It is clear to anyone paying attention that COVID has had a massive impact on our economy. From the high number of forced business closures to job losses, COVID has wreaked havoc on our economy. While the government has done everything in its power to prop up impacted businesses, there is fear that not all businesses will be able to reopen once we return to “normal”. As we realize the full extent of the damage done to the economy, the solutions from the new Democratic Administration will not look to focus on small government solutions but on larger government programs to “build back better.”
STIMULUS
As someone who believes in a small and limited government, with COVID I have struggled with the implications of stimulus funds. While my small government beliefs lead me to oppose them, the facts regarding why the stimulus is needed leads me to be in support stimulus in this specific instance. This is one of the rare occurrences where I will admit that government intervention and financial support is necessary.
If the stimulus were sought because of a general economic downturn I would find myself in the anti-stimulus camp. What makes this unique is that the government has ordered businesses to be closed and workers to be laid off or furloughed. If government directives are instituted which cause people to lose their income than it is the governments responsibility to replace at least a portion of that income.
The problem is that this is a slippery slope, if it is acceptable in this instance why is it not allowed during a general economic downturn? Any time that government institutes policies we always must look at the precedence that this sets moving forward. These actions could transition from one-time assistance because of extenuating circumstances, to the way that government operates when any crisis hits.
Some may say that regulation already does this, when government passes excessive regulation it often causes workers to lose their jobs, so how is this any different? While this is true, this was a situation where the government did not just put hurdles in the way of businesses, they ordered them closed which makes this different than normal stifling regulation.
POVERTY
A Bloomberg article published on Monday, shows that the poverty rate in the United States has seen the sharpest rise since the 1960s. Data provided by Economists Bruce Meyer and James Sullivan shows that the poverty rate in the United States increased by 2.4 percentage points which is “nearly double the largest annual increase in poverty since the 1960s”. The data shows that the poverty rate in December sits at 11.8% which is the first increase to the poverty rate in the last six years (see chart below).
While this data is troubling there is some positive news, based on the chart below, it shows that the poverty level has only decreased to 2018 levels. In the previous five years we had seen a steady reduction in the number of people that are in poverty and hopefully this will only be a one year variation from this trend.
As we move into 2021 and we start to see COVID restrictions eased hopefully we will start to see the poverty rate drop back to pre-pandemic levels. While we are still in a better position regarding the poverty rate in 2015, we are going to have a lot of work to do to continue our positive progress as we move forward.
BUSINESS CLOSURES
According to data compiled by Yelp, 60% of business closures due to COVID are now permanent. When the initial government shutdowns began the government enacted a relief plan to incentive businesses to remain open. The Payroll Protection Program provided forgivable loans to businesses to pay their employees in hopes that the assistance would allow as many businesses as possible to remain open. This was a well-designed program that provided eight weeks of funds and required businesses to spend 75% of the money received on payroll while allowing the business to spend the other 25% on non-payroll expenses (rent, utilities, etc) for the loan to be forgivable.
While the government went to great lengths to stem the economic toll that the pandemic caused on businesses, we have seen tens of thousands of small businesses that will not come back. During the pandemic large businesses have thrived, Amazon saw a third quarter increase in earnings of 37%. The small businesses are the ones that we have seen failing and as we often hear small business is the backbone of the economy. Regarding jobs the reality is that while it may not be the backbone, it is just as significant as the jobs that are provided by larger companies. 47.3% of all jobs provided in the United States are in small businesses and with their continued failures we are going to continue to see continued job losses.
ECONOMY
The economy will recover, it may not be at the speed that we desire, but eventually we will claw our way back to where we were pre-pandemic. While the numbers are important to understand, one of the downfalls of only dealing in numbers is that they don’t properly put into context that we are talking about families and individuals. While a 2.4% increase in poverty may not seem significant, these are families that had achieved the American Dream and had clawed themselves above the poverty line only to be drug back down by the pandemic. For them these numbers show people that have seen their dreams shattered and their hard work negated. My hope is that they continue on, the economy will improve as we see restrictions eased and hopefully their dreams once again realized.