With unemployment numbers hovering near 10 percent and the days of federally enhanced unemployment benefits long behind us, there is a rapidly fading chance to extend a lifeline. As I said nearly three months ago, protecting the consumers of the US and proving to them beyond a doubt that they are protected is the only way we can return to growth. People will not spend money unless they feel like they can be reasonably certain they will continue to have an income and businesses will not spend money unless they are reasonably certain people will be spending money on their goods. This should have been done before the expiration of the CARES Act benefits, but we don’t have a time machine, so now is the next best option. Waiting is simply unacceptable.
In the absence of any federal leadership, states and municipalities have had to take up the slack. This has cost them all of their resources and more; the future has been mortgaged to keep our heads above water. Piling gasoline on this tinderbox has been a catastrophic drop in tax revenues. Sales taxes make up a large portion of revenues for many states and cities, but people simply have not been spending the way they used to. The only way to keep cities and states from mass layoffs and, potentially, bankruptcies, is to include municipal and state aid in the federal packages.
The Federal Reserve did what it could to support local institutions by stepping in and guaranteeing a buyer for the debt, but there is only so much that monetary policy can do. At some point, the debt payments must be made. Loose monetary policy also does very nearly nothing to stimulate demand. We have seen many of the effects of cheap money in the stock market – which has reached all-time highs in the midst of the worst real economy since the Great Depression. In a way, the inflation of paper assets while the real economy suffers causes greater inequality.
Direct support to both individuals and local governments are the most efficient ways to get goods and services to people that need them. Local government understands the service needs of their citizens better than federal government does and, in most cases, is more pragmatic than the federal level (which can be rife with posturing and political theater for every part of governing). People know even better what kinds of things they actually need, so giving them money instead of some substitute that costs more money to administer is both the simplest and most elegant solution.
Additionally, granting everyone support directly disposes of the inefficiencies enhanced unemployment caused. One of the largest complaints about unemployment, and the primary reason Republicans wanted a lower level of support, was that people were avoiding going back to work because some of them made more money from unemployment than they made from their jobs. A basic income bypasses that problem because everyone is receiving the aid whether they are employed or not. It can be clawed back from those who do not need it with a quickly escalating marginal tax with a ceiling of whatever the income is. We could make the $1,200 check a monthly thing and sort out the rest later.
American leaders need to find a way to pass something. Instead of focusing on a fix, our President has decided he should end all attempts at negotiations. In response to questioning, he claimed he was taking the ‘high road’ by cutting off all avenues for the creation of a deal. A bill passed by the Democrat-led House months ago was not even taken up by the Republican-led Senate and a Republican bill did not even make it out of the Senate this week. The Republicans are focused on the wrong thing (e.g. businesses and supply) while Democrats are focused on everything, which is the exact same thing as being focused on nothing.
American savings rates reached their highest levels in decades during the period of initial aid, showing a reluctance to spend that came from a skepticism that the good times could last. So far, consumers have been proven right, but those savings will also not last forever. Something must be done before the pinch causes a return to mass-layoffs and evictions.