The CARES Act may not be enough to protect the working class during the pandemic

Insiders have already begun to unfavorably compare the first leg of COVID-19 financial relief to the botched slush rescue of 2008. 

In theory, the $2.2 trillion stimulus proposal signed on March 27th, 2020 is meant to secure  business owners, medical facilities, and distressed Americans during the Sars-Cov-2 pandemic. 

Through the CARES Act, single-households that earn $75,000 or less a year (as per their latest tax return) will be supplied with a one-time payment of $1,200. Couples who earn $150,000 annually will receive a one-time payment of $2,400 with an additional $500 per child within that household. These benefits are capped around the $99,000 income level and tapper between $75,000 and $100,000. 

Five hundred billion dollars will go toward corporate aid and will be supervised by an inspector general and a congregational board for transparency’s sake. Similarly, after a loan agreement is made with a company and the Treasury or the Federal Reserve, the full detail of the loan document will be published and made available to the public shortly thereafter. 

In summary, the bill provides $500 billion for affected industries, $260 billion for revisions to  unemployment programs, $350 billion for small business loans, and $300 billion for direct funds for tax paying Americans. Dependents 17 years of age and older, non-citizens, and high-income earners are excluded from the CARES act. 

The major pillars of the COVID-19 stimulus package have received mixed reactions from the public, pundits and elected officials. The less controversial additions include expansions made to social services, emergency funds dedicated to supplying ventilators and testing kits to more health systems and tax breaks that promote employee retention. However, critics are concerned about the lack of recourse for uninsured Americans in the new bill and the instantaneous benefits awarded to financial markets.

Although corporatists aren’t to blame for the economic catastrophe at hand, many have argued that the 2020 stimulus package lacks the oversight necessary to protect the working class.  

It’s hard to see any opposition on behalf of legislators as anything but performative when you consider all of the restrictions placed upon citizens seeking stability during the emergency window. 

For small potato employers to receive a loan they have to contact the Small Business Administration and their local bank and then their bank has to endure a lengthy application process before the funds are actually administered. There are significantly less strings attached to the funds set aside for banks and larger corporate ecosystems.

The Federal Reserve recently expressed interest in buying more than $70 billion in mortgage stocks daily. Neil M. Barofsky, who was the inspector general of the $700 billion Troubled Asset Relief Program of 2008, is fearful that an abundance of measure tests will keep disproportionately impacted Americans from getting the assistance they need during the COVID-19 pandemic.

“The quick injection of federal money into the economy, combined with a fast-moving public health crisis, means that opportunities for fraud will be rampant. An effective oversight mechanism will be crucial to ensuring that the vast injection of government money goes toward relieving the brunt of the economic fallout from the coronavirus pandemic,” wrote economists Alan Rappeport and Jeanna Smialek

Economic projections are famously hard to navigate. Programs designed to stabilize markets at the expense of people are typically cushioned with pseudo-sophisticated models. Leaning on  quantitative easing and the repo market is sound in theory but there are too many variables at play to inspire confidence among poor to middle-class citizens. If either of the aforementioned models fail, the working class suffers not the people at the top. We’ve already seen catastrophic manifestations of this approach many times. 

The first real populist movement in America was premised by an unchecked, oppressive industrial capitalist society. To keep pace in a competitive market, you pay workers as little as possible as long as possible. The problem is, when  blackswan disasters like war, famine or a pandemic hits only the bottom rung has to start from scratch. 

If maintaining the status quo in financial markets is viewed as the sole priority during the recovery process, the wheels that occupy labor sectors are doomed to endure the worst of downturn, no matter how loudly they squeak. 

Today, the Penn Wharton Budget Model (PWBM) published an analysis of the short-term economic effects of the coronavirus pandemic and the $2.3 trillion CARES Act.

  • Without the CARES Act, GDP would have fallen at an annualized rate of 37 percent in 2020 Q2, with the unemployment rate reaching 12 percent by 2020 Q3. 
  • The CARES Act will dampen the short-term decline in GDP to a 30 percent annualized rate in 2020 Q2, with unemployment reaching 11 percent by 2020 Q3.
  • The CARES Act will produce around 1.5 million additional jobs by 2020 Q3 and increase GDP by $812 billion over the next two years.

“PWBM estimates that the CARES Act will increase GDP by $812 billion over the next two years. In 2020 Q2, we expect that GDP will decline by 30 percent annualized compared to 37 percent annualized in the baseline economy (i.e., absent fiscal stimulus). Although the increase hardly covers the GDP lost from the pandemic, the effects on jobs will be substantial. PWBM estimates that this increase in GDP will lower the unemployment rate from about 12 percent to 11 percent in 2020 Q3, producing around additional 1.5 million jobs by 2020 Q3,” the authors wrote in the report. 

There are additions yet to come. Both participating sides intend to shift the elements of the bill around in the coming months.

Just this week,  independent contractors and self-employed individuals were deemed eligible for the $349 billion Paycheck Protection Program.

The relief effort provides small businesses with up to $10,000 in forgivable loans so that they can maintain payroll for their workers and themselves in  the eight weeks following the signing of the bill

Banks and lenders are administering applications for these loans, which have a maximum size of $10 million, a maturity of two years and an interest rate of 1%.

As the COVID-19 pandemic progresses and lawmakers continue to gain leverage during election season, these conditions will continue to change dramatically.