Winners and Losers in the Coronavirus Stimulus
I have a group chat I share with three friends. We are old friends with wildly different life paths. I’m a teacher, lawyer, writer in Chicago, and Jim in an entrepreneur in Chicago. Steve is a hospital administrator in New York. Pete is a scientist in Vermont.Â
Early in January, Pete heard the news of this new virus from a Wuhan, China, wet market. Pete researches disease and drugs for a living, and since he’s talking with friends, he occasionally lets himself be wrong for dramatic effect.Â
Coronavirus was big. His posts were dramatic, and when the rest of us teased him, he pushed back, explaining how “we’re screwed.” Over the next month, Pete would be proven entirely correct. By mid-March no one on earth hadn’t heard of Covid-19 and its cause, the novel coronavirus. Even Congress was listening.Â
Two disasters loomed. The millions likely to die would only be outweighed by the total failure of the global economy that could impoverish the world in a way never seen in modern times. No reasonable person disagreed with either disaster.Â
For the first time in a decade, Democrats and Republicans in Congress started talking. The health crisis required instantaneous action mostly already within the statutory authority of the Executive branch. The economic crisis needed legislative action. People needed to stop moving around and spreading the virus, and it had to happen immediately. This meant no one who couldn’t work from home could work at all. No work meant no money. No money meant no food and no home. People with no money in the bank, which meant most Americans, needed money immediately or they would go to work and spread the virus because they would have no other choice.Â
I need to defend Congress here. The President dithered, but the Majority and Minority leaders in the House and Senate moved quickly to act.Â
Quick action reveals instincts. When you’re in a crisis, you respond using the reasoning capacities you’ve built up prior to the crisis. When in the crisis itself, you react. Congress reacted, and the subsequent bill tells us a lot about the default positions of the Democratic and Republican parties.Â
It’s called the CARES Act, the Coronavirus Aid, Relief and Economic Security Act. You’ve already heard it’s $2 trillion. The government is spending money, so that’s why it’s being called a “stimulus.” There are good reasons not to call it a stimulus, since governments take stimulus actions to encourage economic growth. This bill is doing the opposite. It’s encouraging people to stop economic activity, or at least to stop economic activity that is not essential. The goal of the bill? ”Freezing the economy in amber“ or ”putting the economy into an induced coma” are two metaphors explaining the goal of the stimulus, but for those of us who live in a partisan world, a world where government is either spending or not spending money, this is massive government spending that can comfortably be called a stimulus. Â
There are three big winners in the bill. Individuals get 30% of the stimulus. Big corporations get 25%. And small business, state and local governments and public services share the remaining 45%. Democrats insisted on the direct payments and the unemployment increases, and Republicans insisted on saving big businesses, especially the airlines.Â
The remaining 45% breaks down with 19% for small businesses, 17% for state and local governments and 9% for public services, mostly hospitals. Â
It’s already clear the next bill will help states and local governments. Lobbying is happening at a furious, socially distant pace, but state and local governments cannot run deficits like the federal government. That is, states and localities cannot simply print money, like the The feds will have to provide them support or the downstream effects will create an economic tsunami as great as the coming federal one. Â
It may seem like Congress acted quickly, but plenty of horse trading went into the preparation of this bill. Only the cruelest free marketeers can stand up and say government should stay out of this crisis. Those people exist, and they seem to want a certain number of dead bodies before they act. Luckily, enough Americans understand the gravity of the crisis and drown out partisan drum beating in the name of saving our loved ones’ lives.Â
The worst losers are people on fixed incomes and future debt payers, like today’s college and younger kids. No matter what the feds call it, the US is taking on debt. Since Donald Trump arrived in office, the debt went up $3 trillion bringing the pre-coronavirus stimulus to $23.5 trillion or $70,000 for every person living in the US. Now that debt will be $25.5 trillion. Future generations have to pay.Â
A quick side note, this stimulus is a necessary and good kind of debt. As Harvard economist Kenneth Rogoff has said, "The whole point of not relying on debt excessively in normal times is precisely to be able to use debt massively and without hesitation in situations like this." Borrowing costs money, but saving lives at this scale is worth it.Â
The primary losers, then, are future generations. But that’s a generic reality for government debt. The primary losers that could have been named in this bill but weren’t are more interesting.Â
