Major crises bring lasting change. We should expect no less from the Covid-19 depression. The only question is what kind of change we will get.
The New Deal gave us Social Security, unemployment insurance, and infrastructure construction. Soldiers returning from World War II could attend college for free because of the GI Bill; the large proportion of adults with a college degree helped drive the U.S. postwar economic boom. During the Great Recession, the Affordable Care Act (a.k.a. Obamacare) provided health insurance to more than 20 million Americans.
These programs responded to the lack of jobs during an economic crisis, lost worker skills due to a depression and world war, and large numbers of Americans without health insurance.
President Trump’s bungling of the coronavirus crisis increases the odds of a Democratic president and Congress in January 2021. The problems facing the nation are complex, and Democrats will need to hit the ground running—with a good plan they can put into place quickly.
Here are some of the most crucial things this plan must have to generate a strong recovery from the Covid-19 depression and to be prepared for the next crisis.
First, public health. In 2018, 8.5 percent of Americans lacked health insurance, down from 15 to 16 percent before Obamacare. The Robert Woods Johnson Foundation and the Urban Institute estimate that as many as 43 million Americans will lose health insurance because of job losses from Covid-19. If this is correct, more than 20 percent of the U.S. population will be without health insurance.
Joe Biden touts passing Obamacare as one of his most significant achievements as vice president. Expanding health insurance should be his top priority. It matters less how we go about doing this (expanding Medicare, expanding Obamacare, a new public option to cover the uninsured, or some combination of these) and more that everyone has affordable health insurance—whether or not they are employed, and whether or not their employer provides it as a work benefit.
In addition, workers need sick pay, and everyone needs sick workers to stay at home and not spread disease. All developed nations, except the United States, have a national program of paid sick leave. Benefits range from five days per year in New Zealand to 50 days in Norway. The Families First Coronavirus Act provided two weeks of paid leave at full pay due to Covid-19 quarantines, but this program fails to cover other illnesses and ends in 2021. Twelve U.S. states already have paid sick leave plans; these should serve as a model for a national program. Benefits accrue based on the number of hours worked (providing some paid sick leave to part-time employees), with a maximum number of paid hours per year.
Second, education and college debt. Following the lead of the GI Bill, Governor Gretchen Whitmer promised essential Michigan workers a free education at state universities. Free college nationwide in exchange for public service or essential work would advance these educational goals to the next level; going even further, reducing college debt for such employment would significantly reduce the chokehold this debt maintains on young people.
Combining free college and/or debt relief with a national public service program would help the United States regain the position it held during the 20th century as the best-educated nation in the world. It would also assist with a huge problem the United States faces as it struggles to recover from the Covid-19 depression—the economic impact of enormous household debt. An inability to repay this debt threatens the financial institutions that made these loans and the U.S. business firms that depend on consumer spending for their sales and continued viability.
Third, income insurance. Perhaps the most important policy lesson from Covid-19 is that we need to rejuvenate the U.S. unemployment insurance program, adding wage insurance to expanded job-loss insurance.
The U.S. unemployment insurance system is badly broken. For years, state governments have raised eligibility requirements and reduced benefits. During 2019, fewer than one-third of the unemployed qualified for benefits, and benefits replaced only one-third of previous wages. In other developed nations, the average replacement rate is two-thirds of previous wages, and two-thirds of the unemployed are covered. Moreover, American state computer systems, built during the 1970s, couldn’t handle the millions of claims due to the Covid-19 lockdown. Months later, many of those who lost their jobs still have not succeeded in applying for unemployment benefits, and many who filed claims still have not gotten checks. A public works program updating obsolete state computer systems would create jobs and prepare us for the next crisis.
Perhaps the biggest way unemployment insurance is broken is that it insures job loss but not income loss. In the 21st century, it is common for workers to lose hours of work and to find employment at lower pay after losing their job. Wage insurance compensates people for unexpected income drops by offsetting some fraction of lost earnings.
Another lesson from early 2020 is that benefits arrive too slowly. In times of crisis, people need money immediately so they can pay bills and keep food on the table. A quick payment mechanism should be seen as part of our national infrastructure, like road and rail systems that move people between home and work.
A basic income will force us to establish such a mechanism. Until 2018, the United States had a perverse quasi–basic income that worked through the income tax system. Individual exemptions reduced the taxes people owed; like basic income, this gave people money. The perverse part is that rich families got more money from each exemption because they were in higher tax brackets. Low-income taxpayers got little or nothing because of their low tax bracket and because people not owing taxes get no financial benefit from their exemption.
While I worry about large basic income plans along the lines Andrew Yang proposed when running for president, several hundred dollars each quarter would make a difference to low-income individuals regularly falling short of funds for basic necessities. More important, a basic income would enable additional benefits to go out quickly during crises. The Cares Act gave most adults $1,200 (and children $500); many have not received their checks yet, and some won’t see any money until they file their 2020 tax return in 2021.
There is a simple way to get people the money quickly. Between 1911 and 1967, the U.S. Post Office provided savings accounts to Americans. Anyone could set up an account. Reviving this, and having basic income payments deposited automatically into these accounts, would enable the government to get emergency payments to people quickly whenever necessary.
Of course, new programs require money. Republicans, averse to budget deficits that don’t stem from tax cuts for the wealthy, will ask how we can pay for all this. Two responses jump to mind.
First, other developed nations provide such programs, with taxes funding benefits. In the United States, the tax rate for all levels of government combined (federal, state, and local) is 26 percent, much lower than the developed country average of 33 percent. As noted above, many of these taxes should be thought of as insurance payments (for health as well as job and income loss) or investments (education and infrastructure spending).
Further, federal government tax revenues last year were 16 percent of U.S. gross domestic product, considerably below our nation’s 19 percent historic average. Additional revenue can be obtained by repealing recent tax breaks for the rich, such as carried interest and lower capital gains taxes, raising top marginal tax rates, and increasing corporate income taxes (see my article in the September 2019 Washington Spectator).
A second response is that we can’t afford not to make these changes. Tax cuts for the rich are largely responsible for the sharp increase in inequality in the United States since 1980. The consequences of years of government pandering to the wealthy became readily apparent during the Covid-19 crisis—our social safety net was broken, and our infrastructure to help people in need was obsolete. Inequality has led to sharp decline in America, and the suffering has been exacerbated by the pandemic.
Crises have arisen in the United States almost every decade during the past two centuries. We have the opportunity now to put programs in place that insure Americans and ensure that the nation can ride out the next crisis with minimal human suffering.
The author is professor of economics at Colorado State University, author of Fifty Major Economists, 3rd edition (Routledge, 2013), and president of the Association for Social Economics.