How the Relief Effort Ran Aground

How the Relief Effort Ran Aground

At each step, poor implementation has weakened the U.S. recovery effort.

This essay is part of a special section on the pandemic in the Summer 2020 issue.

The goal was simple enough to print on a bumper sticker: freeze the economy. Take the economic arrangements that existed in January and have the government put them into hibernation long enough to survive the worst of the pandemic. After the outbreak was controlled, thaw the economy out, allowing it to continue on its own.

The Trump administration was always going to be a failure when it came to containing the outbreak. But the freezing should have been easier. It mostly involves spending money, which the government is capable of doing quickly. And private markets were screaming for the government to spend massively. Yet two of the signature recovery efforts, the expansion of unemployment insurance and creation of payroll protections, have floundered.

To freeze businesses, you can either backstop the businesses themselves by covering their payroll, or you can cover workers by funding unemployment insurance so they can go on leave and then come back to their jobs when the crisis is over. Each course of action has run into problems of execution. We need to understand why, not just because it’s making this recovery worse, but because the headwinds fighting against both approaches will plague any and all efforts at reform going forward. It’s easy to think big and bold, but implementation matters.

Consider the massive expansion of unemployment insurance. The idea was that everyone would be furloughed for a few months, the government would pick up the tab, and then people would go back to work. But unemployment, an essential piece of social insurance, has been neglected in the past several decades. States set the terms and execute the program, and they’ve both narrowed the scope of who qualifies and reduced the amount of workers’ income that gets replaced. The Democrats who authored the expansion in March found an ingenious workaround. First, to boost replacement, they added $600 a week onto what people would normally get. Second, they extended unemployment to those who don’t normally qualify, like contractors and the self-employed, using a simple formula that then gets the extra $600 per week added to it. It is $260 billion worth of social insurance that goes straight to workers—so generous that Republicans almost killed the entire stimulus bill at the last minute to stop it.

This plan has run into two serious problems. First, states have let their systems for distributing unemployment become so thin and ragged that it is very difficult for people to apply and receive payments. Horror stories of people on hold for weeks, uncertain when and if they’ll qualify, are terrible for the stressed individuals and because they weaken the macroeconomic effects of the expansion. They also make it harder to get people to defend the program going forward, when social insurance program expansions should be an easy sell. And this program doesn’t automatically renew if unemployment remains high when it ends at the end of July. Like much of the stimulus, the unemployment insurance extension will require another vote. Republicans in the Senate will block it unless they feel pressure from the public.

The efforts to backstop the payroll of small businesses have also faced a series of execution failures, based largely on a lack of clarity about what the program is even meant to do. What started as a loan program for small businesses was quickly reworked as the Payroll Protection Program, designed to take over the payroll costs for small businesses by forgiving loans if they kept payroll.

At each step, poor implementation has weakened the effort. First, there is a limited cap on how much money can be spent through the program. This led to a mad dash that favored larger and more sophisticated firms, which knew how to get themselves to the front of the line. Second, the program is run through the U.S. banking sector, which means that banks get a cut of these limited funds and also use the opportunity to send support to their favorite clientele. The cap on funding drives a focus on smallness and relief, rather than a broader focus on economic stabilization. It has caused endless fights over who deserves this support, leading to absurd campaigns to pressure larger firms to return the funding. Finally, there is a distinct lack of clarity on whether the loans will actually be forgiven, leaving many to sit out taking such funds altogether.

The pandemic response isn’t the first time we’ve encountered the problems with implementing national policy through uncoordinated action at the state level or through private actors. Indeed, state-level execution has long been used to make programs worse, and privatization deepens the impulse to separate the deserving and the undeserving. These policy tendencies have harmed all efforts to deal with instability and inequality under capitalism; it’s no surprise that they have incapacitated a significant amount of the legislative support to fight the effects of this terrible disease. There are no easy answers to these problems. But it is essential that any future left political programs understand them—and commit to defeating them.

Mike Konczal is a fellow at the Roosevelt Institute and a member of Dissent’s editorial board.