The coronavirus pandemic has allowed us to conduct an experiment on how government assistance is good for people and the economy.
By Sonali Kolhatkar
When Congress passed the CARES Act earlier this year, lawmakers gave some low-wage Americans who lost their jobs an income they’ve been demanding for years: $600 a week, which works out to $15 an hour for a 40-hour workweek. Because the federal minimum wage is less than half that rate—stuck there due to the intransigence of conservatives waging a class war against the poor—the coronavirus pandemic ironically gave the bottom rung of the American workforce a taste of what they could have had all along. So popular was this $600 in jobless benefits that even some Republicans who had voted against that provision in the CARES Act boasted about it to their constituents and failed to mention that like most of their GOP colleagues, they had initially opposed the provision.
The main conservative argument against paying unemployed workers $600 a week is that employers who try to entice them back into the workforce—whether it is safe or not—will have to compete with the government payments. Senate Majority Leader Mitch McConnell (R-KY) said out loud, “we don’t want to make it more profitable to stay home than to go back to work.” Think about that: the yearly salary equivalent of this supposedly generous benefit works out to just over $31,000 a year. If employers are unable to compete with such a low salary, there is something deeply wrong with our economy. In Los Angeles where I live, the amount does not even cover rent for a two-bedroom apartment.
Still, so underpaid are American workers that the $600-a-week in benefits, in addition to the one-time stimulus checks of $1,200, buoyed the entire economy as people actually began spending the cash. By May of this year, spending was up by 8.2 percent after falling dramatically in the two months before. According to an Associated Press report in late June, “The federal money has pumped nearly $20 billion a week into the economy and enabled many of the unemployed to stay afloat.” According to one estimate, the benefits comprise 15 percent of all wages in the nation, and “unemployed people are spending more than they did before the pandemic, while those who have jobs are spending less.”
At about the same time, spending by the richest Americans fell. Credit card use declined dramatically in the first half of the year—a trend that was directly attributed to the nation’s wealthiest people. Those businesses most dependent on selling pre-pandemic-era luxury goods and services to rich folks suffered the most. One study tracked the correlation, concluding that, “Declines in high-income spending led to significant employment losses among low-income individuals working in the most affluent ZIP codes in the country.”
The broader conclusion from such a study is that the wages of the working poor are far too dependent on the luxury spending of the wealthiest—a clear sign of the deep rot in the American economy as wealth and income inequality have continued to increase year after year. Had conservative lawmakers not stood in the way of increasing the federal minimum wage beyond $7.25 an hour, it is likely that the COVID-19 crisis would have had a lesser economic impact on the poorest Americans.
Conservative talking points for years warned against an economic apocalypse resulting from a higher minimum wage, saying that corporations would cut jobs—as if under the current status quo they are keeping on more workers than they actually need. Such notions have done deep damage to the economy.
Perhaps what the economic elites are really terrified of is that Americans might get used to being paid at least $600 a week. White House economic adviser Larry Kudlow admitted that, “We’re paying people not to work. It’s better than their salaries would get.” Kudlow seems far more willing to give Americans one-time checks to entice them to return to their low-paying jobs rather than provide steady and relatively decent incomes for the long term.
Kudlow and other wealthy elites have had an ever-increasing influence over the nation’s economic policy, and under Donald Trump’s administration, that influence has deepened. Trump had justified his choices of various billionaires for top cabinet posts saying, “I want people that made a fortune because now they’re negotiating with you.” It should come as no surprise then that Trump’s Treasury Secretary Steven Mnuchin, who is worth about $400 million, complained about jobless workers being overpaid. He said on Fox News, “It wouldn’t be fair to use taxpayer dollars to pay more people to sit home than they would get working and get a job.” Mnuchin has no standing to defend taxpayers considering that he has sheltered his own income in offshore tax havens.
In fact, Yale researchers found that the government assistance did not artificially depress employment rates and that it, “neither encouraged layoffs during the pandemic’s onset nor deterred people from returning to work once businesses began reopening.” What the relatively generous jobless benefits have done is to finally spark a national conversation about putting a floor on wages. Now that a portion of the workforce has experienced an income that amounts to $15 an hour, there will be a greater public appetite for boosting wages. Moreover, the pandemic has offered a chance for economists all over the world to study the effects of what has amounted to a large-scale experiment of the kind that proponents of a Universal Basic Income have wanted to conduct for years.
Supporters of an economy based on consumerism ought to embrace the idea. If tax dollars ensure that the poorest Americans have a basic income, it is likely to stabilize consumer spending. Even some billionaires see value in the idea. Tilman Fertitta, a restaurateur and owner of the Houston Rockets, said, “You’re going to see this economy go backwards when we cut out this $600 a week.”
One would imagine that President Trump, who has based his reelection strategy on a strong economy, would support such a policy. But the ideology that a basic income represents contradicts the relentless Republican attacks on government “socialism.” If the government were to rig the economy in favor of poor Americans instead of wealthy elites and corporations (as is now the case), it would open the door to popular programs such as Medicare for All, a Green New Deal, and of course an increase in the federal minimum wage. And that appears to be the biggest concern for the capitalist ideologues who are setting current policy.
This article was produced by Economy for All, a project of the Independent Media Institute.
Sonali Kolhatkar is the founder, host and executive producer of “Rising Up With Sonali,” a television and radio show that airs on Free Speech TV and Pacifica stations.