Saved by the pandemic?

May 29, 2023 09:39
Photo: Reuters

Everything changed in early 2020, when it became clear that COVID-19 was not going to be contained. Suddenly, life in the United States and many other countries came to a near standstill: schools and businesses closed, and lockdowns and quarantines reshaped society.

Some employees continued to work from home, muddling through as best they could. Others were soon fired or furloughed. From mid-March, when US states began to implement shutdowns, to mid-April, 22 million people lost their jobs. Those workers deemed “essential” – from physicians and nurses to employees at grocery stores and meatpacking plants – still had to report to work but faced terrifying new risks.

Most Americans were not prepared for an economic collapse of this magnitude. Even before the pandemic, many struggled to pay their bills. The first wave of the Consumer Financial Protection Bureau’s Making Ends Meet survey, which I helped design and administered with my colleagues in June 2019, found that two out of five families could cover their expenses for less than a month if they lost their main source of income. One in five could cover expenses for less than two weeks.

As the bottom fell out of the economy in March and April 2020, it looked as if widespread financial suffering was imminent. The response to the 2008 crash and the Great Recession suggested that the government would not step in to help. Following that disaster, millions lost their homes, and many more suffered through years of unemployment and a weak labor market.

Families pondered the cuts they would have to make this time. Sofia, a respondent to the Making Ends Meet surveys whom I profile in my new book, The Pandemic Paradox: How the COVID Crisis Made Americans More Financially Secure, lost her job in April 2020. She and her family had to reduce their spending on food and missed a mortgage payment. It looked like the start of an economic nosedive.

Then something remarkable happened: by June 2020, most Americans, including Sofia, were better off financially than they had been a year earlier. Three massive stimulus bills, starting with the CARES Act on March 27, 2020, budgeted more than $5 trillion (though not all of it was spent immediately), transforming the pandemic economy.

This pandemic relief was more than five times as large as the stimulus package adopted in response to the 2008 crisis. The federal government increased unemployment-insurance benefits, provided them for longer, and expanded eligibility. It also sent direct payments worth several thousand dollars to most Americans, preventing struggling families from falling off the financial cliff. The $800 billion Paycheck Protection Program provided money to nearly every small business. Other policies helped struggling homeowners and spared many people from eviction.

At the same time, spending declined sharply. Many people stopped going out to restaurants and bars and cancelled vacations. With spending down and government aid keeping people’s incomes the same or higher – even if they were unemployed – the average American’s savings increased significantly. Credit-card debt declined by nearly a thousand dollars per cardholder in those first few months as people paid off longstanding balances.

With their newfound financial freedom, many Americans started businesses and, as the economy came roaring back, workers were choosier about jobs and demanded better terms from their employers. The strong labor market brought people into work who are often left behind. Fewer people had problems paying their bills. Unexpectedly, the pandemic created a rare opportunity for a large share of the US population to reset their financial lives.

At the same time, the pandemic fundamentally reshaped society in more detrimental ways. Education was severely disrupted, which could adversely affect children’s long-term earning potential. The millennial generation faced the second economic catastrophe of their working lives, disrupting their ability to pay down student debt, buy a house, and save for retirement.

Likewise, when schools and daycare centers shut their doors, millions of women left the workforce to care for their children, setting back or permanently derailing their careers. Millions more retired early, although many eventually returned to work.

Moreover, with more than a third of the labor force working from home, the pandemic changed the nature of work. This shift led employers and employees to reconsider the purpose of the office and the necessity of crushing commutes.

The pandemic showed that it is possible for American society to change course rapidly. Like the rest of the world, the US faced a new threat with immense economic and health implications, and it responded in innovative ways. Individually, we learned to navigate new conditions and unique stressors. Collectively, we were able to protect each other from financial ruin.

To be sure, the country contended with increased debt and rapid inflation as the pandemic wound down, and many of the government’s programs were ineffective or could have achieved the same results for less. More importantly, we failed to protect many people: more than a million Americans died, and life expectancy fell sharply, especially for Black and Hispanic households.

Yet the pandemic proved that there is a better way forward. By understanding which policies were successful and why, we can forge a new path to financial stability for all. The US response to COVID-19 demonstrated that it is still possible to build a fairer, more productive society. Now that the emergency is over, Americans have to decide whether they want it.

Copyright: Project Syndicate
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The writer is a senior economist at the Consumer Financial Protection Bureau based in Washington, DC.