Moneybox

Why the Government’s Plan to Save the Economy Is Flailing

Mitch McConnell, Kevin McCarthy, and Mike Pence stand behind Donald Trump, who is sitting at his desk and speaking with his hands raised.
As Senate Majority Leader Mitch McConnell, House Minority Leader Kevin McCarthy, and Vice President Mike Pence stand behind him, President Donald Trump speaks before signing the CARES Act in the Oval Office of the White House on March 27. Erin Schaff—Pool/Getty Images

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Jordan Weissmann is Slate’s senior business and economics correspondent. He’s been reporting on the federal response to the economic damage wrought by the coronavirus and talking to struggling business and franchise owners. About a month ago, Weissmann was faintly hopeful that Congress would do something to catch Americans in financial free fall as the economy looked on the verge of collapse and layoffs were beginning. But now, after one insufficient stimulus package and a Congress on recess, things aren’t getting better for the people who need federal support the most.

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On Tuesday’s episode of What Next, I spoke with Jordan about what Washington is trying to do to save the economy and where the government’s stimulus checks are going. Our conversation has been edited and condensed for clarity.

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Henry Grabar: The CARES Act is the big coronavirus relief bill, totaling $2.3 trillion. One of the big components was the one you predicted, which was that stimulus checks would be mailed out to every American, or at least every American making less than a certain threshold on their tax returns. How’s that going?

Jordan Weissmann: The checks haven’t arrived yet, so we don’t know for sure. They start arriving this week via direct deposit. That’s probably going to be a B-plus/A-minus initiative—I’m going to give letter grades to everything. The government is probably going to get the money as promptly as possible to people who have filed their taxes and have direct deposit, and also people who get Social Security and old-age, disability benefits.

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The reason I’m not saying this is an A-plus effort is because it’s still not clear if the many lower-income workers who don’t file their taxes are going to get this money in the end, or how soon they will get it. There is a large population of people who just do not file income taxes. If you’re a single worker who makes $10,000 in a year below the standard deduction, you don’t have to file. These are very vulnerable people, a lot of whom have probably been laid off. And it’s not clear if our tax authorities have the information to track them down. On top of that, if they do have addresses, the government is going to send these people a check. If they don’t have direct deposit, that could take weeks.

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Then once those lower-income people get a check, they’ll probably end up taking it to ACE cash checking or something to actually cash it. And that means a part of that money is going to get taken off the top and given to an intermediary. That sucks.

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Another portion of the stimulus bill is the boost to unemployment insurance: $600 a week, which in some states, I think, more than doubles what you would have been able to receive. This is another program that theoretically an enormous number of people should be taking advantage of. What’s the evidence we’ve seen that this is working?

They decided to add this unemployment bonus, essentially. The outcome of this is that some people are going to get more than they were previously earning on their jobs, through unemployment. Some lower-wage workers, restaurant employees, and retail workers who’ve been laid off are probably going to have a slightly nicer standard of living for at least four months on unemployment than they did before this.

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And this was the nightmare scenario of Republican senators like Tim Scott and Ben Sasse, who said we are incentivizing people not to work right now.

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In the end, I think most people in Congress realized this was probably a good idea. Here’s why they did it, though (and why I’m not going to give the unemployment insurance an all-out A or A-plus or anything): What a lot of people wanted to do initially was replace people’s salaries or wages at a 100 percent rate, just give them what they were making before so they can still afford their basics and pay rent. The issue is that state unemployment systems are so technologically backward that that was impossible. There was no way to do that sort of calculation quickly for that many people and roll it out within less than a few months. The administrative constraints made that a nonstarter. So what states said they could do is tack on an extra few hundred bucks to everyone’s check. Even Mitch McConnell, when there was this very short-lived Republican rebellion, said this is the best way we can figure out to give money to people.

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Something that’s come up both with the checks and the unemployment insurance is that, for America’s mighty federal government, our administrative state is in shambles. We can’t figure out how to do anything.

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Nothing works. The fact that we couldn’t do the unemployment policy that we really wanted because our systems were so bad was a preview of what was to come. You had more than 16 million unemployment claims in several weeks. These state systems were totally overwhelmed. Websites started crashing. Phone lines were jammed. Nobody could get through. People were spending a week trying to apply.

