Unemployment Benefits, Stimulus Checks, And State And City Aid Needed As Economy Slows

New economic data show a growing slowdown, underscoring the need for another stimulus package. But intra-party fights among Republican Senators regarding deficit spending are slowing the legislation, and will make the overall bill smaller than it should be.

After months of denial and delay by Senate Republicans, Congress is now fighting over the next economic stimulus.  Three big spending items—supplemental payments on unemployment insurance, another round of household stimulus checks, and major aid to states and cities—are causing major fights, not only between parties, but within the Republican Party itself.  Solving the internal party battle is key to getting this necessary aid out to boost the economy.

Make no mistake, the economy needs help.  On Thursday, new weekly unemployment claims data provided more bad news, rising for the first time in almost four months and indicating a softening job market.  Of course, claims all along have been showing that the economy is in deep trouble.  Heidi Shierholz of the Economic Policy Institute reminds us this is “the 18th week in a row that unemployment claims have been more than twice the worst week of the Great Recession.”

Although overall job losses may be stabilizing (although at a high level), economists Ernie Tedeschi and Quoctrung Bu find that layoffs for Black and Latinx workers are increasing, shifting the labor market burden even more to these lower-paid and more vulnerable workers.

Other data also point to growing economic weakness.  After three months of steady growth in shift work, Kronos Incorporated, a major supplier of workforce management software, reports a “modest” slowdown in shifts at businesses for the week of July 6-12.  They note “this marks the first non-holiday week” with a slowdown “since the recovery began in earnest the week ending April 12.”  

Slowdowns are especially higher in states experiencing growing Covid-19 caseloads, as rising caseloads slow economic activity and lead to new rounds of business closings.  Hopefully, these and other data will finally put to rest the ill-conceived argument that we can fully reopen the economy during a growing pandemic.

As economist Teresa Ghilarducci noted in Forbes, “We can reopen and kill people, but that would be a dumb reopening.”  And like many other economists, Harvard’s Raj Chetty and his colleagues at Opportunity Insights argue that “the only way to drive economic recovery is to invest in public health efforts that will restore consumer confidence and spending.” But many states and the federal government have been dumb so far, and we are now paying the price, both in public health and in an economic slowdown.

Faced with this troubled economy, why hasn’t Congress—more specifically, the Senate—moved faster? After all, in May the House of Representatives passed a major new stimulus bill, the HEROES Act.  It authorizes almost $1 trillion in aid for state and local governments, an extension of the $600 weekly supplement to unemployment insurance, and a new round of household stimulus checks, among other provisions.

But the Senate—specifically the Republican majority—has held things up, hoping an economic turnaround would obviate the need for further deficit spending.  In May, Senate Republican majority leader Mitch McConnell (R-KY) said the HEROES Act was “dead on arrival.”  But continuing economic weakness (and negative Republican election poll numbers) have brought some elements of HEROES back to life.

McConnell now supports another round of household stimulus checks, some unemployment insurance supplement (which may settle around $400 per week, not the expiring $600), aid to state and local governments, and other spending, including K-12 education.  Republicans also want a liability waiver protecting businesses from Covid-19 related lawsuits, especially from employees who get sick on the job.  And both parties are rejecting a payroll tax cut, widely seen as ineffective by economists, even though President Trump had been insisting on one.

Of course, politics is never absent from Congress, and Senate Republicans are fighting with each other about how much spending to authorize.  Even though we are still months away from the 2020 election, reports indicate that Senators considering a 2024 presidential run already are jockeying with each other over debt and deficits.  

But something will be enacted.  Members of Congress up for re-election in November want more aid to help them campaign in the face of the pandemic and recession.  Their earlier hope that a strong economic recovery would pull them through is fading fast, so concerns about rising debt and deficits are taking a back seat to concerns about re-election.

That will change, of course, after the election.  Opening shots already have been fired about debt and deficits, notably by Senator Mike Enzi (R-WY), Chairman of the Senate Budget Committee.  And news reports say Senator Ted Cruz (R-TX) is using the growing debt against potential presidential rivals, exclaiming to his colleagues “what the hell are we doing” in considering significant new deficit spending.

But more money is coming, including stimulus checks, unemployment insurance, aid to governments, and education spending.  It should have been enacted sooner to help the economy, but better late than never.

However, until we get public health under better management, rather than the herky-jerky opening and closing states are doing now, the economy can’t get back on track.  The new stimulus, while necessary and welcome, will likely be much lower than it should be given the recession’s depth.  And in any case, stimulus alone can’t solve our economic problem.  That requires coherent, smart public health policies that we seem unable to enact.