Negotiations on another coronavirus relief bill have stalled. The economy might also stall.
By Arthur Delaney and Matt Fuller | HuffPost
When the coronavirus pandemic first started spreading in the United States, Congress sprang into action, creating unprecedented relief programs for businesses and workers, sending out stimulus checks to more than 150 million people, and temporarily blocking evictions for millions of renters.
But now ― with the national unemployment rate still above 10%, more than a million people losing their jobs every week, and the coronavirus still claiming a thousand lives per day ― lawmakers have left town.
Republicans have claimed that the added $600 a week in unemployment benefits, which expired July 31, was doing more harm than good. With Republicans and Democrats unable to reach a sweeping deal to extend the benefits, Republicans are about to see if they were right to think the country’s economic problems will go away on their own.
But monthly job gains have been slowing down and economists warn that cutting benefits to force people back to their jobs won’t work.
″There is no more effective way to support an economy in a downturn than providing help to the hard-pressed unemployed, who spend any money they receive as quickly as they receive it,” Mark Zandi, chief economist at Moody’s Analytics, said in an email.
“If lawmakers don’t come through and quickly pass another fiscal rescue package, including more unemployment insurance, the economy is likely to backslide into recession,” Zandi said.
Before it lapsed at the end of last month, at least 25 million people were receiving the extra $600 on top of their state benefits, which typically pay a little more than $300. That means letting the federal boost expire collapsed incomes for a huge number of people ― roughly one out of every six workers ― which is bad news not just for them, but also the various businesses that count on their spending.
A University of Chicago analysis said in July that if Congress did nothing, unemployed people would cut their spending by a third.Since unemployment benefits represented about 15% of total wages, dropping the federal supplement “could cause substantial declines in aggregate demand and potentially negative effects on the macro-economy.”
But Republicans have been more concerned about employers than the broader economy, complaining that for many workers, the combined state-federal benefit amounted to more than their previous wage. With the federal portion gone, employers are able to keep wages low and force people back to work ― coronavirus be damned.
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