Small businesses are definitely losers. Unlike the checks written to individuals, small businesses has strings attached to most of the money in the stimulus. Small businesses are asking right now whether they are able to keep everyone on their payroll, which is the stated purpose of the stimulus loans. The primary question is whether, if they are already heavily leveraged, they will be able to take on this additional debt. The stimulus provides that any small business that keeps paying its workers will receive forgivable loans, but small businesses aren’t sure how or if that will really work. Small businesses face this uncertainty despite the desire of Congress to pass a decisive bill that would remove uncertainty in the economy. Why?Â
At least a sectional of the Democratic Party does not like business. They are still reeling from the Great Recession when, according to the left, bailouts should have gone to individual homeowners and not big banks. Democrats make little distinction between big business and small business. Terms like “profiteers” and “capitalists” don’t allow for subtle distinctions like separating Boeing from your corner mom and pop coffeeshop. Blue Chip Republicans don’t care about small companies much either. They want to ensure companies already running and already providing big products and big services to big quantities of people keep running. That’s why the second biggest winner of the stimulus are large corporations.Â
Small business is a blend of Democrat and Republican, so when the crisis arrived and wish lists were created, small business took a back seat to the Democrats’ individual payments and the Republicans’ corporate payments.Â
Losers in the stimulus are the environment, education, youth, poor, infrastructure and essential workers.Â
Carbon offsets and clean energy incentives like solar, wind and nuclear never made it into the bill. The impact of climate change like mass migrations, regional armed conflicts, ecosystems failed and lives lost will make this pandemic’s worst death toll estimates of 2-5% of those infected truly seem like the seasonal flu.Â
Education got money in the stimulus, but it’s not what you think. States run education, not the feds, and federal involvement in education is, compared to the big money spent by states and local governments, miniscule. Schools that are keeping staff won’t be doing it for long. Tax revenues will be small as the effects of shelter-in-place kick in. Schools will be the hardest hit since in most states schools are the largest recipient of state and local revenue that will disappear. Schools will likely hold onto all their workers, even if they know they’ll have to borrow to pay them. States and local governments assume federal help is coming, and Speaker Pelosi has already said the next legislation will help state and local governments, which is code for schools and other less expensive essential services like police and fire. But it’s notable that education didn’t make it into the first stimulus bill. It signals, however slightly, that neither the Dems nor the Republicans care to prop up the existing school system exactly the way it exists today.Â
Youth are a big loser in the stimulus. College kids dependent on their parents will not get a check, which should draw the attention of college kids who are going to join the workforce in what’s shaping out to be another Great Recession. Bigger is the future bill youth will have to pay for the excesses of this generation.Â
Are you under 30? If so, consider that you will live in a world your parents and grandparents created that benefitted them enormously but that you will never enjoy. China will be the world’s biggest economy soon, and just as the US set the rules when it was the biggest economy, you can be sure China will set the rules when it’s number one. You will be working in a smaller economy and paying bills your parents ran up today based on poor planning.Â
Another loser in the stimulus is the poor. Cataloging the ways the stimulus fails the poor require too much space, so let’s focus on the big, obvious ways. First, poverty means people are less likely to file taxes, which means they won’t get a check. Second, poverty means jobs are more precarious, low wage workers were the first to be let go, and they will be the first to run through the additional unemployment benefits in the stimulus, if they can get through to their state’s unemployment agency before they are evicted, have the internet turned off at home or don’t have time to file because they are homeschooling their children since the schools are closed. If the poor have jobs, they will likely need to go and have fewer protections to avoid catching the virus. Mobile phone location data is already coming out showing poor neighborhoods are staying-at-home far less than wealthier areas. But most of all, the stimulus targets the economy as a whole. The American economy as a whole never did much for the poor. They still don’t have quality health care or any health care. They still have worse schools. They still have worse food. This stimulus improves nothing for the poor.Â