Also, the United States loves to run programs on a local level. The unemployment system is entirely run through states, and state offices are very much budget-constrained. So they’re not going to put fixing their unemployment insurance interface or their back-end systems for administering it anywhere near the top of their priority list. They’re just not going to unless there’s a disaster like this that forces their hand and they get some federal money to help them. I think we’re also seeing some of the perils of governing localism and also this balkanized administrative welfare state.

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Let’s move on to another part of the stimulus program, which is the payments for small businesses. They were structured, forgivable loans that in many cases could be converted into grants if you kept your workers hired through June 30. What is your grade that you give to this segment of the CARES Act?

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When this is all over, I want there to be bars and restaurants and bookstores and fitness studios and the things that make living life in a city worthwhile. And if we don’t save small businesses, that stuff is all going to die in the course of this crisis, and this economic recovery is going to take much, much longer than it otherwise will have to.

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You’ve probably heard people talk about what they’re doing in Denmark, where they’re basically paying employers to keep their people on the payroll. Well, that’s pretty much what this is, but it’s in this weird fakakta format.

Excuse me, what’s the word use there?

Fakakta. It’s Yiddish. It means “totally messed up.”

So we’re talking about the Paycheck Protection Program. It is a loan to small businesses that, if they keep their people employed, can be converted into a grant that they don’t have to pay back. The loan is made by a private bank. Then the bank sells that loan to the Federal Reserve in the form of a security or hands it over to the Federal Reserve.

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As it evolved, it became more of a program just to make sure businesses kept paying their employees, and there was less in it to help them keep paying expenses like rent or utilities, for instance. Businesses can use these loans to help pay their rent, but 75 percent of it is required to go to their payroll. And the size of these loans/grants are based on the size of their payroll. So if you’re a small business that doesn’t have a lot of employees, it doesn’t do a lot for you.

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We’re two weeks in, and not a lot of money has gone out the door. There’s been all sorts of problems with getting this program started, with getting the banks the information they need and making them confident they won’t have legal liability. And I’ve been talking to a lot of small business owners, and the overwhelming feeling right now is desperation and disappointment.

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The other big part of the plan was bailouts for big companies. One thing that has changed since you were last on this show is that stocks were then in a seemingly never-ending slide. The stock market has just had its best week since 1974. People are feeling optimistic about America’s biggest companies right now. How is this possible? I think 20 million people are unemployed. The entire country is shut down. We have no sense of how we’re going to find a way out of the pandemic as a public health issue.

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I would say optimistic is maybe not the exact right term. Yes, the stock market had its best week since 1974. But that was after a historic plunge. It has not even come close to gaining back everything that it lost.

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I think the better question is why has it stopped plunging? The bottom line is Congress acted and collaborated with the Fed to set up a bailout fund for large businesses. There are still aspects of that that are being worked out, but if it takes a little extra time to get functioning, it’s not the end of the world for a Fortune 500 company. And Fed Chairman Jay Powell is going to ride in on his white horse and make the money printer go brrr, as the saying now goes.

What do you think is next for our total crisis meltdown? Is it the U.S. Postal Service? Remind me why the Postal Service is in such a troubled state.

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In the past, it’s been in trouble largely because Congress foisted these unrealistic financial expectations on it that it would prefund its pension funds. That created billions of losses on paper and left the Postal Service ravaged in a lot of ways. And why is it troubled now? For the same reason everybody is: Revenues are falling for every business across the board. And the Postal Service is always on a knife’s edge. So it needs a bailout.

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Unfortunately, the administration does not want to give it one. It has said to Congress that giving a bailout to the Postal Service would be a poison pill in any kind of rescue legislation. And as far as anybody can tell, this seems to be because Donald Trump wants it to raise rates on Amazon because he’s angry at Jeff Bezos. The only other possibility is that maybe someone within the administration has some pro-privatization agenda going where they want to bleed the Postal Service dry and move its business off to UPS or whatever.

Listen to the full episode using the player below, or subscribe to What Next on Apple Podcasts, Overcast, Spotify, Stitcher, or wherever you get your podcasts.

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