The federal CARES Act substantially expanded unemployment insurance and will also send direct payments of around $1,200 to most Americans, but many economists seem to agree that the package was nowhere near large enough to offset the enormous demand shock to the economy. And some are warning that—absent a more robust response from Congress and the Fed—a quarter to one-third of Americans could be thrown out of work within a few months. Already in Pennsylvania, there have been over 1.1 million UI claims—about 16% of the workforce.
Congress will need to come back to the table, and there are already indications this is in motion. The trouble continues to be that we won’t know if the next aid package will be appropriately scaled to the size of the problem, and that’s why it’s so important that Congress commit to a program of “automatic stabilizers”—direct payments to individuals, state and local governments, and other key functions that recur automatically, only switching off when the unemployment rate falls below a certain threshold.
Already there’s a dangerous complacency starting to creep in that suggests Congress will get bored of negotiating vital economic aid packages long before their job is done, so what’s needed now is to tie the aid to objective economic conditions on the ground. Congress and the Fed can and should ensure that everyone continues to have the money to pay their bills and meet their needs throughout the duration of the crisis to avoid an entirely unnecessary wave of mass unemployment, including heading off economically damaging spending cuts and lay-offs by state and local governments.
Congress so far opted for a one-time payment to Americans, and it will take another act of Congress to mail more checks. To remove as much uncertainty as possible about the federal response as the crisis drags on, Congress’s Phase 4 bill should include a proposal from Montgomery County Congresswoman Madeleine Dean for sustained direct cash payments.
“I believe Americans need cash now,” said Rep. Dean, “Their work has been ceased through no fault of their own, and they need confidence that cash will give them as they wait for us to get through the public health crisis.”
In late March, Dean and Rep. Don Beyer of Virginia, sent a letter to House leadership calling for ongoing direct cash payments along the same lines as a Senate proposal from Senators Cory Booker, Michael Bennett, and Sherrod Brown based on a November proposal from economist Claudia Sahm for The Hamilton Project. (For those who prefer a podcast format, Sahm also spoke about her proposal on Vox’s The Weeds.)
Under the Dean proposal, the Treasury would send an immediate payment of $2,000 for every adult, child, and non-child dependent, with a phase-out for higher incomes. And crucially, it would pre-commit to further rounds of cash payments depending on objective on-the-ground conditions like the unemployment rate.
A second payment of $1,500 would be mailed out automatically in July if the public health emergency continues into July, or if the unemployment rate in June is at least 1 percentage point higher than the three-month moving average from December 2019 to February 2020 (which seems very likely with the national jobless rate now sitting at about 10%.) Additional quarterly payments of $1,000 would continue until unemployment falls to within 0.5 percentage points of the levels from December 2019 – February 2020.
Experts can debate whether even this plan would be enough to avoid a prolonged recession, but so far it’s the closest thing to a true automatic stabilization policy that’s been proposed in Congress, and deserves more attention from other area elected officials and advocates as Congress prepares for another round of economic aid negotiations.