Buzz in Washington is that another $2 trillion bill for infrastructure is being negotiated. If the feds want to inject a big stimulus in the economy, it should have passed that infrastructure bill in the first bill. We have all heard the list of infrastructure needs, but each is essential. First, the US needs national broadband. Second, the US needs a web of connected transportation options, from transit and air to railways, roads, and waterways, as a means to reduce congestion, protect the environment, and stimulate economic development. Third, the US needs a massive workforce development program to transform workers for the digital economy. Fourth, the US needs to up its funding of Pre-K-12 and higher education to ensure every child is ready for the new economy. Fifth, the US needs a far better public safety program including offering federal leadership for technical assistance that helps all levels of government develop evidence-based community policing programs that build trust, improve community relations and reduce racial tensions and crime rates.Â
Essential workers were losers in this stimulus bill, too. The stimulus provides big money for Covid-19 responses that should include making sure essential workers are well protected and well paid. Other countries like the UK and Germany have provided additional benefits to essential workers, identifying them by name and marshaling national resources to ensure they have protective gear and abundant equipment. The stimulus echoes the current US response. It’s vague and indirect. Chicago where I live keeps sending emergency notifications to all cell phones even while almost every health care worker I know on the front line is telling me they want to quit. Spain is the worst example of endangered essential workers. Garbage bags, old shirts and duct tape do not provide the kind of protection they need, and the US isn’t doing much better.Â
Crises come suddenly, and they reveal core priorities and levels of preparedness. How prepared the US was for this crisis will be readily apparent in the next 6-12 months. What core priorities the US holds is already apparent. We should care about the apparent core priorities of our elected leaders because, if they don’t match our priorities, they need to be held accountable at election time.Â
That Republicans support big business and the Democrats support individual workers is no surprise. This is the first crisis felt by all Americans with such far reaching effects. Being optimistic, let’s say a vaccine is developed quickly and life returns quickly to close to its pre-pandemic rhythm. No one will ever forget that when a crisis hit, government was called on to solve it. No matter whether you have a righty Republican’s healthy mistrust of government or a lefty Democrat’s exuberant trust of government, responding to catastrophes is what governments need to be prepared to do. To the extent we are not prepared, it’s time to make a mental note for the future. Â
We need to care about the winners and losers of the first stimulus for two major reasons. First, the first time a big bill is passed, it sets the cap on what will be passed in future legislation. The stimulus was the bigest gun Congress could fire in defense of the US. Future legislation could go bigger, but if the infection rate doesn’t decline, and if a vaccine isn’t discovered quickly, the gun wasn’t big enough. Once the infection rate declines a bit, we can expect more politics, more friction, slower decision-making and less powerful effects from the next rounds of legislation. Â
Second, when in crisis and you have to negotiate, you resort to your biggest wants. We need to work to ensure the environment, education, youth, poor, infrastructure and essential workers are front of mind, as we continue responding to this crisis and for the next one. Â
 The macroeconomic effects of this global shock will almost certainly be felt for decades. China’s claim of a V-shaped recovery seems overblown for China, so the odds of that happening in the US are slim. A big drop is rarely followed by an equally big increase. Make a gun with your left hand. A gun-shaped recovery seems more optimistically realistic. The thumb is the drop, and the pointer finger is the recovery. In other words, return to normalcy will likely come slowly as winners build their strength and losers lose even more.Â
Pete my friend’s worst fear seems right now to be untrue. It’s still early days understanding this virus, but if it mutates, come back annually in winter or never leaves and keeps mutating, the harm to lives and economies will return annually as well. The Spanish Flu came back a second time and killed more people in the second wave than the first. Right now, rumblings from scientists are that this virus isn’t mutating. If it’s not, that means that once there is a vaccine, it will stop the virus completely and allow us to rebuild our economies before they impoverish too many people.Â
The question we should be asking ourselves in the moments we can see beyond the immediate crisis is this. Are we happy with the winners and losers Congress chose to create with the largest economic stimulus bill in the history of the world?Â
John Heintz is based in Chicago.
