spend those dollars in the near-term — and that classic Keynesian boost in consumption will spark newfound growth.

Finally, some have voiced concerns about the debt taxpayers will accrue if we go too big. First, no one who supported the Trump administration’s tax cuts in 2017 — a bill that blew a huge hole in the budget — can feasibly make a principled argument along these lines. But more to the point, the long-term fear that U.S. government debt will become unmarketable, or that the Federal Reserve will be forced to raise interest rates, has not materialized in recent history. Not with Trump’s tax cuts. Not with the original $2.2 trillion CARES Act last year. Not with the $900 billion bill signed before Trump left office. So there is no reason to believe that now the economy is going to react in a wholly different way this time around.

The real risk in today’s debate is not that the economic system will overheat — it’s that the public frustration with an anemic response might spark social unrest. Americans have been stuck at home for a year. Children have been denied a year’s worth of in-class education. Families have been forced to mourn loved ones from a distance. Businesses have been closed, credit histories ruined dreams deferred. And all of this was after the spate of what many call “deaths of despair” — suicide, opioids, alcoholism, depression — in the pre-pandemic supposed recovery had begun to overwhelm places that Washington too often fails to consider.

Beyond concerns about social injustice, as played out last summer, and about democratic governance, as was on display on Jan. 6, Americans are questioning anew today whether our government is even fundamentally capable of addressing crises as they arise. The pandemic would have been difficult for any administration to face down. But if the nation does end up in a double-dip recession — if the government fails the same people who suffered in COVID-ridden 2020 — there’s no telling how the population may react. Widespread unrest would unquestionably do more economic damage to the dollar, to our reserve currency status and to our ability to balance the budget than a relief package.

Eugene Ludwig is chairman of the Ludwig Institute for Shared Economic Prosperity and former U.S. Comptroller of the Currency.

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