Macroeconomics 103
Did you see the unemployment benefit claims numbers come in today? The number of Americans filing for first-time jobless claims in the last week was 6,600,000. By the way, I’m trying to link articles that 1) are not behind a paywall and 2) aren’t from publications stereotyped as “right” or “left” (this is challenging). I covered unemployment earlier this week, so I’m not going to focus on it much, but it does link cleanly to the portion of The CARES Act I haven’t gotten to yet.
The foremost thing on my mind when I see numbers of that magnitude is just how long this is going to take to get sorted out. If the system in place is set up to deal with a couple hundred thousand unemployment benefit claims per week, it has to be completely overrun at this point. [this is true for all aspects of the money being doled out—I have a friend who is a loan officer and he told me the first two days of this week were the busiest he has ever seen] I imagine weeks of delays for these benefits to get delivered, which is going to be a problem. Do a DuckDuckGo search on “Americans don’t have savings” and you’ll see why. [DuckDuckGo is a search engine that doesn’t collect your data] The general consensus will be that a large portion of our country is living paycheck-to-paycheck, even towards the end of the longest bull market and period of economic growth in our history. That is bleak. [I’ll cover this more in a #separateblogpost]
The CARES Act provides $250,000,000,000 (250B) for “expanded” unemployment benefits, which includes broadening the definition of who is eligible for these benefits. Nerdwallet does a solid job of breaking down who is eligible and how to apply. If you are unable to work as a result of COVID-19, you qualify. As far I can tell, this is enforced by the honor system? The bill specifically includes people who are self-employed and independent contractors, along with “gig” workers. Gig workers are basically the same as independent contractors, but talking about the “gig economy” has been trendy lately so I want to make sure you’re in the know. Think about people who drive for Lyft or similar situations. They are not considered “employees” of Lyft, but rather independent contractors. So, Lyft isn’t legally obligated to provide unemployment benefits, health insurance, Social Security, etc. That’s the whole point, in fact, and this setup is more prevalent than you may think (many doctors, lawyers, etc. are independent contractors).
Back on track! The CARES Act also adds $600 to the maximum amount benefits can be in each state. In Texas, the maximum is $521 per week, so this more than doubles it! That somewhat explains why Senator Ron Johnson (R-WI) has been making headlines by saying the bill “incentivizes people to not show up for work”. He did vote for the bill, though—it passed 96-0 in the Senate.
I know someone whose job gave them the option to continue working or be laid off. He would have made more money (in the short run) to choose to be laid off. He chose to keep working! What would you do in that situation? He’s an electrician employed on a big government worksite, for the record.
Finally, the bill extends these benefits for up to 39 weeks. Again, this varies state-to-state, but Texas’s limit is 26 weeks, so this makes the eligibility period 50% longer.
Pause. Have you heard of goodreads.com? It’s social media for people who read books…here is my profile. I get most of my books directly from recommendations from people I trust, and when I find an author I like, I add their other books to my “want-to-read” list. I strongly recommend anything Fyodor Dostoevsky has written; I consider him to be the best novelist of all time (and also criminally under-represented in our curriculum). Notes from Underground seems like an appropriate starting point. Hell, if you’re a student of mine and want a copy, tell me and I will mail you one. For real.
…stipulations: if I get more than 5 requests by 4/8/20, then I’ll do a lottery system. The only requirement is that you don’t have access to the book already (and made fewer monies than me in the last year). Speaking of which…
We’ve arrived at the fun part of The CARES Act! Direct payments of $1,200 to everyone! Well, not everyone. Everyone who reported making less than $75,000 in both of the last two years, and is not claimed as a dependent (both the numbers double for “married filing jointly” couples, i.e. they get $2,400 if joint income is under $150,000). If you have kids claimed as dependents under the age of 17, you get another $500 per child. If you’re older than 16 and still claimed as a dependent, you get nothing. If you reported making over $75,000 in 2019 or 2018, then you can still get some money—the $1200 decreases with higher income and is fully cut off at $100,000.
Any time you give things away but don’t give it to everyone, it’s going to cause conflict. This is the basic economic problem, right? How do we allocate scarce resources between people with infinite wants? For example, the big cruise lines (Carnival, Royal Caribbean, Norwegian Cruiselines) that cater to U.S. citizens aren’t eligible for the “large corporation” money because they have chosen to be “incorporated” in places like Bermuda and Panama to avoid U.S. taxes and labor laws. That seems just. But what about someone who made over $100,000 last year and is currently making half that, or nothing at all?
A common (and convincing, to me) critique of government intervention is the idea that it necessarily “picks winners and losers”. You have to draw lines somewhere, and it’s inevitable that some people who “need” the money aren’t going to get it, and other people who don’t “need” it are. Still, focusing on the exceptions ignores the fact that a lot of people will be better off by getting this money.
Here’s my actual take on the $1,200 thing.
First, if I’m sending out “free” money, I would have sent it to everyone and sorted out the details later. I want all positive press and no bitterness from excluded groups. For example, you could add a line to next year’s tax code that says if you made over X amount in 2020, you will be taxed on that $1200 at 100%, effectively paying it back if you weren’t hit hard by the shutdown. Would that substantially increase the size of the $2 Trillion bill? Not if we dramatically reduced the portion dedicated to “large corporations”, but maybe that’s unrealistic…
Second, and bear with me, but $1200 isn’t that much, IF you’re looking at this shutdown extending for months. It basically helps people pay their mortgages this month (if the money actually comes through that fast—if the IRS doesn’t have your bank account on file from previous tax returns, it could take additional weeks or months to arrive). According to Dave Ramsey, the median mortgage payment is $1,500. Paying for housing accounts for 37% of the average Americans’ total take home pay, by the way. In other words, if you make $100,000 after taxes, you’re spending $37,000 on housing alone. On average, which can be misleading, of course, but I guess I’ll end there. Be grateful if you have a place to live and don’t have to worry about how you’re going to pay for it!
